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Pinnacle West Capital Corp. (PNW - Analyst Report) reported adjusted earnings per share of 22 cents in the first quarter of 2013 compared to a loss per share of 7 cents in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate by a whopping 175%.

The improved earnings reflect higher retail electricity sales due to cold winter, positive non-fuel rate changes and lower infrastructure costs partially offset by increased operations and maintenance expenses.

Total Revenue

Quarterly revenue was $686.7 million, up 10.6% from the year-ago revenue of $620.6 million. Revenue also surpassed the Zacks Consensus Estimate by 6.1%.

Expansion in customer footprint led to a rise in sales. Also, implementation of increased transmission rate in 2012 caused the revenue upturn.

Operational Highlights

Total regulated electricity delivered in the quarter inched up 2.1% to 6,947 Gigawatt-hours (GWh) from 6,802 GWh in the year-ago quarter.

During the quarter, retail electricity sales increased 4.5% to 6,001 GWh from 5,742 GWh last year. The increase was due to higher electricity consumption by business as well as residential customers.

Also, average electric customer growth in the quarter was 1.4% compared with 0.8% in the year-ago comparable period.

On the cost side, fuel and purchased power costs climbed 6.7% to $230.7 million from the year-ago quarter. The company’s operations and maintenance (O&M) expenses also rose 6% year over year to $223.3 million due to an escalation in performance-related benefit cost.

Operating income shot up 81% year over year to $86.9 million in the first quarter. The greater revenue upsurge eclipsed the cost increase resulting in substantial profit accretion.

Financial Condition

As of Mar 31, 2013, Pinnacle West’s cash and cash equivalents were $25.1 million versus $26.2 million as of Dec 31, 2012.

Long-term debt as of Mar 31, 2013, was $3.3 billion compared with $3.2 billion as of Dec 31, 2012.

The company generated $212.2 million in cash from operations during the quarter, increasing 83.9% year over year.

Capital expenditure decreased 24.1% year over year to $182.9 million.


Pinnacle West estimates earnings in 2013 to be on the higher end of the $3.45-$3.60 per share range. Retail customer growth is anticipated to be about 1.5%. Operating expenses are expected in the range of $1.34 billion to $1.37 billion.

Other Utility Company Releases

Xcel Energy Inc. (XEL - Analyst Report) posted earnings per share of 52 cents per share, exceeding the Zacks Consensus Estimate by 20.9%.

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

Pinnacle West reported inspiring earnings and revenue results in the first quarter with both beating our expectation. A combination of sizeable midstream projects and strong customer base will act as major growth drivers, going forward.

Moreover, the current renewable bandwagon in the U.S. will bode well for the company’s flagship AZ Sun solar program thereby contributing to profitability.

However, stringent pro-environment regulations will continue to add to the company’s cost. Pinnacle West presently carries a Zacks #3 Rank (Hold).

Phoenix, Arizona-based Pinnacle West Capital Corporation provides electricity services in the state of Arizona, through its subsidiaries. The company is involved in the generation, transmission, and distribution of electricity from coal, nuclear, gas and oil, and renewable resources.

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