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NRG Energy Inc. (NRG - Analyst Report) posted fourth-quarter 2012 earnings per share of $2.06, beating the Zacks Consensus Estimate of a loss of 29 cents. Reported earnings were higher than a loss of 48 cents per share in the prior-year quarter. The improvement in earnings was primarily driven by a bargain purchase-gain of $560 million associated with the GenOn merger.

The company’s earnings of $2.35 per share in 2012 were higher than the Zacks Consensus Estimate by $1.22. Annual earnings per share increased 201.3% year over year.

Revenue

NRG Energy's quarterly total operating revenue of $2.06 billion was 46.9% lower than the Zacks Consensus Estimate. Quarterly revenue decreased 3.2% from $2.13 billion in the year-ago quarter.

Full-year 2012 revenue was $8.42 billion, down 18.4% from the Zacks Consensus Estimate. Revenue was also 7.2% lower than the prior year.

Highlights of the Release

Quarterly total operating expenses were $2.0 billion, down 4.6% year over year due to lower cost of operations and a decline in development costs.

Operating income in the quarter increased 311.1% year over year to $37 million primarily due to the minimization of operating expenses.

Interest expenses increased 3.1% year over year to $166 million in the fourth quarter primarily due to a higher debt level.  

NRG Energy's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the quarter were $420 million, up 7.7% year over year on strong performances from the East, West and Alternate Energy segments. These were partially offset by decreases in adjusted EBITDA from the Retail, Texas, South-Central and Corporate segments.

Financial Update

As of Dec 31, 2012, the company had $2.1 billion of cash and cash equivalents versus $1.1 billion as of Dec 31, 2011.

Long-term debt and capital leases as of Dec 31, 2012, were $15.7 billion versus $9.7 billion as of Dec 31, 2011.

Net cash provided by operating activities for the twelve months ended Dec 31, 2012 was $1.15 billion, lower than $1.17 billion in the year-ago comparable period.

Capital expenditure for year increased to $3.4 billion from $2.3 billion in 2011.

Guidance

NRG Energy's full-year 2013 and 2014 adjusted EBITDA guidance is in the range of $2,535–$2,735 million and $2,700–$2,900 million, respectively.

The company’s guidance for cash flow from operations is $1,525–$1,725 million for 2013 and $1,550–$1,750 million for 2014.

The board of directors of the company plans to increase the annual common stock dividend by 33% to 48 cents per share, mention in cents starting from the next quarterly payment.

The company is authorized to repurchase its common stock worth $200 million.  

Other Utility Company Releases

ALLETE Inc. (ALE - Snapshot Report) reported fourth quarter 2012 earnings of 75 cents per share compared with 53 cents per share in the year-ago quarter. The company’s earnings were in line with the Zacks Consensus Estimate.

CMS Energy Corporation (CMS - Analyst Report) announced earnings of 25 cents per share for the fourth quarter of 2012, beating the Zacks Consensus Estimate of 24 cents. The results were also above the year-ago earnings of 15 cents per share on both adjusted and GAAP basis.

DTE Energy Company (DTE - Analyst Report) reported fourth quarter 2012 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 Take

Positive impacts from the GenOn merger helped NRG Energy to improve its quarterly as well as full-year 2013 earnings results and we believe this merger continues to add some momentum to the company’s financial prospects.

In 2012, customer headcount increased by 42,000, 91,000 and 51,000 in the Retail, East and Texas. We believe the commencement of operations at the newly installed Alpine Generating Station and Avra Valley Solar Generating Station will enable the company to meet the growing demand.

The prevailing weak commodity price environment is likely to pose challenges to the company’s near-term performance.

Princeton, New Jersey and Houston, Texas-based NRG Energy Inc. together with its subsidiaries operates as an integrated wholesale power generation and retail electricity company. The company currently has a Zacks Rank #3 (Hold).

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