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Earnings Preview: TEG

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Integrys Energy Group Inc. , a provider of products and services in regulated and non-regulated energy markets, is expected to release its second-quarter 2012 results after the market closes tomorrow.
The Zacks Consensus Estimate for the second quarter of 2012 is 39 cents per share (year-over-year increase of 2.63%) on revenues of $1,056 million (year-over-year increase of 4.5%).

First-quarter 2012, a Synopsis

Integrys Energy Group Inc.’s first-quarter 2012 pro forma earnings were $1.55 per share compared with $1.57 per share in the year-ago quarter. The decline in earnings was due to a mild winter and decrease in Electric Utility segment margins. This was partially offset by implementation of decoupling mechanism by the company. The quarter’s result missed the Zacks Consensus Estimate of $1.57 per share.

Integrys Energy’s total quarterly revenue of $1.25 billion was down from $1.63 billion in the prior-year quarter. This decline in revenue was due to lower sales from utility and non-regulated segment. However, it was partially offset by rate increase at the Peoples Gas Light and Coke Company. The revenue during the first quarter of 2012 missed the Zacks Consensus Estimate of $1.72 billion.

Integrys Energy’s retail electric sales volume in the first quarter of 2012 was 2,918.9 million kilowatt-hours (“Kwh”) versus 2,952.5 million Kwh in the comparable year-ago period. Quarterly retail natural gas sales volume was 43.8 billion cubic feet (“Bcf”) compared with 48.5 Bcf in the year-ago quarter. Wholesale electric sales volume in the first quarter of 2012 was 88.9 million Kwh versus 72.6 million Kwh in the year-ago quarter.

In the first quarter of 2012, Integrys Energy’s fuel, natural gas and power costs decreased by 28.5% to $472.3 million from $660.7 million in the year-ago quarter.

Operating and maintenance costs were $261 million in the first quarter of 2012, dipping 1.4% year over year from $264.6 million in the year-ago period.

Guidance for 2012

Integrys Energy Group expects pro forma earnings in 2012 to be in the band of $3.35 – $3.55 per share. The company estimates GAAP earnings for full-year 2012 to be in the range of $3.38 – $3.58 per share. This takes into account normal weather conditions, operational improvement assumptions and availability of generation units. However, it excludes the impact of inventory accounting activities and derivatives.

Zacks Consensus

The analysts covered by Zacks expect Integrys Energy Group to post second-quarter 2012 earnings of 39 cents per share versus 38 cents in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 33 cents and 43 cents a share.

For 2012, the Zacks Consensus Estimate stands at $3.43 per share, higher than its prior-year earnings of $3.38 per share. The current Zacks Estimate ranges between $3.40 and $3.50 per share.

Estimate Revisions Trend


We hardly see any estimate revision for the second quarter and full-year 2012. Of the 4 estimates for the second quarter of 2012, only 1 estimate moved upward while none of the estimates moved in the opposite direction in the last 30 days. Moreover, no movement in estimates, either upward or downward, has been witnessed in the last 7 days.

For full-year 2012, of the 7 estimates, none moved upward or downward in the last 7 and 30 days.


The Zacks Consensus Estimate for second-quarter 2012 went up by a penny to 39 cents over the last 30 days. For full-year 2012, the consensus estimate remained static at $3.43 for the last 30 days.

Surprise History

With respect to earnings surprise, the company’s performance was mixed in the last four quarters. The results of the company missed our expectation in two of the last four quarters, while surpassed in one. However, the results remained in line with our expectation in one of the quarters. The earnings surprise in the last four quarters ranged from (19.15%) to 4.12% and the average remained at (5.43%).

Our Recommendation

Integrys with its six regulated utilities provides a strong foundation, offering ample investment opportunities with more predictable and increasing earnings. Moreover, the company focuses on managing costs and keeps rates as low as possible. We believe that the company’s goal of providing long-term value to shareholders and customers as well as ensuring an effective mix of portfolio of generation assets and natural gas distribution properties would propel its stock position in the coming years.

However, we prefer to remain on the sidelines due to regulatory hurdles, demand variability resulting from erratic weather patterns and capital markets instability that pose significant risks to the company’s growth trajectory.

Like its peer Northeast Utilities , the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Chicago, Illinois-based Integrys Energy Group is a diversified holding company providing products and services in both regulated and non-regulated energy markets, through its subsidiaries. In addition, the company has a 34% equity ownership interest in American Transmission Company LLC (“ATC”), an electric transmission company operating in Wisconsin, Michigan, Minnesota, and Illinois.

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