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Before the bell, Ameren Corporation (AEE - Analyst Report) reported its fourth quarter and full year 2012 results. In the reported quarter, the company with adjusted earnings of 14 cents a share (flat year over year) missed the Zacks Consensus Estimate of 22 cents. Performance in the reported quarter was affected by a decline in its Illinois' earnings, largely due to a lower allowed ROE for electric delivery service, and a decline in merchant generation segment earnings, primarily reflecting lower power prices.

These factors were largely offset by increased Ameren Missouri earnings due to the absence of a refueling outage at the Callaway Nuclear Energy Center in the fourth quarter of 2012, compared to the scheduled refueling outage that occurred during the fourth quarter of 2011.

On a reported basis, the company digested a loss of $4.76 per share in the fourth quarter versus earnings of 10 cents in the year-ago period. The difference between the reported and adjusted earnings per share in the quarter was due to asset impairments and other charges of $4.87; and loss from net unrealized mark-to-market activity of 3 cents.

Full-year 2012 adjusted earnings came in at $2.42 per share, a penny less than the Zacks Consensus Estimate of $2.43. This also came below full year 2011 earnings of $2.56 per share.

Ameren’s loss per share for full-year 2012 on a reported basis came in at $4.01 versus earnings per share of $2.15 in full year 2011. The variance in full year 2012 between reported and adjusted earnings came from asset impairment and other charges of $6.42, and a loss from net unrealized mark-to-market activity of a penny.

Operational Performance

Net revenues in the quarter fell to $1.51 billion versus $1.58 billion in the year-ago quarter, falling behind the Zacks Consensus Estimate of $1.76 billion. In the reported quarter Electricity revenue fell to $1.21 billion versus $1.31 billion in the year-ago period. Gas revenue however rose to $299 million from $270 million in the year-ago period.

Full-year 2012 revenue was $6.83 billion versus the Zacks Consensus Estimate of $7.21 billion. Full-year revenue also came below the $7.53 billion generated in full year 2011.

Full-Year 2012 Segment Performance

Ameren Missouri Segment: Segmental adjusted earnings for 2012 were $414 million, compared with 2011 adjusted earnings of $359 million. The increase in adjusted earnings reflected the full year effect of a 2011 electric rate increase as well as lower operations and maintenance expense, reflecting the absence of a refueling outage at the Callaway Nuclear Energy Center in 2012 and reduced storm-related costs.

The earnings comparison also benefited from the favorable FERC order related to a disputed power purchase agreement. These factors were partially offset by higher depreciation expense, a higher effective income tax rate and lower electric sales volumes. The lower electric sales volumes were largely due to 2012 winter temperatures that were warmer than those experienced in 2011.

Ameren Illinois Segment: Segmental adjusted earnings for 2012 were $139 million, compared with $193 million in 2011. The decrease in earnings reflects a lower allowed ROE, reflecting low Treasury bond yields, and required non-recoverable program donations, related to 2012 implementation of formula ratemaking for electric delivery service.

In addition, natural gas sales volumes fell due to warmer 2012 winter temperatures, compared to 2011. The required non-recoverable donations included a one-time pretax $7.5 million contribution to the Illinois Science & Energy Innovation Trust related to participation in the state's electric delivery service formula ratemaking framework. The above factors were partially offset by increased natural gas delivery rates, effective from Jan 2012.

Merchant Generation Segment: Segmental earnings were $42 million, compared with $72 million in 2011. The decline in earnings reflects lower power prices and higher fuel costs partially offset by lower depreciation and operations and maintenance expenses.

Financial Condition

Ameren reported cash and cash equivalents of $209 million at year-end 2012, compared with $255 million at year-end 2011. Long-term debt decreased slightly to $6.63 billion from $6.68 billion at year-end 2011. The company generated cash of approximately $1.69 billion from operating activities compared with approximately $1.88 billion generated in full year 2011.

Outlook

St. Louis-based Ameren Corporation is a holding company which operates in the generation and distribution of electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. Through its utility subsidiaries the company distributes electricity to 2.4 million customers and natural gas to approximately 1 million customers in Missouri and Illinois.

Ameren operates in three segments: Missouri Regulated, Illinois Regulated and Non-rate-regulated Generation.

Ameren expects 2013 GAAP and adjusted earnings in the range of $2.00 to $2.20 per share.

Our bullish outlook for Ameren is supported by consistent performances across its solid base of stable utility operations in the Midwestern market, as well as its focus on cost minimization, the strong balance sheet, its above-industry average dividend yield and relatively cheap earnings-based valuation. The company presently retains a short-term Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Other stocks to consider are DTE Energy Company (DTE - Analyst Report), Pike Electric Corporation (PIKE - Snapshot Report) and TransAlta Corp. (TAC - Snapshot Report), all carrying a Zacks Rank #1 (Strong Buy).

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