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Avista Corp. announced fourth-quarter 2012 earnings of 26 cents per share, missing the Zacks Consensus Estimate of 45 cents and below the year-ago figure of 42 cents per share.

The company’s full year 2012 earnings were $1.32 per share, missing the Zacks Consensus Estimate of $1.68 and short of the year-ago figure of $1.72 per share.

The results reflect underperformance in all business segments due to warmer weather in the first and fourth quarters of 2012, expenses related to voluntary severance incentive program, increases in costs at all segments and continued slow load growth.

Operational Update

In the fourth quarter of 2012, Avista generated total revenue of $410.5 million, lower than $438.9 million in the year-ago quarter and the Zacks Consensus Estimate of $451 million. In full year 2012, the company generated total revenue of $1,547 million, down 4.5% year over year. The top-line results also failed to meet the Zacks Consensus Estimate of $1,687 million.

In the reported quarter, total operating expenses were $369.5 million, down from $389.6 million in the fourth quarter of 2011.

Segment Update

Avista Utilities: In the fourth quarter of 2012, segment income was $16.5 million, down from $22.2 million a year ago. The results reflect warmer winter weather and increase in other operating expenses including costs under the voluntary severance incentive plan, depreciation and amortization, and interest expense. These negatives were partially offset by general rate increases and decrease in taxes other than income taxes. In full year 2012, segment income was $81.7 million, down from $90.9 million in full year 2011.

Ecova: Segment income, during the quarter under review, was $862 million, significantly down 67.5% year over year due to higher operating costs, increased costs associated with completing and integrating the acquisitions of Prenova and LPB Energy Management (“LPB”), and an increase in depreciation and amortization. Revenue growth for the data and energy management services was not as high as expected and failed to offset the negatives. In full year 2012, segment income was $1,825 million, down from $9,671 million in full year 2011.

Other: Segment losses were $1,551.0 million versus a loss of only $222 million in the fourth quarter of 2011. The significant loss reflects losses on and impairments of investments, strategic consulting and other corporate costs and Avista Energy litigation costs. However, these were partially offset by an earnings contribution from METALfx.

Financial Update

At the end of Dec 31, 2012, the company held cash & cash equivalents worth $75.5 million versus $74.7 million at the end of full year 2011. Long-term debt increased significantly to $1,178.4 million from $1,169.8 million at the end of 2011.

As of Dec 31, 2012, the company had 1.8 million shares of common stock to be issued under sales agency agreements. In full-year 2012, the company sold 0.9 million shares of common stock for a total of $29.1 million which includes $23.4 million under sales agency agreements.

In order to maintain a capital structure at an appropriate level for the business, the company expects to issue up to $50 million of common stock in 2013 with the majority of the issuance to be made in the second half of 2013.

Guidance

For 2013, Avista expects earnings at Avista Utilities in the range of $1.64 to $1.78 per share, up from its previous expectation of $1.62 to $1.76 per share. The company expects earnings at Ecova in the range of 10 cents to 14 cents per share. For the Other category, the company forecasts loss in the range of 2 cents to 4 cents per share.

Avista expects total earnings in 2013 in the range of $1.70 to $1.90 per share. It expects utility capital expenditures to be approximately $260 million in both 2013 and 2014.

Our Take

Avista failed to meet the Zacks Consensus Estimate on both the top and the bottom line. The company was hard hit by increased costs across all segments. Also, price fluctuations in the wholesale power and natural gas markets, lower demand for electricity and a tepid economy remained as headwinds.

However, going forward, the company’s significant capital investments in generation, transmission and distribution systems would lift the performance. Also, the company is expected to benefit from general rate increases. The company presently retains a short-term Zacks Rank #3 (Hold).

Recently, another utility company Brookfield Infrastructure Partners L.P. announced fourth-quarter 2012 operating earnings of 25 cents per unit, 56.9% lower than the Zacks Consensus Estimate of 58 cents. The results of the partnership were a nickel lower than the year-ago earnings. Also, DTE Energy Company reported fourth quarter and full-year 2012 earnings. In the fourth quarter, the company posted operating earnings of 85 cents per share, in line with the Zacks Consensus Estimate. However, earnings were below the year-ago figure of 89 cents per share.

Avista Corporation engages in the generation, transmission, and distribution of energy and other energy-related businesses primarily in the United States and Canada. It operates in two segments, Avista Utilities and Ecova. In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peer The AES Corporation .

 

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