Northeast Utilities Misses Q4 Earnings, Beats Revs

Zacks

Northeast Utilities (NU) announced fourth-quarter 2013 adjusted earnings of 57 cents per share, missing the Zacks Consensus Estimate by a penny. However, reported earnings edged up 1.8% year over year primarily due to higher operating revenues and a decrease in depreciation expenses.

On a GAAP basis, the company reported earnings of 56 cents per share compared with 55 cents per share. The difference between GAAP and adjusted earnings was due to an after-tax integration charges of 1 cent associated with the NSTAR merger.

For 2013, the company’s adjusted earnings were $2.53 per share, lagging the Zacks Consensus Estimate by 0.8%. Annual earnings were 11% higher than the year-ago level.

Northeast Utilities’ GAAP earnings were $2.49 per share in 2013 compared with the prior-year figure of $1.89 per share.

Revenues

In fourth-quarter 2013, Northeast Utilities' operating revenues of $1.8 billion surpassed the Zacks Consensus Estimate by 12.3%. Quarterly revenues climbed 5.6% year over year due to an improvement in retail natural gas and electricity distribution volumes.

The company’s annual total operating revenues increased 16.4% year over year to $7.3 billion.

Segmental Highlights

Northeast Utilities’ quarterly earnings from Natural Gas Distribution and Electric Transmission segments increased 19.1% and 4.4% respectively, year over year. This was partially offset by a decrease in earnings from the company’s Electric Distribution and Generation (down 1% year over year) and NU Parent and Other Companies (down 50% year over year) divisions.

Operational Highlights

In the quarter under review, Northeast Utilities’ total operating expenses climbed 4.8% year over year, mainly on the back of a rise in purchased power, fuel and transmission costs, and higher operations and maintenance expenses.

An increase in operating revenues more than offset the rise in total operating expenses, thereby resulting in an operating income of $0.4 billion, up 8.8% year over year.

In fourth-quarter 2013, Northeast Utilities' overall retail electricity distribution volume edged up 2% year over year to 13,377 Gigawatt hours. The company’s natural gas distribution volume was 30,212 million cubic feet, up 9.9% year over year.

Guidance

Northeast Utilities provided 2014 earnings guidance in the range of $2.60 - $2.75 per share. The company also reported long-term earnings per share growth projection in the band of 6% - 8% from 2012 through 2017.

Other Company Releases

Dominion Resources, Inc. (D) reported fourth-quarter 2013 operating earnings of 80 cents per share, missing the Zacks Consensus Estimate by 9.1%.

Exelon Corporation (EXC) announced fourth-quarter 2013 adjusted operating earnings of 50 cents per share, missing the Zacks Consensus Estimate by 5.7%.

PPL Corporation (PPL) reported fourth-quarter 2013 earnings from ongoing operations of 60 cents per share, beating the Zacks Consensus Estimate by 17.6%.

Our View

In fourth-quarter and full-year 2013, Northeast Utilities failed to beat the earnings estimate primarily due to higher operating expenses and an increase in shares outstanding.

However, we see several positives which will allow the company to improve its upcoming performance. For 2013, the company added 10,356 new natural gas heating customers at its natural gas utilities division. Northeast Utilities plans to invest more to expand and upgrade its natural gas distribution assets, thereby meeting increasing customer demand.

We appreciate Northeast Utilities’ effort towards expansion of its existing assets while adding new ones to its portfolio. The company has completed its Greater Springfield Reliability Project. These initiatives will enable the company to provide uninterrupted services to its customers.

However, we are concerned about the stringent regulations, volatility in fuel prices and over-dependence on transmission and distribution businesses, which could challenge the company’s future performance.

Northeast Utilities currently has a Zacks Rank #4 (Sell).

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