Northeast Utilities Disappoints 4Q

Zacks

Northeast Utilities (NU) announced fourth-quarter 2012 pro forma earnings of 56 cents per share, missing the Zacks Consensus Estimate by 3 cents and deteriorating 24.3% from the year-ago figure.

On a GAAP basis, the company reported quarterly earnings of 55 cents per share versus 64 cents per share a year ago. The penny’s difference between GAAP and pro forma earnings was due to costs including settlement charges associated with the NSTAR merger.

The company’s full-year 2012 earnings of $2.28 per share missed the Zacks Consensus Estimate by a penny and dropped 4.2% from last year’s earnings.

Yearly GAAP earnings per share were $1.89 versus $2.22 in 2011. The variance between GAAP and pro forma earnings was owing to settlement charges and allied costs related to the NSTAR merger.

Total Revenue

Fourth quarter total revenue of $1.7 billion missed the Zacks Consensus Estimate by roughly $0.2 billion. However, quarterly revenue increased 57.7% year over year.

Northeast Utilities’ full-year 2012 total revenue was $6.3 billion, down 6.2% from the Zacks Consensus Estimate but up 40.5% year over year.  

Fourth Quarter Sales Volumes

Northeast Utilities' overall retail electric sales in the fourth quarter increased 1.2% year over year to 13,111 Gigawatt hours (GWh). The company’s quarterly natural gas sales were 27,492 million cubic feet (MMcf), up 10.2% year over year.

Segment Earnings

Electric Transmission: This segment’s quarterly earnings of $68.6 million decreased 3.7% from $71.2 million in the prior-year quarter primarily due to a higher effective tax rate.

Electric Distribution and Generation: Earnings from this segment totaled $80.3 million in fourth-quarter 2012 compared with $54.2 million in the prior-year quarter. This earnings upside was aided by the addition of results from NSTAR Electric distribution.

Natural Gas Distribution: This segment consists of Yankee Gas Services Company and NSTAR Gas Company. In the quarter under review, this segment’s earnings were $22.5 million, up 104.5% year over year attributable to the addition of NSTAR Gas and cold weather conditions.

NU parent and other businesses: This segment’s quarterly earnings were $5.4 million versus a loss of $4 million in the year-ago quarter. The increase in earnings was primarily driven by a decline in interest expenses and positive results related to the addition of NSTAR Communications.

Electric Utility Subsidiaries

Connecticut Light and Power Company’s quarterly earnings were $72.5 million, down 12.8% year over year due to a higher effective tax rate, and increase in pension and maintenance costs. But these negatives were partially offset by a higher transmission rate base.

NSTAR Electric reported fourth quarter earnings of $33.7 million. In the second, third and fourth quarters, the company’s total earnings were $195.7 million.

In this quarter, Public Service Company of New Hampshire earned $27.2 million compared with $25.5 million in the year-ago quarter. The growth in quarterly earnings was driven by changes in distribution rates.

Western Massachusetts Electric Company’s quarterly earnings were $15.1 million, up 8.5% year over year.

Operational Highlights

On the cost side, in fourth quarter Northeast Utilities’ total operating expenses increased 53.1% year over year to $1.35 billion due to higher fuel and power costs, operations and maintenance expenses, and depreciation costs.

The company’s operating income in the reported quarter totaled $331.4 million, up 79.2% year over year.

Its quarterly interest expenses increased 40% year over year to $83.6 million, indicating an increase in long-term debt.

Financial Update

As of Dec 31, 2012, Northeast Utilities had cash balance of $45.7 million compared with $6.6 million as of Dec 31, 2011.

Long-term debt as of Dec 31, 2012 was $7.2 billion versus $4.6 billion as of Dec 31, 2011.

Cash provided by operating activities for full-year 2012 was $1.16 billion, more than $0.97 billion in 2011.

Capital expenditure for the year increased to $1.47 billion from $1.07 billion in the prior year.

Full-Year 2013 Guidance

Northeast Utilities affirmed its full-year 2013 earnings guidance in the range of $2.40 to $2.60 per share.

Other Utility Company Releases

Exelon Corporation (EXC) posted fourth-quarter 2012 earnings per share of 64 cents, falling short of the Zacks Consensus Estimate by a penny. Quarterly earnings were also lower than the year-ago figure of 82 cents by 21.9%.

Entergy Corporation (ETR) reported fourth-quarter 2012 earnings of $1.72 per share, beating the Zacks Consensus Estimate of $1.41. Earnings were also more than 94 cents per share earned in the year-ago quarter.

PPL Corporation (PPL) announced fourth-quarter 2012 pro forma earnings of 49 cents per share, beating the Zacks Consensus Estimate by 3 cents. However, quarterly earnings were 31% lower than the year-ago figure.

Our View

We are cautious about the impacts of natural calamities, over dependence on transmission and distribution businesses, stringent regulations, and risks related to delay and cancellation of several important projects, which may challenge Northeast Utilities’ forthcoming performance.

However, we consider the NSTAR merger as a positive move for Northeast Utilities’ future performance along with increasing scale of operations and widening of customer base. The company has already experienced the positive effects in both third and fourth quarter results.

Hartford, CT and Boston, MA-based Northeast Utilities provides energy delivery services to residential, commercial and industrial customers in Connecticut, New Hampshire and Massachusetts. The company currently has a Zacks Rank #4 (Sell).

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