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Calpine Turns to Profit, Sales Lag

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Calpine Corporation posted operating earnings of 22 cents per share for the fourth quarter of 2012 as against the Zacks Consensus Estimate as well as the year-ago figure of a loss of 3 cents per share.

In full-year 2012, earnings were 42 cents per share in comparison to a loss of 39 cents per share in the prior year and the Zacks Consensus Estimate of a loss of 24 cents per share.

Operational Performance

Quarterly revenue at Calpine was $1,367 million, lower than the Zacks Consensus Estimate by $999 million. The figure also fell below the year-ago figure of $1,459 million. In 2012, the top-line figure of $5,478 million was lower than the Zacks Consensus Estimate of $6,641 million and the year-ago figure of $6,800 million.

In the quarter under review, fuel and purchased energy expense was $878 million, down 0.34% year over year. Total operating expenses were $1,301 million, up 2.3% year over year.

In the reported quarter, commodity margin was $515 million, down 6.9% year over year. Adjusted earnings before interest tax, depreciation and amortization (EBITDA) were $315 million, down 16.9% year over year. In 2012, adjusted EBITDA was $1,749 million, up 1.33% year over year.

Quarterly Segment Performance

Commodity margin in the West Region was $246 million, down 6.5% year over year due to lower contribution from hedges and lower revenue due to the expiration of contracts, partially offset by an increase in commodity margin on open position driven by higher market spark spreads on higher generation volumes.

Commodity margin in the Texas Region was $98 million, down from 12.5% year over year due to lower contribution from hedges and weak market pricing conditions.

Commodity margin in the North Region was $138 million, up 9.5% year over year driven by higher regulatory capacity revenues and to some extent by increased generation.

Commodity margin in the Southeast Region was $33 million, down 36.5% year over year due to expiration of a purchase power agreement during the third quarter of 2012, which has since been recontracted and lower contribution from hedges.

Financial Update

Cash and cash equivalents at the end of Dec 31, 2012 were $1,284 million versus $1,252 million at the end of Dec 31, 2011. Debt, net was $10,635 million, up from $10,325 million at the end of Dec 2011.

In 2012, the company repurchased 35.6 million shares worth $600 million. In Feb 2013, the company also announced a share repurchase program worth $400 million, bringing the cumulative authorization value to $1 billion.


For full year 2013, the company expects adjusted EBITDA in the range of $1,760 million to $1,960 million. It expects growth capital expenditures to be $250 million.

Our Take

Though Calpine Corporation missed the top line, it posted strong bottom-line numbers. The company continued to make progress during the year via sale and purchase of various projects. The company is also well placed on the strength of its power plant operations, unprecedented coal-to-gas switching and a steady share repurchase program.

However, we prefer to remain on the sidelines due to price fluctuations in the wholesale power and natural gas markets, lower demand for electricity and a tepid economy. The company presently retains a short-term Zacks Rank #3 (Hold).

Other Stocks to consider

Other stocks to consider are Ameren Corporation (AEE - Free Report) with a Zacks Rank #1 (Strong Buy), and ALLETE, Inc. (ALE - Free Report) and Avista Corp. (AVA - Free Report) that carry a Zacks Rank #2 (Buy).

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