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FirstEnergy (FE) Beats Q4 Earning Estimates, Lags Revenues

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Diversified energy company FirstEnergy Corp. (FE - Free Report) announced fourth-quarter 2014 operating earnings of 80 cents per share, outpacing the Zacks Consensus Estimate of 76 cents by 5.3% and the prior-year earnings by 6.7%.

The upbeat numbers reflect higher revenues from the company’s transmission business due to rising rate base and lower expenses for fuel and purchased power, partially offset by higher provision for depreciation and higher interest expenses.

Including one-time items of a negative $1.53 per share, FirstEnergy incurred a GAAP loss of 73 cents per share as compared to GAAP earnings of 34 cents per share in the prior-year quarter.

2014 operating earnings were $2.56 per share, exceeding the Zacks Consensus Estimate of $2.51 by nearly 2%. However, the bottom line declined 15.8% from 2013 earnings of $3.04 per share.

 

Total Revenue

FirstEnergy generated total revenues of $3,483 million in the fourth quarter of 2014, missing the Zacks Consensus Estimate of $4,285 million by 18.7%. Quarterly earnings also declined 4.1% year over year.

In 2014, total revenues were $15.05 billion, missing the Zacks Consensus Estimate of $15.22 billion by a mere 1.1%. The top line however increased 1.1% from $14.89 billion in 2013.

Though the regulated distribution and transmission business benefited the top line, the competitive energy services segment was a laggard.

Highlights of the Release

FirstEnergy's total electric distribution deliveries were 36,342 thousand megawatt-hours (“MWH”) in the reported quarter, a minor decline of 0.6% from the prior-year level. Due to a milder start to the winter, heating-degree-days declined 1.6% from the prior year. Commercial sales witnessed a decline whereas sales to industrial customers increased.

For the fourth quarter 2014, FirstEnergy reported an operating loss of $337 million as against an operating income of $387 million in 2013.

Interest expenses in the reported quarter were $271 million, up 10.6% from $245 million a year ago. Interest expenses increased on account of a rise in long-term debt.

Financial Update

FirstEnergy's cash on hand as of Dec 31, 2014, was $85 million, substantially down from $218 million as of Dec 31, 2013.

Cash from operating activities in 2014 was $2,713 million, compared with $2,662 million in 2013.

Long-term debt and other long-term obligations as of Dec 31, 2014, were $19.18 billion compared with $15.83 billion a year ago.

Guidance

FirstEnergy expects operating earnings per share for 2015 in a range of $2.40 to $2.70 per share. GAAP earnings for 2015 are expected in the band of $2.21 to $2.51 per share.

First-quarter 2015 operating earnings are expected in a range of 51–59 cents per share while GAAP earnings are expected in a range of 46–54 cents per share.

Other Company Release

While FirstEnergy’s fourth-quarter earnings surpassed the Zacks Consensus Estimate, some electric utilities in the industry failed to do so.

American Electric Power Company Inc. (AEP - Free Report) reported fourth-quarter 2014 operating earnings of 48 cents per share, missing the Zacks Consensus Estimate of 52 cents by 7.7%.

CMS Energy Corp. (CMS - Free Report) reported fourth-quarter 2014 earnings per share of 35 cents on an adjusted basis. Quarterly earnings lagged the Zacks Consensus Estimate by a penny.

NextEra Energy, Inc. (NEE - Free Report) announced fourth-quarter 2014 adjusted earnings of $1.03 per share, missing the Zacks Consensus Estimate of $1.04 by just a cent.

Our View

FirstEnergy posted mixed results with the bottom line beating the Zacks Consensus Estimate and the top line missing the mark.

In 2014, this utility made quite a few large-scale investments at its subsidiaries for enhancing electric reliability. FirstEnergy will continue to allocate capital expenditure for the same in 2015.

This Zacks Rank #3 (Hold) company has new projects for substations, transmission lines and circuit upgrades lined up for the current year. The company intends to shell out $4.2 billion from 2014 through 2017 to meet rising electric load growth of 1,100 MW in the next five years.

These investments will enable the company to strengthen its existing infrastructure and win more customers. We believe this will also lead to incremental returns going forward.