Xcel's Q3 Earnings Beat by a Penny

Zacks

Electricity and natural gas company Xcel Energy Inc. (XEL) recorded operating earnings in the third quarter 2013 of 77 cents per share, beating the Zacks Consensus Estimate by a penny.

The quarterly results were however a penny lower than the year-ago quarter. The decline was due to higher operating and maintenance expenses and lower demand, a fallout of cooler weather.

GAAP earnings were 73 cents per share compared with 81 cents per share in the year-ago period. The disparity between GAAP and pro forma earnings can be attributed to a 4 cent charge for a potential SPS customer refund based on FERC orders.

Total Revenue

Xcel Energy's revenues increased 3.6% year over year to $2.82 billion in the reported quarter.

However, quarterly revenues lagged the Zacks Consensus Estimate of $2.98 billion by 5.2%.

Segment Revenue

Electric: Revenue from this segment surged 2.65% year over year to $2.59 billion. Fluctuating input costs hardly had any impact on the performance of this segment as the fuel recovery mechanism helped the company to recover current expenses.

Natural Gas: Revenue from the Natural Gas business also registered an increase of 17.7% to $341.0 million.

Other: Segment revenue in the reported quarter was $17 million, marginally lower than $17.1 million registered in the year-ago period.

Quarterly Highlights

Total operating expenses climbed 7.6% year over year to $2.16 billion. The escalating costs can be attributed to a 50.5% rise in the cost of natural gas sold and transported compounded by a 9.0% rise in electric fuel and purchased costs.

The increase in operating expenses offset the positive impact of higher revenue. As a result, operating income declined 7.7% year over year to $665.1 million.

Total interest charges and financing costs were 5% lower than the prior-year quarter, primarily due to the refinancing of debts at lower interest rates.

Financial Update

As of Sep 30, 2013, Xcel Energy had available liquidity of nearly $2.11 billion,$154.6 million of which was cash while the balance was available from its credit facilities.

In the first nine months of 2013, the company and its subsidiaries issued different series of notes amounting to $1.45 billion to redeem outstanding notes, fund acquisitions and use the rest for general corporate purposes. As of Sep 30, 2013, Xcel Energy sold 7.7 million shares for net proceeds of $223 million.

Guidance

Xcel Energy retained its prior earnings outlook in the range of $1.85 to $1.95 per share for 2013. The company however expects its earnings to come in on the upper end of the range. GAAP earnings for 2013 are expected in the range of $1.85 to $1.95 per share.

The company introduced 2014 operating earnings guidance in the range of $1.90 to $2.05 per share.

Xcel Energy raised its annual dividend growth rate to the range of 4% to 6% in tandem with the earnings growth target of 4% to 6%.

Other Upcoming Releases

NextEra Energy Inc. (NEE) is scheduled to release its third quarter earnings before the market opens on Nov 1. The Zacks Consensus Estimate is currently at $1.40 per share.

NiSource Inc. (NI) is scheduled to release its third quarter earnings before the market opens on Oct 31. The Zacks Consensus Estimate is at 18 cents per share.

Ameren Corporation (AEE) is scheduled to release its third quarter earnings before the market opens on Nov 8. The Zacks Consensus Estimate is pegged at $1.26 per share.

Our View

Xcel Energy maintained its positive earnings surprise streak this quarter. However, the current beat was lower than the last four-quarter average beat of 7.6%. The company needs to put a check on its operating expense, which is eating into margins.

However, the positive rate changes in its service territories did help results. The initiatives taken by Xcel Energy to add renewable assets in its generation portfolio are appreciable. These initiatives in a way allow Xcel Energy to meet the renewable generation standards fixed in the different states where it operates.

Xcel Energy currently retains a Zacks Rank #3 (Hold).

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