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CMS Energy Misses on Earnings & Sales

Zacks Equity Research

After market close, Michigan-based CMS Energy Corp. (CMS) announced third-quarter 2013 earnings per share of 46 cents on both adjusted and GAAP basis, missing the Zacks Consensus Estimate by a penny. Earnings declined 14.8% year over year.

Operational Performance

Operating revenues of CMS Energy in the quarter under review grossed $1,445 million, down 4.1% year over year. The top line missed the Zacks Consensus Estimate by $150 million.

Purchased and interchange power expenses were $383 million, down 0.8% year over year. Total operating expenses were down 3.1% year over year to $1,128 million. Lower operating expenses failed to offset the decline in operating revenue, thereby resulting in a 7.6% drop in operating income to $317 million.

Financial Position

CMS Energy ended the third quarter with cash and cash equivalents of $260 million, surging from $93 million as of Dec 31, 2012. Total debt, capital and finance leases rose to $7,658 million from $7,381 million as of Dec 31, 2012.

Business Highlights

The company is working to lower its costs as a part of its Promise to Michigan program that aims at providing affordable and reliable services to its customers. It intends to avoid electric and gas base rate increases through 2014, reduce costs and provide full support to its customers with its expansion efforts.

During the quarter, the company completed an investment upgrade worth $175 million at its Ray Compressor Station. The project's main focus was to install five new engines that can produce 23,675 horsepower to drive their respective two-stage compressors.

The company further aims at saving electricity bills for customers by making their homes more energy efficient. In Oct 2013, the company lowered its fuel costs by 44%, thereby saving $260 million for customers this winter compared to five years ago. An average residential customer is expected to save $50 due to lower heating costs this winter. On the whole, the bill of an average residential customer is down $200 this heating season compared to five years ago as a result of this initiative.

The company will conduct its investor day today.

At the Peer

American Electric Power Company Inc. (AEP) reported third quarter 2013 operating earnings of $1.10 per share, beating the Zacks Consensus Estimate of $1.08 by 1.9%. The quarterly figure also improved 7.8% from the year-ago profit level of $1.02.

Our Take

CMS Energy’s top and bottom line failed to meet the Zacks Consensus Estimate. Lackluster electricity sales growth is hampering the earnings prospects of the company. Lower demand due to a tepid economy has significantly affected retail sales, as well as industrial sales volume. Also, pending regulatory cases remain a matter of concern.

However, the company’s focus on reducing costs, enhancing reliability, and investments in Michigan would help in improving the top and bottom line. CMS Energy carries a Zacks Rank #3 (Hold).

However, stocks to look out for in the space are UNS Energy Corp. (UNS) and Alliant Energy Corp. (LNT). While UNS Energy carries a Zacks Rank #1 (Strong Buy), Alliant Energy holds a Zacks Rank #2 (Buy).

Read the Full Research Report on AEP
Read the Full Research Report on CMS
Read the Full Research Report on UNS
Read the Full Research Report on LNT

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