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Teco Energy Lags, Profit Dips

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TECO Energy Inc. announced its fourth-quarter 2012 operating earnings of 21 cents per share, in line with the Zacks Consensus Estimate. The results of the company were however slightly lower than 22 cents reported in the year-ago quarter.

Teco Energy’s operating earnings for 2012 were $1.14 per share falling short of the Zacks Consensus Estimate by 4.2% and the year-ago earnings by 2.6%.

GAAP and operating earnings per share during the reported quarter were the same owing to the absence of one-time items.

For 2012, GAAP earnings stood at 99 cents per share compared with $1.27 per share in 2011.The difference between full year GAAP and operating earnings of 15 cents was due to a loss incurred from discontinued operations.

Total Revenue

Total revenue at TECO Energy in the fourth quarter was $688.4 million versus $720.0 million in the year-ago period, reflecting a decline of 4.4%. The year-over-year revenue decline was mainly due to a lower contribution from its unregulated business.

During the fourth quarter, coal sales plunged 24.05% year over year which hurt revenue. Despite a combined 2.8% expansion in the customer base from Tampa Electric and People Gas, the mild weather compared to the previous year impacted the results unfavorably.

Reported quarter revenue missed the Zacks Consensus Estimate of $698 million.

Total revenue for 2012 dropped 6.6% to $2,996.6 million from $3,209.9 million in the prior year.

Full year 2012 revenue also fell below the Zacks Consensus Estimate by $168.4 million.

Full-year 2012 gas as well coal sales also presented a similar picture declining 12% and 16.9% respectively, year over year. This was due to slackness in the U.S. coal market which led to idling of some mining operations and lower natural gas prices.

Although the joint customer base for Tampa Electric and People Gas rose by 2.4% from the prior-year level, sales plummeted from the residential and commercial segments, with industrial customers being the only exception.

Operational Update

Total expenses, during the quarter and full year fell 3.3% and 7.1%, respectively, year over year, on account of decline in fuel and power purchase costs. However, depreciation and amortization expenses climbed 5.5% in the quarter and 4.2% in 2012.

The decline in revenue more than offset the impact of the fall in cost. This resulted in operating income to decrease 9.3% to $109.5 million from $120.8 million in the year-ago quarter.

Interest charges during the fourth quarter decreased to $43.3 million from $48.8 million in the year-ago quarter due to lower long-term debt interest rates.

Financial Highlights

Cash and cash equivalents of the company as of Dec 31, 2012, were $200.5 million versus $44.0 million as of Dec 31, 2011.

Capital expenditure at the end of 2012 was $149.9 million, representing a reduction of $5.9 million from the 2011 level of $155.8 million.

Cash flow from operating activities during the quarter stood at $149.1 million versus $82.5 million in the year-ago quarter.


TECO Energy expects earnings per share for 2013 to range between 90 cents and $1.00 per share. The company expects retail energy sales to increase at a slower pace than the customer rise in 2013 owing to decline in average consumer usage.

It anticipates sales to be lower for industrial phosphate consumers in 2013 and costs to rise steeply. Tampa Electric is expected to earn an allowed return on equity in the range 10.25% to 12.25%.

People Gas is expected to earn an allowed return on equity in the range of 9.75% to 11.75%. Teco Coal has contracted 90% of its estimated 2013 sales of 5.2–5.7 million tons.

Moreover, average sales price across all products are projected to be over $86 per ton. Total cost of production is expected to be between $81 and $85 per ton attributable to a reduction in mining costs, royalty payments and severance taxes.

Other Utility Company Releases

NextEra Energy Inc. (NEE - Free Report) reported operating earnings of $1.03 per share in the fourth quarter, coming below the Zacks Consensus Estimate by 7 cents. Dominion Resources Inc. (D - Free Report) reported earnings of 69 cents in the fourth quarter, surpassing the Zacks Consensus Estimate by a penny.

Our View

Teco Energy hived its loss-making Guatemala assets in Dec 2012. The company intends to utilize the proceeds in the development of its core operations.

The positive comeback of the coal market in the near term should provide a lift to Teco Energy’s coal business. Moreover, an expected increase in natural gas prices will offer encouraging prospects in the upcoming quarters. This will be backed by the improving Florida economy. The company intends to strengthen its operation to serve the consumers in a better manner.

However, weather variations and unplanned outages are risks the company needs to watch out for. Teco Energy currently retains a Zacks Rank #3 (Hold). Another Zacks Ranked #1 (Strong Buy) utility player Ameren Corp.’s (AEE - Free Report) financial results have yet to be released.

Based in Tampa, FL, TECO Energy is involved in the generation, purchase, transmission, distribution, and sale of electric energy in Florida.

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