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Wisconsin Energy Posts Mixed 3Q

WEC DTE

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Wisconsin Energy Inc. (WEC - Analyst Report) posted third-quarter 2012 earnings from continuing operations per share of 67 cents, up 21.8% year over year from 55 cents per share. The reported quarter’s earnings also comfortably surpassed the Zacks Consensus Estimate of 57 cents per share.

The significant increase was driven by warm summer temperatures, lower operation and maintenance costs, stronger recovery of fuel costs, and the company's share repurchase program.

Operational Highlights

Revenue in the third quarter of 2012 was $1.04 billion, down 1.28% from $1.05 billion in the year-ago quarter. Revenue also fell short of Zacks Consensus Estimate by $32.7 million.

During the reported quarter, residential sales were down 1.2% year over year. Electricity sales for small commercial and industrial customers were up 0.7%, while it declined 8.3% for large commercial and industrial customers.

Total operating expenses in the reported quarter were $758.7 million, down 8.4% from the prior-year period. The decline reflects year-over-year decrease in fuel and purchased power expenses, cost of gas sold and other operation and maintenance expenses by 4.1%, 19.8% and 17.6%, respectively.

Decline in revenue was offset by a decrease in operating expenses. As a result, operating income increased 25.1% year over year to $280.6 million.

Financial Screening

Cash and cash equivalents as of September 30, 2012 were $13 million versus $15.1 million as of September 30, 2011. Long-term debt as of September 30, 2012 was $4,240.6 million versus $4,618.9 million as of September 30, 2011.

At the Peer

One of the Wisconsin Energy’s peers DTE Energy Company (DTE - Analyst Report) recently reported third quarter 2012 earnings per share of $1.31, easily beating the Zacks Consensus Estimate by 19 cents. Results improved 22.4% year over year. Total revenue of DTE Energy in the third quarter of 2012 was $2.21 billion, down 2.6% year over year. The reported quarter’s revenue also missed the Zacks Consensus Estimate of $2.36 million.

Our View

Wisconsin Energy’s earnings surpassed the Zacks Consensus Estimate. However, it missed the revenue due to decline in electricity sales from large commercial and industrial customers, mainly resulting from planned outage at a major iron ore mine. However, the outage is completed and demand from the iron ore mines has returned to normal levels.

Moreover, the company continues to progress well at 50-megawatt biomass-fueled power plant in northern Wisconsin. Installation of the biomass plant will enable the company to diversify its renewable energy portfolio. Wisconsin Energy’s ‘Power the Future’ plan is still contributing to earnings growth. However, we remain concerned due to the current and future legislations that would likely shoot up operating expenses.

The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

Milwaukee, Wisconsin-based Wisconsin Energy Corporation is a diversified holding company, engaged in generation and distribution of electricity in southeastern, east central, and northern Wisconsin, as well as in the upper peninsula of Michigan. The company also distributes natural gas; and owns, develops, and operates hydro, coal, nuclear, and wind electricity generating facilities, as well as invests in other energy-related entities. It also develops and invests in real estate.

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