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Before the bell, Ameren Corporation (AEE - Analyst Report) reported third quarter 2012 results. During the quarter, pro forma earnings per share were $1.33, falling short of the Zacks Consensus Estimate of $1.42. Pro forma earnings were also lower than the year-ago figure of $1.57. The decrease in year-over-year results reflects a decline in earnings of each of Ameren's three business segments.

Ameren Illinois' earnings were negatively impacted by its September 2012 rate order for electric delivery service and a change in the quarterly distribution of revenues and earnings resulting from formula ratemaking.

Ameren Missouri earnings declined due to lower electric sales and a higher effective income tax rate partially offset by the benefit of a 2011 electric rate adjustment.

Merchant generation segment earnings declined owing to lower power prices and higher fuel costs.

During the quarter, GAAP earnings per share were $1.54 compared with earnings per share of $1.18 in the year-ago period.  

In the reported the significant variation of 21 cents per share between GAAP and pro forma earnings was due to increase in tax benefit related to asset impairment and annual estimated effective income tax rate of 18 cents and 3 cents gain from net unrealized mark-to-market activity.

Operational Performance

In the reported quarter, net revenues declined 11.8% to $2.0 billion, falling below the Zacks Consensus Estimate of $2.3 billion. Revenue from Electric sales was down 12.5% year over year to $1.9 billion, while revenue from Gas remained flat year over year at $130 million.

Segment Performance

Ameren Missouri: During the quarter, the segment reported GAAP earnings of $236 million compared to $190 million for the third quarter of 2011. Pro forma earnings were $235 million, compared to third quarter 2011 earnings of $248 million. The decrease in pro forma earning reflects lower electric sales and a higher effective income tax rate. This was partially offset by the benefits of a 2011 electric rate adjustment.

In the reported quarter temperatures, while warmer-than-normal, were similar to those experienced in the third quarter of 2011. The GAAP earnings comparison was affected by the factors mentioned above as well as a $55 million charge in the third quarter of 2011 related to a disallowance and a $1 million gain in the third quarter of 2012 as opposed to a $3 million loss in the third quarter of 2011 from net unrealized mark-to-market activity.

Ameren Illinois: During the quarter, the segment reported GAAP earnings of $71 million, compared with earnings of $98 million in the year-ago period. Pro forma earnings were $70 million, compared with year-ago earnings of $99 million.

This decline in earnings reflected the utility's September 2012 rate order for electric delivery service and a change in the quarterly distribution of revenues and earnings resulting from formula ratemaking. The GAAP earnings comparison was affected by the factors mentioned above as well as a $1 million gain in the third quarter of 2012 as opposed to a $1 million loss in the third quarter of 2011 from net unrealized mark-to-market activity.

Merchant Generation: The segment reported earnings of $20 million, compared to a third quarter 2011 GAAP loss of $9 million. Pro forma earnings were $22 million, compared to third quarter 2011 earnings of $24 million. The decrease in pro forma earnings reflected the impact on margins of lower power prices and higher fuel costs. This was partially offset by lower depreciation and operations and maintenance expenses.

The GAAP earnings comparison was affected by the factors mentioned above as well as a third quarter 2012 non-cash $4 million reduction in the income tax benefit partially offset by a $2 million gain in the third quarter of 2012. In the third quarter of 2011 GAAP earnings included asset impairment charges of $21 million and a $12 million loss from net unrealized mark-to-market activity.

Ameren Other: In the reported quarter GAAP earnings for Ameren were increased by a non-cash income tax benefit of $47 million related to the first quarter 2012 Duck Creek Energy Center asset impairment charge.
 
Financial Condition

At the end of September 30, 2012, Ameren reported cash and cash equivalents of $298 million compared with $522 million in the year-ago period. As of September 30, 2012, long-term debt, net rose slightly to $6.8 billion versus $6.7 billion at year-end 2011.

During the first nine months of 2012, net cash provided by operating activities was $1.4 billion compared with $1.6 billion at the end of the year-ago period. Capital expenditure in the first nine months of 2012 was $905 million, up from $758 million the comparable year-ago period.

Guidance

Ameren narrowed its pro forma earnings guidance range for full-year 2012 to a range of $2.35 – $2.45 per share, compared to the prior range of $2.25 – $2.55 per share. GAAP earnings are also narrowed in the range of $0.80 – $0.90 per share, from the earlier range of $0.70 – $1.00 per share.

Our Take

Ameren’s stable and regulated electric power operations in the Midwest generate a relatively stable and growing earnings stream. We expect future growth to be driven by improved plant operations, focus on cost management, rate relief and installation of emissions reduction equipment (scrubbers) at its generation plants.

Also, its predominantly coal-based generation assets and pending regulatory cases are a matter of concern. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

St. Louis-based Ameren Corporation is a holding company which engages in the generation and distribution of electricity and natural gas and serves residential, commercial, industrial and wholesale end-markets in Missouri and Illinois.

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