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Dull Earnings at Hawaiian Electric

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Hawaiian Electric Industries Inc. (HE - Free Report) announced first quarter 2013 operating earnings of 34 cents per share, missing the Zacks Consensus Estimate of 39 cents. Also, earnings came below year-ago quarterly earnings of 40 cents per share.

The results reflect higher non-interest expenses and operation and maintenance (O&M) expenses.

Operating Statistics

Total revenue of the company at the end of the reported quarter was $784.1 million, down 3.8% year over year. Reported results were also below the Zacks Consensus Estimate of $815.0 million.

Segment Net Income

Electric Utility: Segment net income declined 10.6% year over year to $24.4 million. The results reflect higher O&M expenses and depreciation expense. However, these were partially offset by recovery of additional costs for reliability and clean energy investments, net of lower heat rate earnings.

The $5 million year-over-year rise in O&M expenses was a function of timing stemming from higher customer service expenses.

Banking: Hawaiian Electric’s Banking segment recorded a net income of $14.2 million in the reported quarter, marginally down from $15.9 million in the year-ago quarter. The decline reflects $1 million for a one-time release of tax-related reserves, higher non-interest expense and lower net interest income due to declining asset yields.  However, these were partially offset by the favorable effect of loan growth, higher non-interest income from higher gains on sales of new residential mortgages originated in the quarter and lower provision for loan losses, as the credit quality of the bank's loan portfolio improved along with the improvement in Hawaii's economy.

Overall, the segment continued to deliver solid results in first quarter 2013 with a return on average equity of 11.3% and a return on average assets of 1.12%.

Other: The segment digested a quarterly net loss of $4.9 million, approximately flat year over year.

Financial Update

Cash and cash equivalents as of Mar 31, 2013 were $262.7 million, up from $219.7 million as of Dec 31, 2012. Long-term debt, net was $1,422.9 million, approximately flat year over year. Net cash provided by (used in) operating activities was $48.3 million versus ($15.7) million in first quarter of 2012.


For 2013, the company expects the rate of operating expenses to be evenly distributed throughout the year. It expects these expenses to be flat to up 1% compared to 2012 levels as the company is working to moderate operational spending in targeted areas.

At the Peer

Recently, American Electric Power Company Inc. (AEP - Free Report) posted adjusted first quarter 2013 operating earnings of 80 cents per share, which came in line with the Zacks Consensus Estimate as well as the year-ago profit. The results reflected solid residential and commercial sales, stemming from positive regulated rate recovery. However, this was partly offset by weak industrial sales.

Our View

Hawaiian Electric’s first quarter earnings and revenue failed to meet the Zacks Consensus Estimate. However, the company is progressing well on various strategies across its businesses. During the quarter, the company invested more than $60 million in local infrastructure. Also, its common stock offering would bring in capital, and a more modern electric grid and lower-cost renewable energy would benefit customers. The company is trying to reduce its dependence on oil and is constantly seeking ways to increase the use of lower-cost renewables.

We are nevertheless concerned about lower electricity volume sales, a tourism-dependant Hawaiian economy and uncertainty over the Japanese economy. The company presently retains a short-term Zacks Rank #3 (Hold).

Stocks worth considering in the energy space are Brookfield Infrastructure Partners L.P. (BIP - Free Report) and Empresa Nacional de Electricidad S.A. , both with a Zacks Rank #1 (Strong Buy).


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