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Integrys Energy Group, Inc. (TEG - Analyst Report) reported first quarter 2013 pro forma earnings of $1.76 per share, up 12.8% from the year-ago quarter. Earnings also comfortably beat the Zacks Consensus Estimate by 10.7%.

The upside was due to higher natural gas returns from a cold winter, positive impact from decoupling mechanisms related to People Gas and North Shore Gas businesses and encouraging outcome from the Wisconsin Public Service rate case.

GAAP earnings were $2.37 per share in the reported quarter compared with $1.25 per share in first quarter 2012. The difference between quarterly GAAP and pro forma earnings was due to a 53 cent gain from derivative as well as inventory accounting activities and an 8 cent gain from discontinued operations.

Total Revenue

Integrys Energy's total revenue shot up 34.5% year over year to $1,678.2 million. Reported revenue also outpaced the Zacks Consensus Estimate by 24.3%.

The revenue upturn resulted from favorable sales from the company’s regulated as well as non-regulated business divisions.

Operating Results

Total sales from the regulated segment rose 4.1% year over year to 3,953.1 million kilowatt-hours ("Kwh").

In the non-regulated segment, retail electric sales volume in the first quarter was 4,318.2 million Kwh versus 2,918.9 million Kwh in the comparable year-ago period. Retail natural gas sales volume was 50.7 billion cubic feet ("Bcf") compared with 39.6 Bcf in the year-ago quarter. Wholesale electric sales volume  was 18.0 million Kwh versus 22.2 million Kwh in the year-ago quarter.

Total operating expenses increased 26.5% year over year to $1,385.1 million. This was mainly due to a 19.7% rise in fuel, natural gas and power costs during the quarter. Non-regulated sales cost also aggravated the expense hike, climbing 60% to $436.8 million from the year-ago quarter.

Operating profit in the first quarter escalated sharply by 91.5% to $293.1 million from the year-ago quarter. The substantial upside in revenue outweighed the cost increase thereby boosting profits.

Financial Update

Cash and cash equivalents were $72.0 million as of Mar 31, 2013 compared with $27.4 million as of Dec 31, 2012. As of Mar 31, 2013, long-term debt remained flat at $1,931.7 million.

Net cash generated from operating activities during the quarter was $319.6 million compared with $224.8 million in the year-ago quarter.

As of Mar 31, 2013, capital expenditure was $147.0 million versus $123.0 million as of Mar 31, 2012.

Guidance for 2013

Integrys Energy Group expects pro forma earnings in 2013 in the band of $3.25 - $3.60 per share. The company estimates GAAP earnings for 2013 in the range $3.32 - $3.67 per share.

Other Utility Company Releases

TECO Energy Inc. (TE - Analyst Report) reported first quarter 2013 earnings of 19 cents per share surpassing the Zacks Consensus Estimate by 11.8%.

NextEra Energy Inc. (NEE - Analyst Report) reported pro forma earnings of $1.12 per share beating the Zacks Consensus Estimate by 10.9%.

Our View

Integrys Energy posted impressive results this quarter, beating our expectations. This is a definite turnaround from the lackluster performance from the energy company last year.

Going forward, the company’s power service contract win from the Chicago government will be the major growth driver. With the onset of summer, the company’s electric sales are also expected to go up.

Also, its large-scale midstream development efforts, Main Replacement Activity project in Chicago, modernization programs with Alliant Energy Corp. (LNT - Snapshot Report) and focus on rate-based investments would act as tailwinds.

However, rising natural gas prices would lead to a reduction in the coal-to-gas switch. This would impact the company’s gas based utility businesses. Further, regulatory pressures will continue to expose Integrys to increasing cost of operations and compliance costs. The company currently retains a Zacks Rank #3 (Hold).

Chicago, Illinois-based Integrys Energy Group, Inc. is a diversified holding company providing products and services in both regulated and non-regulated energy markets through its subsidiaries.
 

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