Xcel Energy Misses on Q2 Earnings as Costs Rise, Guides Same

Zacks

Xcel Energy Inc. (XEL) recorded operating earnings in the second quarter 2014 of 39 cents per share, lagging the year-ago earnings by a penny and also falling short of the Zacks Consensus Estimate of 41 cents by nearly 4.9%.

Total Revenue

Xcel Energy's total revenue increased 4.1% year over year to $2,685.1 million in the reported quarter. The year-over-year upturn was due to encouraging electric and natural gas returns primarily due to the implementation of new rates in various jurisdictions.

Quarterly revenue also outpaced the Zacks Consensus Estimate of $2,626 million by 2.2%.

Segment Revenue

Electric: Revenue from this segment was up 3.5% year over year to $2,298 million.

Natural Gas: Revenue from the Natural Gas business registered an 8.2% increase to $369.7 million.

Other: Segment revenue of $18.3 million in the reported quarter increased 3.5% from $17.7 million in the year-ago period.

Quarterly Highlights

Total operating expenses climbed 5.1% year over year to $2,287.9 million. The escalating costs can be attributed to an 11.7% rise in cost of natural gas sold and transported, compounded by a nearly 3% rise in electric fuel and purchased power costs.

Operating income was down 1.2% year over year to $397.2 million as the revenue increase was outweighed by spiraling costs.

Total interest charges and financing costs, after Allowance for funds used during construction ("AFUDC"), decreased 5.3% year over year at the end of the second quarter 2014 to $129.3 million.

Financial Update

Total debts as of Jun 30, 2014, were $12.6 billion out of which long-term debt was $11.8 billion.

In May 2014, Xcel Energy issued $300 million, 4.125% first mortgage bonds due May 15, 2044. In Jun 2014, Xcel Energy issued $150 million, 3.30% first mortgage bonds due Jun 15, 2044. Again, in Jun 2014, Xcel Energy sold $100 million, 3.30% first mortgage bonds due Jun 15, 2044.

Guidance

Xcel Energy reiterated its 2014 earnings guidance in the range $1.90 to $2.05 per share. Operations and maintenance expenses are expected to increase 2–3% from the 2013 level.

Other Company Releases

NextEra Energy Inc. (NEE) posted adjusted earnings of $1.43 per share in the second quarter, missing the Zacks Consensus Estimate of $1.45 per share by 1.4%.

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

NiSource Inc. (NI) reported second quarter 2014 earnings of 25 cents per share, in line with the Zacks Consensus Estimate

Our View

Xcel Energy missed our earnings estimates as rising expenses completely offset the benefit derived from the new rates.

During the quarter the company filed rate cases in Colorado, Wisconsin and South Dakota. Earlier Xcel Energy had received constructive rate outcomes in the North Dakota and New Mexico service territories. The earnings guidance for 2014, reflecting a 2% to 3% year-over-year increase, also assumes constructive outcomes from the regulatory proceedings.

Since a degree of uncertainty is associated with regulatory rate cases, any adverse outcome might restrain the company from achieving its guidance.

Xcel Energy currently carries a Zacks Rank #2 (Buy).
 

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