Entergy Expects Lower 2Q Earnings

Zacks

Entergy Corp. (ETR) provided a preliminary earnings update for the second quarter of 2013. The company expects operational earnings of $1.00 per share in the second quarter 2013, down 52.6% year over year. The figure is also well below the Zacks Consensus Estimate by almost 30%.

The downside mainly reflects higher income tax expenses at the Utility and Parent & Other segments. The company – scheduled to release second quarter financial results on Jul 30 – also indicated that earnings from Entergy Wholesale Commodities declined sequentially due to lower net revenue and higher decommissioning expense, partially offset by lower income taxes.

In the first quarter of 2013, the company posted operational earnings of 94 cents per share, in line with the Zacks Consensus Estimate and above the company’s preliminary expectation. The reported figure climbed significantly from the year-ago quarter’s profit of 44 cents per share driven by higher net revenue at Utility and Entergy Wholesale Commodities.

On a GAAP basis, the company expects second quarter earnings of 91 cents per share compared with $2.06 per share in the year-earlier quarter. The GAAP numbers include expenses associated with the implementation of the human capital management strategic imperative in second quarter 2013 and expenses associated with the proposed spin-off and merger of Entergy's electric transmission business with ITC Holdings Corp. (ITC) in the second quarters of 2012 and 2013.

For 2013, the company continues to expect operational earnings in the range of $4.60 to $5.40 per share. The Zacks Consensus Estimate for 2013 is currently at $4.97, well within the guided range. At its first quarter 2013 earnings call, the company revised its GAAP earnings assumption to $4.56 to $5.36 per share from $4.60 to $5.40 per share earlier, reflecting expenses related to the proposed spin-off and merger of the transmission business with ITC Holdings.

Entergy offers a long-term, competitive, utility investment opportunity combined with a valuable option represented by unique, clean, non-utility generation businesses located in attractive power markets. Though the company’s guidance reflects soft performance going forward, we believe that the company is well positioned due to its geographically-diverse mix of regulated and merchant operations, along with its strong balance sheet.

Looking forward, Entergy is making steady progress to spin off its electric-transmission business. We believe the combination of positive rate changes and asset divestiture will bode well for the company’s growth objectives.

The company presently retains a short-term Zacks Rank #2 (Buy). Other stocks to look out for in the space are Companhia Paranaense de Energia (ELP) and DTE Energy Company (DTE), both with a Zacks Rank #1 (Strong Buy).
 

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