Ameren Beats on Earnings, Narrows View

Before the bell, Ameren Corp. (AEE) posted third quarter 2013 earnings from continuing operations of $1.25 per share, beating the Zacks Consensus Estimate of $1.23 by 1.6%. However, the quarterly result came in below the year-ago profit of $1.28 by 2.3% due to lower electric sales volumes owing to a cooler summer.

Operational Performance

Total operating revenue in the reported quarter was down 4.2% year over year to $1,638.0 million. Reported revenue also failed to meet the Zacks Consensus Estimate of $1,869.0 million. Electric revenue decreased 4.6% while gas revenue increased 0.8%, on a year-over-year basis.

In Mar 2013, Ameren entered into an agreement to divest its merchant generation business, Ameren Energy Resources Company or AER, to an affiliate of Dynegy Inc. (DYN). AER consists primarily of Ameren Energy Generating Company or Genco, including Genco's 80% ownership interest in Electric Energy, Inc.; AmerenEnergy Resources Generating Company or AERG; and Ameren Energy Marketing Company.

As a result of this transaction – which is scheduled to close in the fourth quarter of this year – the company has classified the results of this business as discontinued operations in its financial statements.

Segmental Performance

Ameren Missouri Segment: Segmental earnings were $238.0 million, up from $236.0 million earned in the year-ago quarter. The increase mainly reflects electric service rate hike, effective from Jan 2013, along with controlled cost management.

Ameren Illinois Segment: Segmental earnings stood at $77.0 million in the quarter versus $71.0 million in the year-earlier quarter, backed by higher Illinois electric delivery earnings.

Parent Company and Other: The segment incurred a loss of $10 million from continuing operations for the reported quarter, compared with earnings of $2 million for the third quarter of 2012. The weak numbers primarily reflect a decrease in asset retirement obligation costs in the prior-year period and higher income tax expense in the current-year period.

This division includes interest expense and some other costs which were previously set for the merchant generation business, and other costs historically not allocated to Ameren's business segments.

Financial Condition

Ameren reported cash and cash equivalents of $169.0 million at the end of the third quarter, compared with $184.0 million at 2012 end. Long-term debt (including current maturities) decreased to $5,274.9 million from $5,802.4 million at year-end 2012.

The debt-to-capitalization ratio stood at 44.0% in the reported quarter. The company generated cash of approximately $1,314.0 million from operating activities in the first nine months of the year compared with $1,312.0 million generated in the year-ago period.

Guidance

Ameren lowered the high end of its earnings from continuing operations guided range to $2.00 to $2.10 from its prior expectation of $2.00 to $2.15 per share for 2013. This reduced expectation reflects the adverse impact of cooler-than-normal third quarter 2013 temperatures on electric sales volumes.

Zacks Rank

Ameren presently retains a Zacks Rank #3 (Hold). Stocks worth accumulating now are UNS Energy Corporation (UNS) and American Electric Power Company Inc. (AEP). While UNS Energy holds a Zacks Rank #1 (Strong Buy), American Electric Power carries a Zacks Rank #2 (Buy).

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