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NextEra Lags on Both Counts

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NextEra Energy Inc. (NEE - Free Report) announced third-quarter 2012 operating earnings of $1.26 per share, 5 cents lower than the year-ago quarter. Earnings result was also below the Zacks Consensus Estimate of $1.39 per share.

The earnings underperformance stemmed from low retail sales owing to weather variations and decline in the company’s energy business.

NextEra Energy reported GAAP earnings of 98 cents per share for the third quarter of 2012 compared with 97 cents in the year-ago period.

The difference of 28 cents between operating and GAAP earnings, during the third quarter, was due to mark-to-market effects from non-qualifying hedges, other than temporary impairments and after tax loss on divestiture of certain natural gas-fired generating assets.

Total Revenue

NextEra Energy’s total operating revenue for third-quarter 2012 was $3,843 million, down 12.3% from $4,382 million reported in the year-ago period. This is on account of lower contribution from Florida Power and Light as well as NextEra’s Energy Resource business.

Quarterly revenue fell short of the Zacks Consensus Estimate of $4,441 million.

Segment Results

Florida Power & Light
(FPL): Revenue recorded a 5.6% fall to $2,975 million from $3,152 million in third-quarter 2011.The lower revenue in the third quarter was on account of a combined drop in energy sales with industrial sales driving down by 5% and risks associated with proposed rate settlement case filed with Florida Public Service Commission.

NextEra Energy Resources: Total revenue for the third quarter was $808 million versus $1,172 million in third-quarter 2011, reflecting a substantial decline of 31.0%.The revenue downturn was caused by weak generation from the company’s Seabrook nuclear facility and impact from increasing expenses.

Corporate and Other: Total revenue for the third quarter was $60 million, marginally higher year over year.

Operational Update

Total operating expenses during the quarter decreased by 10.8% to $3,094 million from $3,471 million in the year-ago quarter. Operating expenses declined as cost of fuel and power purchase shrank by 20.1% to $1,526 million from $1,911 million in the prior-year quarter. This was partially offset by a 3.7% rise in operations and maintenance expenses.

Total operating income in the third quarter of 2012 was $749 million in contrast to $911 million in the year-ago quarter, reflecting a 17.7% decrease. This was due to the extent of revenue decline not being able to fully mitigate operating cost.

Interest expenses in the third quarter decreased to $259 million from $265 million at the end of the third quarter 2011.

Financial Update

Cash and cash equivalents as of September 30, 2012, were $246 million, down from $377 million as of December 31, 2011.

Long-term debts of the company as of September 30, 2012, were $22.7 billion versus $20.8 billion as of December 31, 2011.

Guidance 2012

For 2012, NextEra Energy reiterated its earnings expectation in the range of $4.35−$4.65 per share. Similarly, the company upheld its pro forma earnings estimates for 2014 in the range of $5.05−$5.65 per share.

Peer Comparison

Teco Energy Inc.
, which competes with NextEra Energy Inc., is expected to webcast its third quarter earnings before the market opens on November 1, 2012. The Zacks Consensus Estimates for its third quarter and 2012 earnings are currently pegged at 38 cents and $1.16 per share, respectively.

Our View

NextEra Energy Inc. faltered on its third quarter financial results with top- and bottom-line estimates lagging the Zacks Consensus Estimates. However, we believe the future increase in renewable usage in the U.S. market would largely benefit the company’s Energy Business.

Along with this, continued investments in high-quality projects, effective execution of contracted renewable programs and consistent increase in consumer footprint will act as growth catalysts for the company.

Nonetheless, variability in power prices and possibility of negative rate case outcome for FPL new rates settlement could hurt NextEra’s growth goals.

Based in Juno Beach, Florida, NextEra Energy Inc. through its subsidiaries engages in the generation, transmission, distribution and sale of electric energy in Florida.

NextEra Energy currently retains a Zacks #3 Rank, which implies a short-term Hold rating. Over the long run we have a Neutral recommendation on the stock.

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