ConEd Beats Earnings Ests, Misses Rev

Zacks

Consolidated Edison Inc. (ED) posted fourth quarter 2013 earnings from ongoing operations of 69 cents per share, beating the Zacks Consensus Estimate of 64 cents by 7.8%. The earnings beat came on the back of lower expenses and higher gas revenue. The quarterly result, however, came in line with the year-ago figure.

Including the effects of its lease in/lease out transactions and the net mark-to-market effects of the competitive energy businesses (CEBs), the company registered earnings of 80 cents per share compared with 71 cents in the year-ago quarter.

Full year 2013 profit was $3.80 per share, up 1.3% year over year. Including the effects of its lease in/lease out transactions and the net mark-to-market effects of CEBs, earnings stood at $3.62 versus $3.88 in 2012.

The quarterly results came after a New York state agency voted to hold ConEd's electricity and gas rates for millions of customers. Approved by the Public Service Commission, this plan will hold electric charges stable for two years and natural gas charges for three years. The company had requested for rate hikes for its operations, comprising electric, gas and steam.

Quarterly Operational Results

Consolidated Edison reported revenues of $2,868.0 million, down 1.1% year over year. The top line also missed the Zacks Consensus Estimate of $2,912.0 million by 1.5%. The results reflect lower electric and steam sales.

The company's largest top-line generator, Electric revenues were down 2.3% year over year. Although Gas revenues and Non-utility revenues increased 6.6% and 1.2%, respectively, Steam revenues were down 11.0% in the reported quarter.

Full year 2013 total revenue was $12,354.0 million, up 1.4% from $12,188.0 million a year ago.

Total operating expenses were down 2.3% year over year to $2,391.0 million. Purchased power expenses decreased by 1 million, fuel cost was down by 38%, while Gas purchased for resale cost increased 30.6% and depreciation and amortization expenses increased 6.1% year over year.

Guidance

For this year, ConEd’s earnings from ongoing operations are expected between $3.65 and $3.85 per share. The company expects to spend around $2,608 million for the year, the majority of which will be spent at its regulated utilities.

Peer Reviews

American Electric Power Company Inc. (AEP) reported fourth quarter 2013 operating earnings of 60 cents per share, beating the Zacks Consensus Estimate of 56 cents by 7.1%. The quarterly figure also improved 20% from the year-ago profit of 50 cents.

Exelon Corporation (EXC) announced fourth-quarter 2013 adjusted operating earnings of 50 cents per share, missing the Zacks Consensus Estimate by 5.7%. Quarterly earnings plunged 21.9% year over year due to a decline in realized energy prices for the sale of energy in all regions and higher depreciation and amortization expenses.

Our Take

Though the top line for Consolidated Edison missed the Zacks Consensus Estimate, the bottom line succeeded in beating the mark. The company is focused on energy efficiency initiatives and its aggressive oil-to-gas conversion program that will lower costs while improving air quality. Also, the company continues to invest heavily in infrastructure improvement.

However, we remain concerned about lower demand for electricity, earnings dilutive issuances and regulatory risks. Consolidated Edison currently has a Zacks Rank #4 (Sell). In the near term, we would advise investors to accumulate its Zacks Rank #1 (Strong Buy) peer Otter Tail Corporation (OTTR).

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