Pepco Tops Earnings Estimates on Higher Sales, Outlook Same

Zacks

Pepco Holdings, Inc. (POM) reported second-quarter 2014 adjusted earnings of 28 cents per share, surpassing the Zacks Consensus Estimate of 26 cents by 7.7%. Quarterly earnings jumped 33.3% from 21 cents per share a year ago, primarily on the back of an improvement in electricity distribution and network transmission revenues as a result of higher rates from raised infrastructure investments.

 

On a GAAP basis, the company’s earnings were 21 cents, flat with the prior-year figure. The variance between GAAP and adjusted earnings was due to the combined impact of an incremental merger-related transaction cost of 6 cents and a 1 cent incremental merger-related integration cost.

Shares of Pepco Holdings edged up 0.6% on Aug 1 following its strong second-quarter performance.

Total Revenue

In second-quarter 2014, Pepco Holdings' total revenue increased 6.3% to $1,117 million from $1,051 million in the prior-year quarter. This was primarily driven by higher regulated transmission and distribution (T&D) electric revenue.

Operational Highlights

In the quarter under review, Pepco Holdings’ total operating expenses increased 6.6% year over year to $966 million. Higher expenses for fuel and purchased energy, other services cost of sales, depreciation and amortization expenses, and other operation and maintenance expenses led to higher operating expenses.

Operating income in the reported quarter was $151 million, up 4.1% from $145 million a year ago.

Pepco Holdings incurred $67 million in the reported quarter as interest expenses compared with $70 million in the prior-year quarter.

In the second quarter, the company reported total regulated T&D electric sales volume of 11,175 Gigawatt Hour (GWh), up marginally from the prior-year figure of 11,172 GWh. Total default electricity supply sales volume was 4,177 GWh versus 4,082 GWh a year ago.

Pepco Holdings’ total regulated gas sales volume increased 6% year over year to 3,126 thousand cubic feet in the reported quarter.

Business Update

During the second quarter, Pepco Holdings submitted approval applications associated with the planned merger with Exelon Corporation (EXC) to the Federal Energy Regulatory Commission and several other commissions. Subject to approvals, the transaction is expected to close in the second or third quarter of 2015.

Financials

As of Jun 30, 2014, Pepco Holdings had cash and cash equivalents of $184 million versus $23 million as of Dec 31, 2013.

Long-term debt as of Jun 30, 2014 was $4,557 million compared with $4,053 million as of Dec 31, 2013.

During the first six months of 2014, the company’s net cash from (used in) operating activities was $419 million versus ($47) million in the year-ago period.

In the second quarter, Pepco Holdings’ construction expenditure was $271 million.

Guidance

Pepco Holdings reiterated its 2014 earnings guidance in the range of $1.12–$1.27 per share.

Other Company Releases

CMS Energy Corporation (CMS) reported second-quarter 2014 earnings per share of 30 cents, surpassing the Zacks Consensus Estimate of 26 cents by 15.4%.

Pinnacle West Capital Corp. (PNW) reported second-quarter 2014 adjusted earnings per share of $1.19, outpacing the Zacks Consensus Estimate by 4.4%.

Zacks Rank

Pepco Holdings currently has a Zacks Rank #3 (Hold).

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