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CenterPoint Energy Inc. (CNP - Analyst Report), a domestic energy delivery company, reported its second-quarter 2012 results with adjusted earnings were 27 cents per share, surpassing the Zacks Consensus Estimate of 25 cents per share and prior-year figure of 24 cents per share.

On a reported basis, the company posted earnings of 29 cents per share versus 28 cents in the year-ago quarter. The variance between the reported and adjusted earnings per share was driven by a gain on marketable securities and Indexed debt securities of 2 cents and 1 cent, respectively, which was partially offset by mark-to-market loss on natural gas derivative contracts of 1 cent.

Operational Results

CenterPoint Energy’s total revenue for the reported quarter fell 17% to $1.52 billion year over year, lagging the Zacks Consensus Estimate of $2.18 billion.

Natural gas expenses were down 47.4% year over year to $409 million. Operation and maintenance expense inched up 1.1% year over year to $451 million. Overall, operating income declined 0.33% year over year to $302 million.

Segment Results

Electric Transmission & Distribution

During the quarter, the segment generated operating income of $191 million, up 3.2% year over year. The operating income includes $153 million from the regulated electric transmission & distribution utility operations (“TDU”) and $38 million from transition and system restoration bond companies.

Operating income at TDU was flat year over year, reflecting higher equity returns primarily due to the recovery of true-up proceeds, customer growth from the addition of over 43,000 new customers, and increased miscellaneous revenue. These were offset by the impact of the 2010 rate case implemented in September 2011 and higher costs billed by transmission providers’ net of higher transmission related revenues.

Natural Gas Distribution

Segment operating income was $9 million, down from $13 million. The decline reflects decreased throughput mainly due to the impacts of warmer weather and increase in depreciation and amortization expenses. However, these were partially offset by weather hedges and weather normalization adjustments, rate increases and the addition of more than 19,000 customers.

Competitive Natural Gas Sales and Services

Segment operating loss was $4 million versus an operating profit of $3 million in the year-ago quarter. The loss was primarily due to the charges of 4 million generated from mark-to-market accounting for derivatives associated with certain forward natural gas purchases and sales used to lock in economic margins.

Interstate Pipelines

The segment generated operating income of $52 million during the quarter, down 13.3% from the previous-year quarter. The decrease in operating income was mainly due to a backhaul contract on the Carthage-to-Perryville pipeline that expired in 2011 as well as the associated reduction in compressor efficiency, lower off-system transportation revenues, lower other transportation and ancillary services and higher taxes other than income.

These negatives were partially offset by the effects of the restructured 10-year agreement with natural gas distribution affiliate, lower operations and maintenance expenses.

Field Services

The Field Services segment reported an operating income of $51 million in the quarter, up 30.8% year over year. The upside reflects higher throughput from gathering projects in the Haynesville and Fayetteville shales, growth in core gathering services, lower operation and maintenance expenses.

These positives were partially mitigated by lower commodity prices from sales of retained natural gas and higher depreciation expense related to new assets placed in service.

Other Operations

Operating income generated by the segment amounted to $3 million flat year over year.

Financial Condition

CenterPoint Energy reported cash and cash equivalents of $1.1 billion at the end of the reported quarter versus $0.190 billion at the end of the previous year period. Total long-term debt was $8.58 billion compared with $8.51 billion at the end of the second quarter of 2011.

At the Peer

Recently, one of the company’s peers, DTE Energy Company (DTE - Analyst Report) reported second-quarter 2012 results. During the quarter, the company’s operating earnings per share of 86 cents easily beat the Zacks Consensus Estimate of 69 cents and the year-ago figure of 65 cents.

Total revenue of DTE Energy in the reported quarter was $2,025 million, down 0.14% from $2,028 million in the year-ago period. Reported quarter revenue, however, surpassed the Zacks Consensus Estimate by $35 million.

Guidance

The company has increased its guidance and expects it to be in the range of $1.13 to $1.23 for full-year 2012 versus its prior expectation of $1.08 to $1.20. The guidance reflects expected impact of the two recently announced acquisitions by the field services business, various economic and operational assumptions related to the business segments in which the company operates and the company’s performance till date.

However, it excludes a non-recurring gain related to the July 2012 acquisition of the additional 50% interest in the Waskom Gas Processing Company that will be recognized in third quarter of 2012.

Our Take

CNP Energy’s bottom line surpassed our expectation; however, top line fell below the Zacks Consensus Estimate. With its balanced portfolio of electric and natural gas businesses, the company provides a diversified risk profile, along with stable earnings and cash flow.

Going forward, key growth drivers for the company include stable regulated operations, higher rates, ongoing infrastructure development projects and a strong balance sheet.

However, these positives are partially offset by pending regulatory cases, the tepid economy, lower demand for electricity and fluctuation in wholesale natural gas prices. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

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