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Michigan-based CMS Energy Corporation (CMS - Analyst Report) announced adjusted earnings of 54 cents per share for the third quarter of 2012, missing the Zacks Consensus Estimate by a penny. However, it was above the year-ago figure of 53 cents. The results were driven by the company’s cost control initiatives and continuous execution of its plan to invest in its utility operations.

Including a one-time gain of 1 cent, the company recorded earnings of 55 cents per share versus 53 cents in the year-ago quarter.

Operational Performance

Operating revenue of CMS Energy in the quarter under review was $1.51 billion, up 2.9% year over year.  However, results were lower than the Zacks Consensus Estimate by $145 million.

Operating expenses in the quarter increased to $1.16 billion from $1.15 billion in the year-ago period. CMS Energy reported operating income of $343 million, up from $316 million in the year-ago quarter. Overall, the company reported adjusted net income of $145 million, up 4.3% year over year.

Financial Position

CMS Energy ended the quarter with cash and cash equivalents of $128 million compared with $623 million at the end of September 30, 2011. Total debt, capital and finance leases increased $7.23 billion from $7.17 billion as of September 30, 2011.

Guidance

CMS Energy reaffirmed its guidance for fiscal 2012 adjusted earnings in the range of $1.52–$1.55 per share. This is consistent with the company's long-term plan of 5%–7% annual earnings growth.

Our Take

Jackson, Michigan-based CMS Energy is the holding company of Consumers Energy Company (Consumers) and CMS Enterprises Company (Enterprises). Consumers is a electric and gas utility company that provides electricity and natural gas to Michigan’s residents, and serves customers in all 68 counties of Michigan’s Lower Peninsula. CMS Enterprises Company, through its subsidiaries and equity investments, is engaged primarily in independent power production.

CMS Energy presents a strong growth story, given its stable electric and gas utility operations, investment plans, favorable regulatory policies in Michigan, higher rates, and a high dividend yield.

Additionally, the installation of "smart meters" at customer homes and businesses, its five-year commitment to the Pure Michigan Business Connect (an initiative to create jobs and boost the state's economy by encouraging Michigan companies to do more business with each other) and the company’s target to hold its average base rate increases equal to or below the rate of inflation for the next five years, will add to the profits of CMS going forward.

However, we remain concerned about the unfavorable macro backdrop, lower demand for electricity and regulatory cases. Like its peer Ameren Corporation (AEE - Analyst Report), CMS Energy presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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