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FirstEnergy Beats on Earnings, Down Y/Y

Zacks Equity Research

Diversified energy company FirstEnergy Corp. (FE) announced third-quarter 2013 operating earnings of 94 cents per share, beating the Zacks Consensus Estimate of 91 cents. However, the results lagged the year-ago earnings of $1.11 by 15.3%.

The year-over-year decline reflects lower commodity margin, higher operating costs, increased deprecation and interest expense, and lower distribution deliveries, partially offset by a lower effective income tax rate and lower general taxes.

Including one-time charges and gains of 42 cents per share, GAAP earnings per share reported by the company were 52 cents, down from $1.02 per share.

Total Revenue

FirstEnergy generated total revenue of $4,036.0 million in the third quarter, down 0.39% year over year. The revenue decline was primarily due to lower Electric sales in the reported quarter, which dropped 1% year over year.

The top line of the company also missed the Zacks Consensus Estimate of $4,213.0 million by 4.2%.

Highlights of the Release

FirstEnergy's total electric distribution deliveries in the reported quarter decreased 2% from the prior-year level. Due to cooler summer temperatures residential deliveries declined 7.0%. Commercial deliveries also experienced a marginal decline. However, industrial deliveries were up 3.0% year over year.

Total expenses in the reported quarter were $3,524.0 million, up 11.9% from $3,150.0 million in the prior-year quarter. Purchased power expenses climbed 5.4% year over year to $1,120.0 million.

Financial Update

FirstEnergy's cash on hand as of Sep 30, 2013, was $222.0 million versus $172.0 million as of Dec 31, 2012.

Cash from operating activities in the third quarter of 2013 was $1,178.0 million, down from $1,214.0 million in the third quarter of 2012.

Long-term debt and other long-term obligations as of Sep 30, 2013, were $15,291.0 million versus $15,179.0 million a year ago.


FirstEnergy narrowed its operating earnings per share expectation for 2013 to a range of $2.95 to $3.10 per share from its prior expectation of $2.85 to $3.15. GAAP earnings for 2013 are expected in the range of 78 cents to $1.13 per share versus its prior expectation of $1.39 to $1.69 per share.

Peer Reviews

Edison International’s (EIX) adjusted earnings of $1.42 per share for the third quarter of 2013 were well ahead of the Zacks Consensus Estimate of $1.21 by 17.4% and the year-ago quarterly earnings of $1.00 by 42.0%. The upside was driven by robust cost management initiatives along with favorable tax benefits.

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 of $1.02. This improved performance reflects positive returns from the investments made in the company’s regulated operations.

Our View

FirstEnergy posted mixed results with the bottom line beating the Zacks Consensus Estimate while the top line missed the mark. The top line also declined year over year due to lower residential and commercial sales. Currently, risks related to stringent environment legislation and weather fluctuations are matters of concern.

However, going forward, consistent customer expansion along with efforts to strengthen sales and marketing operations will help the company in generating sizeable returns. FirstEnergy’s string of asset modernization investments will lead to better service reliability, which will contribute to customer retention.

FirstEnergy currently has a Zacks Rank #3 (Hold). In the near term, we would advise investors to accumulate its short-term Zacks Rank #1 (Strong Buy) peer UNS Energy Corp. (UNS).

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