Integrys Energy Misses on Earnings as Costs Rise - Analyst Blog

Integrys Energy Group, Inc. TEG reported first quarter 2014 pro forma earnings of $1.73 per share, down marginally by 1.7% from the year-ago quarter. Earnings also trailed the Zacks Consensus Estimate by 4.4%.

The combination of lower retail electric margins and increased operating costs proved to be a drag on earnings. The negative impact was partially offset by expansion in natural gas retail margins.

GAAP earnings were $1.89 per share compared with $2.37 per share in year-earlier period. The difference between quarterly GAAP and pro forma earnings was due to a 16 cent gain from derivative and inventory accounting activities.

Revenue Update

Integrys Energy's total revenue shot up 74.3% year over year to $2,924.9 million. Reported revenue also comfortably beat the Zacks Consensus Estimate by 79.4%.

The revenue upturn resulted from a whopping 136% and 43.8% sales increase from the company's non-regulated as well as regulated business divisions, respectively.

Operating Results

Total electric sales volume from the regulated segment declined 7.1% year over year to 3,671.6 million kilowatt-hours ("Kwh"). However, an 18.4% year-over-year increase in retail gas throughput volumes to 2,006.8 million therms substantially eclipsed the electric volume downside.

In the non-regulated segment, retail electric sales volume in the first quarter was 6,356.9 million Kwh versus 4,318.2 million Kwh in the comparable year-ago period. Retail natural gas sales volume was 87.6 billion cubic feet ("Bcf") compared with 50.7 Bcf in the year-ago quarter. Wholesale electric sales volume was 14.1 million Kwh versus 18.0 million Kwh in the year-ago quarter.

Total operating expenses jumped 92.9% year over year to $2,671.7 million. This was mainly due to a massive 185.6% rise in non-regulated sales expenses. The cost increase was further aggravated by a 69.9% rise in utility fuel, gas and purchased power expenses.

Spiraling costs overshadowed the revenue upside pulling down the company's operating income by 13.6% year over year to $253.2 million.

Financial Highlights

Cash and cash equivalents were $56.6 million as of Mar 31, 2014 compared with $22.3 million as of Dec 31, 2013. As of Mar 31, 2014, long-term debt remained flat at $2,956.2 million.

Net cash generated from operating activities during the quarter was $263.3 million compared with $319.6 million in the year-ago quarter.

As of Mar 31, 2014, capital expenditure was $159.6 million versus $147.0 million as of Mar 31, 2013.

Guidance

Integrys Energy Group expects 2014 pro forma earnings in the band of $3.50–$3.75 per share. GAAP earnings for 2014 are expected to be in the range $4.10–$4.35 per share.

Other Company Releases

TECO Energy Inc.'s TE first quarter 2014 earnings of 23 cents per share edged past the Zacks Consensus Estimate of 22 cents.

NextEra Energy Inc. NEE reported pro forma earnings of $1.26 per share beating the Zacks Consensus Estimate by 15.6%.

NiSource Inc. NI reported earnings of 82 cents per share, which surpassed the Zacks Consensus Estimate by 5.1%.

Our View

Integrys Energy's earnings were let down in the first quarter 2014 owing to the company's spiraling operating costs and a soft retail electric business.

However, we expect the company to remain well positioned in the market on the back of its electric and gas investments, which will stimulate future asset development. Moreover, steady expansion of its compressed natural gas stations across the U.S. will offer increasing growth avenues in the years ahead. Integrys Energy currently carries a Zacks Rank #2 (Buy).