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CenterPoint Energy Inc. (CNP - Analyst Report), a domestic energy delivery company, reported its third-quarter 2012 results with adjusted earnings of 40 cents per share, surpassing the Zacks Consensus Estimate of 34 cents per share and prior-year figure of 38 cents per share.
On a reported basis, the company posted earnings of 2 cents per share versus $2.27 in the year-ago quarter. The variance of 38 cents between the reported and adjusted was driven by step acquisition gain, after-tax of 21 cents related to the acquisition of the additional 50% interest in the Waskom gas gathering and processing joint venture. The variance of 38 cents also included a goodwill impairment charge of 59 cents per share associated with the competitive natural gas sales and services segment.
CenterPoint Energy’s total revenue for the reported quarter fell 9.4% to $1.71 billion year over year and lagged the Zacks Consensus Estimate by $558 million.
Natural gas expenses were down 29.3% year over year to $520 million. Operation and maintenance expense inched up 2.2% year over year to $458 million. Overall, operating income declined significantly 75.4% year over year to $88 million. However, excluding the goodwill impairment charge of $252 million, operating income was $340 million versus $357 million in the year-ago quarter.
Electric Transmission & Distribution
During the quarter, the segment generated operating income of $242 million, marginally down 0.82% year over year. The operating income includes $205 million from the regulated electric transmission & distribution utility operations (“TDU”) and $37 million from Transition and System Restoration Bonds.
Operating income at TDU was down 3.76% year over year due to return of normal weather compared to last year. Further, new rates implemented in September 2011 was also responsible for the downfall.
However, these negatives were partially offset by addition of more than 40,000 customers since the third quarter of 2011, higher transmission-related revenue, ongoing recognition of deferred equity returns associated primarily with the company's true-up proceeds, and higher miscellaneous revenue. Operating income related to securitization bonds was up 19.4% year over year.
Natural Gas Distribution
Segment operating income was $5 million versus a loss of $2 million in the year-ago quarter. The upside reflects customer growth, reduced expenses, and rate changes. However, these were partially offset by an increase in depreciation due to assets being placed in service.
Competitive Natural Gas Sales and Services
Segment operating loss (excluding goodwill impairment charges) was $7 million versus an operating loss of $10 million in the year-ago quarter. The improvement reflects termination of uneconomic transportation contracts and an increase in retail sales customers and volumes.
The segment generated operating income of $48 million during the quarter, down 20% from the prior-year quarter. The decrease in operating income was mainly due to reductions in seasonal and market sensitive transportation services and ancillary services, as well as a reduction in compressor efficiency on Carthage to Perryville pipeline due to lower volumes.
The Field Services segment reported an operating income of $55 million in the quarter, down 9.8% year over year. The downside reflects lower commodity prices from the sale of retained natural gas, the timing of revenues from contracts with throughput commitments, and higher depreciation expense due to assets being placed in service. However, these were partially offset by growth in the core business and additional income from recent acquisitions.
Operating loss generated by the segment amounted to $3 million versus a profit of $4 million in the year-ago quarter.
CenterPoint Energy reported cash and cash equivalents of $722 million at the end of the reported quarter versus $103 million at the end of the previous year period. Total long-term debt was $8,641 million compared with $8,497 million at the end of the third quarter of 2011.
The company re-affirmed its guidance in the range of $1.13 to $1.23 for full-year 2012. 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 as well as 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 and the goodwill impairment charge.
At the Peer
Recently, one of the company’s peers, NRG Energy Inc. (NRG - Analyst Report) reported net loss of 1 cent per share in the third quarter of 2012, way below the Zacks Consensus Estimate of earnings of 53 cents per share. However, the results were narrower than the year-ago loss of 24 cents per share.
NRG Energy's total operating revenue of $2.33 billion in third-quarter 2012 decreased 12.8% from $2.67 billion in the year-ago quarter. Also, the quarterly revenue fell short of the Zacks Consensus Estimate of $2.89 billion.
CNP Energy’s bottom line surpassed our expectation; whereas the top line fell below the Zacks Consensus Estimate. CenterPoint Energy’s stable and regulated electric power operations and gas distribution utilities generate a relatively stable and growing earnings stream.
Also, a divergent and diversified service territory spread across six states diversifies risk and insulates the company from individual state specific risks. This is complimented by its expanding pipeline network, the expansion of its pipeline capacity, rate base growth and gas well connections. However, this is partially offset by pending regulatory cases, the tepid economy, lower demand for electricity, volatility 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.