NRG Energy Beats 2Q Earnings Estimates

Zacks

NRG Energy Inc. (NRG) posted second-quarter earnings per share of 39 cents, beating the Zacks Consensus Estimate of 30 cents by 30%.

However, the quarterly results were significantly lower than the year-ago earnings per share of $1.09. The decline was primarily due to lower demand from a cooler summer in its service territories, in particular Texas.

Revenue

NRG Energy's total operating revenues of $2.9 billion surpassed the Zacks Consensus Estimate of $2.24 billion by 30.3% and the year-ago revenue of $2.16 billion by 35.2%.

Highlights of the Release

NRG Energy’s total operating expenses were $2.63 billion, up 48.9% year over year due to higher cost of operations, depreciation charges, and selling, general and administrative expenses.

The significant rise in expenses also had its impact on the operating margins of the company. In the reported quarter, operating margin was 10%, down nearly 830 basis points from 18.3% in the year-ago quarter.

Interest expenses increased 23.3% year over year to $206 million primarily due to a higher debt level.

NRG Energy's adjusted earnings before interest, taxes, depreciation, and amortization (:EBITDA) during the quarter were $594 million, up 7% year over year on favorable performances from the East, West, Alternate Energy, NRG Yield and Corporate segments. These were partially offset by decreases in adjusted EBITDA from the Retail, Wholesale Gulf Coast – Texas and South Central, and Other segments. 

Financial Update

NRG Energy's cash and cash equivalents as of Jun 30, 2013, was $1.36 billion versus $2.1 billion as of Dec 31, 2012.

As of Jun 30, 2013, long-term debt and capital leases were $15.9 billion versus $15.7 billion as of Dec 31, 2012.

Net cash used in operating activities during the first half of 2013 was $78 million versus $585 million provided from operating activities in the comparable year-ago period.

NRG Energy’s capital expenditures in the first half of 2013 were $1.28 billion, down from $1.59 billion invested in the prior-year comparable period.
 
During the first six months of the year the company utilized $25 million to repurchase 972,292 shares. NRG Energy intends to buy back shares worth of $175 million by the end of 2013, thereby enhancing shareholder value.

The company was able to enhance its retail customer base by 23,000 in the reported quarter and added more renewable power in its generation portfolio. The addition of green power is laudable given the increasing regulation and restrictions for usage of fossil fuels for power generation.

Guidance

NRG Energy's full-year 2013 adjusted EBITDA guidance was lowered marginally to the range of $2.55–$2.7 billion from $2.61–$2.81 billion earlier.

The company’s full-year 2013 free cash flow (before growth investments) guidance is in the range of $1.05–$1.20 billion, down from the previous expectation of $1.05–$1.25 billion.

The reduction in 2013 guidance was primarily due to a decline in sales volume resulting from the unseasonably cool summer weather in Texas.

NRG Energy reaffirmed its 2014 adjusted EBITDA and cash flow (before growth investments) guidance in the range of $2.85–$3.05 billion and $1.1–$1.3 billion, respectively.

Other Company Releases

Exelon Corporation (EXC) announced second quarter earnings of 53 cents per share, lagging the Zacks Consensus Estimate by a penny.

NiSource Inc.’s (NI) earnings per share of 23 cents in the second quarter lagged the Zacks Consensus Estimate by a penny.

American Electric Power Co. Inc. (AEP) reported second quarter earnings of 73 cents per share, missing the Zacks Consensus Estimate by 4 cents.

Our View

NRG Energy was able to surpass our estimates in the reported quarter on the back of better-than-expected synergies from the GenOn merger despite the unfavorable weather.

Recently, the company completed the acquisition of the 560 MW Gregory cogeneration plant in Corpus Christi, Texas. The addition of this unit enhances the generation capability of the company in the region, which has significant demand for power.

Princeton, N.J. and Houston, Texas-based NRG Energy Inc. together with its subsidiaries operates as an integrated wholesale power generation and retail electricity company. The company currently has a Zacks Rank #2 (Buy).

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