Before the bell, Entergy Corporation (ETR) reported its fourth quarter and full year 2012 results. In the reported quarter, the company posted operational EPS of $1.72, beating the Zacks Consensus Estimate of $1.41. Earnings also came in higher than the year-ago quarter's 94 cents.
On a reported basis, including one-time items, earnings came in at $1.66 for the reported quarter compared with 87 cents in the year-ago quarter.
Full year 2012 operational earnings came in at $6.23 per share, beating the Zacks Consensus Estimate of $5.83. This, however, came in lower than full year 2011 earnings of $7.62 per share.
On a reported basis earnings for full year 2012 came in at $4.76 per share versus $7.55 in 2011.
Revenue in the reported quarter fell 2.1% year over year to $2.4 billion, falling short of the Zacks Consensus Estimate of $3.2 billion. Of this Electricity revenue was down 1.7% to $1.8 billion, Natural Gas was down 5.0% to $37.4 billion, while Competitive Businesses were down 3.4% to $568.0 billion. On an operational basis, earnings were $307.0 million compared with $167.2 million in the year-ago quarter; while on a reported basis Entergy's earnings came in at $296.3 million compared with $154.1 million in the year-ago quarter.
Full year 2012 revenue was $10.3 billion versus the Zacks Consensus Estimate of approximately $11.0 billion. Full year revenue also came below $11.2 billion generated a year ago.
Utility's quarterly earnings were $279.7 million on an as-reported basis and $290.5 million on an operational basis, compared with $169.7 million on both as-reported and operational bases in fourth quarter 2011. The year-over-year increase was largely due to lower income tax expense.
The reduction in income tax expense was driven by a settlement with the IRS, completed at the end of 2012, regarding the tax treatment of the utilities' decommissioning liabilities.
Entergy Wholesale Commodities
Entergy Wholesale Commodities' as-reported and operational earnings were $58.8 million for fourth quarter 2012, compared with $155.0 million for fourth quarter 2011. The year-over-year decline was attributable to a higher effective income tax rate and higher decommissioning expense. The higher decommissioning expense was due to the benefit from an adjustment to the decommissioning liability recorded in the fourth quarter of 2011.
Parent & Other
Parent & Other reported a loss of $42.3 million on both as-reported basis and an operational basis for fourth quarter 2012. This compares to a loss of $170.6 million on an as-reported basis and $157.5 million on an operational basis in fourth quarter 2011. The narrower loss was driven by lower income tax expense partially offset by higher interest expense.
Entergy in full year 2012 generated $2.9 billion from operating activities compared with $3.1 billion in full year 2011. Cash and cash equivalents at the end of the reported period were $532.6 million versus $694.4 million at year-end 2011. Long-term debt increased to $11.9 billion compared with slightly above $10.0 billion at year-end 2011.
Entergy reaffirmed its previously issued 2013 earnings guidance in the range of $4.60 to $5.40 per share on both an as-reported basis and an operational basis. The company also noted it currently expects 2013 earnings on the lower half of the guidance range due to updated pension and post-retirement cost estimates, which include an approximate 75 basis point decrease in the discount rate assumption.
New Orleans-based Entergy Corp. is primarily engaged in electric power production and retail distribution of power. With 30,000MW of generating capacity, it distributes electricity to 2.8 million customers in Arkansas, Louisiana, Mississippi and Texas. Of this, 14,631MW are gas/oil based, 2,259 are coal based, 70MW are hydro based and the rest are nuclear based.
The company also distributes natural gas to 240,000 customers in Louisiana. Entergy is the second largest U.S. nuclear power generator after Exelon Corporation (EXC).
Entergy had earlier, in Dec 2011, entered into a definitive agreement with ITC Holdings Corporation (ITC), under which the former will divest its electric transmission business to the latter for gross cash of $1.775 billion. The divested business would be merged with the operations of ITC Holdings. The company expects the transaction to complete by 2013.
Entergy is well positioned with its geographically diverse mix of regulated and merchant operations. The company is focused on maximizing its shareholder value through steady investment for rate base growth, as well as through its ongoing stock buyback program and incremental dividend.
However, we are concerned regarding the tepid growth of its competitive business due to lukewarm power demand in the Northeast, pending regulatory approvals and the fate of its Indian Point plant.
Entergy has a short-term Zacks Rank #3 (Hold rating) in view of the continued weak economic environment in the U.S. which will weigh on the company's power sales.
As of now we would advise investors to focus on Zacks Rank #1 (Strong Buy) electric power utility Pike Electric Corporation (PIKE).