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Pinnacle West Bests EPS, Lags Sales

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Pinnacle West Capital Corp.’s (PNW - Free Report) fourth quarter 2012 earnings per share of 24 cents surpassed the Zacks Consensus Estimate by 41.1% and last year’s earnings by a whopping 118.2%.

The year-over-year improvement in earnings was due to higher retail electricity sales and the implementation of new transmission rates.

GAAP earnings for the quarter were 20 cents per share versus 11 cents in the prior-year quarter. The difference between operating and GAAP numbers was due to a loss of 4 cents from discontinued operations.

In 2012, Pinnacle West Capital posted earnings of $3.50 per share, 2.0% higher than the Zacks Consensus Estimate and surpassing the 2011 results by 17%.

GAAP earnings for 2012 were $3.45 per share versus $3.09 per share in 2011. The difference between operating and GAAP numbers was due to a loss of 5 cents from discontinued operations.


In the fourth quarter, Pinnacle West reported revenue of $693.1 million, up 3.8% from the year-ago revenue of $667.9 million but short of the Zacks Consensus Estimate by 1.1%.

Full-year 2012 revenues came in at $3.3 billion, lagging the Zacks Consensus Estimate by just $14 million. However, results were better than the year-ago figure of $3.24 billion by 1.8%.

Highlights of the Release

The company registered average electric customer growth of 0.8% in the fourth quarter and 0.7% in 2012 with respect to the year-ago comparable period. The customer growth was accompanied by higher sales volume.

Total electricity sales in the quarter improved 4.1% to 7,079 Gwh from 6,802 Gwh in the prior-year quarter. In 2012 electric sales were up by 2.5% year over year to 32,448 Gwh. The improvement in sales volume was due to higher off-system sales.

On the cost side, fuel and purchased power costs decreased 1.5% and operations and maintenance (O&M) expenses decreased 2.1% in 2012. Depreciation & amortization expenses declined 5.3% in 2012.

These factors were largely responsible for a 1.8% year-over-year decline in operating expense in 2012. The decline in cost and increase in total revenue boosted the operating margins of the company.

Operating income in 2012 was $851.75 million, up 4.1% from the year-ago level.

Financial Condition

As of Dec 31, 2012, Pinnacle West’s cash and cash equivalents were $26.2 million versus $33.6 million as of Dec 31, 2011.

Long-term debt of $3.19 billion increased 3.2% from the 2011-end level.

The company generated $1.17 billion in cash from operating activities in 2012, increasing 4% over the prior year.

Capital expenditure during 2012 was $889.5 million, almost flat with $884.3 million expended in the prior year.

2013 Guidance

Pinnacle West expects retail customers to increase approximately 1.5%.

Total electricity gross margin is expected in the range of $2.17 billion to $2.22 billion, down from the prior projected range of $2.20 billion to $2.25 billion.

Operating expenses are expected to range from $1.34 billion to $1.37 billion, down from the prior guidance of $1.36 billion to $1.39 billion. Interest expense is expected to range from $175 million to $185 million, down from the previous forecast of $190 million to $200 million.

The company expects adjusted earnings in a range of $3.45 to $3.60 per share.

Other Utility Releases

Pike Electric Corporation reported earnings of 67 cents per share in the second quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 25 cents.

Otter Tail Corporation (OTTR - Free Report) announced fourth-quarter 2012 operating earnings of 47 cents per share, 56.7% above the Zacks Consensus Estimate of 30 cents.

Public Service Enterprise Group Inc. (PEG - Free Report) reported fourth quarter 2012 earnings of 41 cents per share, up 5.1% from the Zacks Consensus Estimate.

Our View

Pinnacle West was able to surpass its prior-year performance riding on strong sales volume. The fourth quarter results showed some early signs of increase in operating and input costs. Unless controlled the rising costs could have an adverse impact on margins, going forward. The company currently has a Zacks Rank # 4 (Sell).

The decision to improve shareholders’ value is appreciable. On Oct 18, 2012, the board of directors of the company decided to raise its quarterly dividend rate by 4% to 54.5 cents from 52.5 cents.

Phoenix, Arizona-based Pinnacle West Capital Corporation was founded in 1920. The company provides electricity services in the state of Arizona, through its subsidiaries. The company is involved in the generation, transmission, and distribution of electricity from coal, nuclear, gas and oil, and renewable resources.

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