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ED Beats Bottom-line, Lags Top-line

EIX ED

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Consolidated Edison Inc. (ED - Analyst Report) reported second-quarter 2012 results after the market close with earnings from continuing operations of 61 cents per share, surpassing the Zacks Consensus Estimate of 59 cents. However, the quarter’s results were above the year-ago figure of 57 cents per share.

On a reported basis, the company reported GAAP earnings of 73 cents per share compared with 57 cents per share in the year-ago quarter. The variance of 12 cents between earnings from continuing operations and GAAP earnings per share was primarily due to higher mark-to-market gains in the Competitive Energy businesses.

The results reflect changes in the rate plans of utility subsidiaries and the effects of the milder winter weather on steam revenues.

Operational Results

Consolidated Edison reported operating revenue of $2.8 billion, down from approximately $3 billion year over year and $348 million lower than the Zacks Consensus Estimate. Of the total revenue, Electric revenues contributed $2.1 billion, down from $2.15 billion in the year-ago quarter. However, Gas revenues fell $33 million to $300 million; Steam revenues declined $24 million to $83 million; and Non-utility revenues plunged $102 million to $298 million.

Total operating expenses in the quarter were $2.3 billion, down 11.5% year over year. Purchased power and fuel expenses in the quarter were $775 million, down 28.8% year over year. However, operations and maintenance expenses were $790 million, up 7.9% year over year due to pension costs and the support and maintenance of the company’s underground facilities to accommodate municipal projects.

Consolidated Edison’s earnings from ongoing operations were $178 million compared with $166 million in the year-ago quarter. The company’s net income was $214 million compared with $165 million in the year-ago quarter.

Financial Update

Cash and temporary cash investments at the end of June 30, 2012 were $1.4 billion, up from $492 million as of June 30, 2011. Long-term debt as of June 30, 2012 was $9,840 million compared with $10.7 billion at the end of June 30, 2011.

At the peer

Edison International (EIX - Analyst Report) reported adjusted earnings of 32 cents per share for the second quarter of 2012, missing both the Zacks Consensus Estimate of 33 cents and the year-ago quarterly earnings of 56 cents per share. The steep decline in earnings was primarily due to losses at the Midwest Generation unit and a delay in the 2012 rate case decision regarding regulatory support for investment made by the utility’s subsidiary Southern California Edison.

Guidance

Consolidated Edison expects its earnings per share from ongoing operations for full-year 2012 in the range of $3.65 – $3.85.

Outlook

Consolidated Edison’s earnings surpassed our expectation this quarter. Going forward, the company continues to make infrastructure investments that will add to profitability along with providing safe and reliable energy service to its customers. In the long run, we believe that the company’s robust portfolio of regulated utility assets will provide a steady earnings base and significant growth prospects in the long run.

However, we are concerned about the expected lower demand for electricity, earnings dilutive issuances and regulatory risks. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

New York City-based Consolidated Edison Inc. is a diversified utility holding company with subsidiaries engaged in both regulated and unregulated businesses. ConEd’s regulated businesses operate through two subsidiaries — Consolidated Edison Company of New York (CECONY) and Orange and Rockland Utilities (O&R).

 

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