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Diversified energy company FirstEnergy Corp. (FE - Analyst Report) announced fourth-quarter 2012 operating earnings of 80 cents per share, beating the Zacks Consensus Estimate by a penny and surpassing the year-ago earnings of 77 cents by 3.9%.

Earnings in the reported quarter benefited from lower operating costs, higher distribution deliveries and increased investment income.

GAAP loss during the quarter was 35 cents per share versus earnings of 23 cents in the fourth quarter of 2011.

2012 operating earnings were $3.34 per share compared with $3.64 per share reported in 2011. With this the company surpassed the Zacks Consensus Estimate of $3.33 per share by a penny.  Results got a boost from lower operating costs, the net impact of the Allegheny merger, decline in interest expense and higher investment income.

GAAP earnings of the company during 2012 were $1.84 per share versus $2.21 per share reported in 2011.

The difference between basic GAAP and operating earnings during the year was due to the impact of a few one-time items such as 91 cents for pension costs, 8 cents for regulatory charges, 2 cents for trust securities impairment, 8 cents for income tax legislative changes, 7 cents from merger and impairments, 29 cents for plant closing costs, 2 cents for restructuring costs, and 13 cents for merger accounting. There was also an 11 cent gain from mark-to-market adjustments.

Total Revenue

FirstEnergy generated total revenue of $3,500 million in the fourth quarter versus $3,860 million in the year-ago quarter. The 9.3% decline in revenue was primarily due to lower Electric sales in the reported quarter, which fell by 8.5%. The top line of the company was 27.8% lower than the Zacks Consensus Estimate of $4,850 million.

FirstEnergy generated total revenue of $15,303 million in 2012, down 5.2% from the previous year and 9.4% lower than the Zacks Consensus Estimate.

Highlights of the Release

Total electric distribution deliveries in 2012 increased 3.5% from 2011 levels, driven by a 3.8% increase in the industrial segment followed by a 3.7% increase in the use of electricity in the residential sector and 3.2% increase in usage in the commercial sector.

Total expenses in 2012 were $13.1 billion, down 9.2% from $14.5 billion reported in 2011. The decline in operating costs and lower purchased power costs primarily led to cost savings.

The lower cost in 2012 benefited the operating income of the company, which grew 28.1% to $2,176 million.

Financial Update

Cash on hand as of Dec 31, 2012, was $172 million versus $202 million as of Dec 31, 2011.

Cash from operating activities for 2012 was $2.32 billion versus $3.06 billion in 2011.

Long-term debt and other long-term obligations as of Dec 31, 2012, were $15.2 billion versus $15.7 billion as of Dec 31, 2011.

FirstEnergy issued new debts worth $90 million and $750 million in the fourth quarter and full year, respectively. During the final quarter the company redeemed debt worth $70 million and for the year it redeemed notes worth $940 million.


The company expects operating earnings per share for 2013 in the range of $2.85 to $3.15, and GAAP earnings in the range of $2.55 to $285 per share.

Other Company Release   

ALLETE Inc. (ALE - Snapshot Report) reported fourth quarter earnings of 75 cents per share, beating the year-ago results by 41.5%. ALLETE’s earnings were in line with the Zacks Consensus Estimate.

CMS Energy Corporation (CMS - Analyst Report) announced earnings for the fourth quarter 2012 of 0.25 cents per share, beating the Zacks Consensus Estimate by a penny and surpassing year-ago earnings by 66.7%.

DTE Energy Company (DTE - Analyst Report) 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.

Our View

The company was impacted by Superstorm Sandy and had to incur heavy costs to restore operations in its services territories. FirstEnergy has already filed for a rate increase to recover storm costs.

We expect a favorable outcome from the current rate cases. Successful conclusion of pending rate cases will enable the company to strengthen its infrastructure. This in a way will increase the company’s customer service reliability.

Based in Akron, Ohio, FirstEnergy involves in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services. FirstEnergy currently has a Zacks Rank #3 (Hold).

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