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Earnings Preview: Pepco Holdings

Zacks Equity Research

Pepco Holdings Inc. (POM) is slated to release its third-quarter 2012 earnings results before the earnings bell on November 6, 2012.

Second Quarter Recap

The company reported second quarter 2012 earnings from continuing operations of 25 cents per share, much lower than the year-ago figure of 43 cents. Earnings were also lower than the Zacks Consensus Estimate of 32 cents.

The year-over-year decline in earnings was due to higher operating and maintenance expenses at Power Delivery Services and lower earnings at Pepco Energy Services.

Total revenue of the company at the end of the second quarter was $1.18 billion, down 16.5% from $1.41 billion in the year-ago period. The year-over-year decline was primarily due to lower contribution from Pepco Energy Services and Power Delivery Services. Revenues also failed to match the Zacks Consensus Estimate of $1.95 billion.

Total operating expenses were $1.03 billion versus $1.21 billion in the year-ago period.  The decline stemmed from a 31.6% decrease in fuel and purchase energy costs.

Interest expenses at second quarter end were $65 million versus $63 million at the end of the year-earlier period.

Guidance 2012

During the second quarter earnings release Pepco Holdings reiterated its 2012 earnings per share outlook in the range of $1.15 to $1.30. The guidance excludes the impact of discontinued operations and assumes normal weather during the year.

Zacks Consensus

The Zacks Consensus Estimate for the third quarter 2012 is 41 cents per share, up an estimated 17.6% from 35 cents reported in the year-ago quarter. The current Zacks Consensus Estimate ranges between 37 cents per share and 46 cents per share.

The full year 2012 Zacks Consensus Estimate is $1.20, down 3.8% from $1.25 reported in the previous year. The current Zacks Consensus Estimate ranges between $1.15 per share and $1.25 per share.

Estimate Revisions Trend


The estimates remained static for the third quarter in the past 7 and 30 days.

For full year 2012, none of the 10 estimates changed in the past 7 days. One of the 10 estimates however moved down in the last 30 days, while none moved north.


Given that estimate revision trends have hit a plateau, the Zacks Consensus Estimates for the third quarter and for the full year remained unchanged in the last 7 days. Consensus estimate for the third quarter remained unchanged in the last 30 days, while for the full year it went down by a penny in the said period.
Surprise History

With respect to earnings surprise, the company’s performance failed to measure up to expectations in three out of the trailing four quarters. The results of the company surpassed our expectation in one of the last four quarters.

The earnings surprise in the last four quarters ranged from (21.87%) to 20.00%. The average surprise over the last four quarters remained a negative 8.29%.

Our Recommendation

The company reported lackluster numbers in the second quarter in the wake of poor performance from both its reporting segments.

Meanwhile Pepco has decided to implement a few changes in the management. We believe these changes are directed towards turning the tide in favor of the company.

Pepco Holdings like other utility companies have been affected by Hurricane Sandy and we believe the full impact of the storm on its financial results could be gauged when it reports its fourth quarter results.

Pepco Holdings presently retains a short-term Zacks #3 Rank (Hold rating). The company’s primary competitors include DTE Energy Co. (DTE). DTE Energy reported third quarter 2012 earnings per share of $1.31, easily beating the Zacks Consensus Estimate by 19 cents. Results improved 22.4% year over year.

Based in Washington, District of Columbia, Pepco Holdings, through its two operating divisions, Power Delivery and Competitive Energy, involves in transmission and distribution of electricity, as well as delivery and supply of natural gas.  With a market capitalization of $4.50 billion, the company has 5,104 full time employees.

Read the Full Research Report on POM

Read the Full Research Report on DTE

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