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Xcel Energy Beats EPS, Misses Sales

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Electricity and natural gas company Xcel Energy Inc. (XEL - Free Report) posted operating earnings for the fourth quarter 2012 of 29 cents per share, in line with the year-ago figure. The results of the company were a penny higher than the Zacks Consensus Estimate.

GAAP earnings per share during the quarter were 29 cents, flat year over year.

Xcel’s 2012 operating earnings were $1.82 per share, up 5.8% from $1.72 per share reported in 2011. The yearly results surpassed the Zacks Consensus Estimate by 2 cents.  

The improvement in earnings in 2012 was driven by favorable rate outcomes, returns from continuous investments in its utility business and a lower effective tax rate.

Xcel Energy’s GAAP earnings for 2012 were $1.85 per share, up 7.6% from $1.72 per share recorded in 2011. The difference between ongoing and GAAP earnings in 2012 was due to a one-time prescription drug tax benefit of 3 cents.

Total Revenue

Xcel Energy’s total revenue for fourth-quarter 2012 was $2.55 billion, down 0.7% from $2.57 billion reported in the year-ago period. The year-over-year decline in revenue was due to lower contribution from its Natural Gas segment.

Reported quarter revenue fell short of the Zacks Consensus Estimate by 12.8%.

Xcel Energy’s total revenue for 2012 was $10.12 billion, down 4.9% from $10.65 billion reported in 2011. All the three operating segments of the company registered year-over-year revenue decline resulting in the overall shortfall.
2012 revenue came short of the Zacks Consensus Estimate of $10.61 billion.

Segment-wise Revenue

Electric: Total revenue from this segment during the fourth quarter 2012 increased 1.1% to $2,010.9 million from $1,988.8 million in the year-ago period.

The revenue from this segment during 2012 was down 2.8% to $8,517.3 million from $8,766.6 million in 2011.

Electric revenues were largely impacted by the fluctuation in the price of natural gas, coal and uranium used in the generation of electricity. However, the fuel recovery mechanism, which allows the company to recover current expenses, came in handy. Otherwise revenues and margins would have been further affected by volatile input costs.

Electric margin during the quarter and 2012 were up 4% and 2.5% from the comparable prior-year period, respectively
Natural gas: Revenue at this segment during the quarter was down by 7.1% to $520.5 million from $560.1 million in the year-ago period.

2012 revenue at this segment decreased 15.2% to $1,537.4 million from $1,811.9 million in 2011.

Other: Segment revenue in the reported quarter was $19.6 million versus $19.5 million in the year-ago period, reflecting a nominal increase of 0.5%.

In 2012, revenue from Others decreased 3.5% to $73.5 million from $76.2 million in 2011.

Highlights of the Release

Total operating expenses in 2012 dropped 6.4% year over year. The decrease in total operating expenses was mainly due to a 12.6% decline in input costs for the generation of electricity.

The decline in operating expenses benefited operating margins, which expanded 127 basis points year over year to 18% in 2012.

Total interest charges and financing cost at the end of 2012 increased 0.6% to $566.3 million from $562.9 million at the end of 2011. The increase in expense was mainly due to higher long-term debt levels to fund investment in utility operations, partially mitigated by lower interest rates.

Financial Update

Long-term debts as of Dec 31, 2012 were $10.1 billion versus $9.3 billion as of Dec 31, 2011.

The company provided capital expenditure plans from 2013 through 2017. Capital spending for 2013, 2014, 2015, 2016 and 2017 are $3.15 billion, $2.77 billion, $2.31 billion, and $2.5 billion respectively. The major share of the expenses will be spent on its subsidiary Northern States Power Company (NSP)-Minnesota while the  least amount will go towards NSP-Wisconsin.

The company will fund the entire capital expenditure from its cash flow from operations, new debts issue, equity issue and via DRIP. The company plans to issue first mortage bonds worth $1 billion in 2013.

Other Electric Company Releases

Wisconsin Energy Corporation (WEC - Free Report) reported earnings of 43 cents per share in the fourth quarter, beating the Zacks Consensus Estimate of 41 cents. NextEra Energy Inc. (NEE - Free Report) reported earnings of $1.03 per share in the fourth quarter, surpassing the Zacks Consensus Estimate of 96 cents for the quarter.

2013 Guidance

Xcel Energy reaffirmed its earnings guidance for 2013 in the range of $1.85–$1.95 per share. The guidance assumes normal weather pattern in 2013. The company guides weather-adjusted retail electric utility sales to increase 0.5% in 2013, while weather-adjusted retail firm natural gas sales is expected to fall by 1% from 2012 levels.

Operating and maintenance expenses are expected to increase by 4% to 5% over 2012 levels, while depreciation expense is projected to increase in a range of $75 million to $85 million over the prior year.

Interest expenses in 2013 are forecast to decrease by $30 million to $35 million from 2012.

Our View

Notwithstanding the mixed results in 2012, we believe the long-term investments undertaken by the company will not only boost its generation capabilities but will also enhance the reliability of the service rendered.

In hindsight, the favorable conclusion of a few rate cases during the year boosted the top line. The company still has a few pending rate cases. Even though the company assumes constructive outcomes in all pending rate cases and regulatory proceedings, a degree of uncertainty persists.

Xcel Energy currently has a Zacks Rank #3 (Hold). We currently have a Zacks Rank # 1 (Strong Buy) on Ameren Corporation (AEE - Free Report) , which is slated to release its fourth quarter results on Feb 20, 2013.

Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.

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