Northeast Utilities (NU) Misses on Q3 Earnings & Revenues - Analyst Blog

Northeast Utilities (NU) announced third-quarter 2014 adjusted earnings of 75 cents per share, missing the Zacks Consensus Estimate of 76 cents by 1.3%. On a year-over-year basis, reported earnings increased 8.7% from 69 cents per share.

The Electric Transmission segment reported an improvement in earnings, which primarily drove the bottom line. However, this was partially offset by lower contribution from the Electric Distribution/Generation and NU Parent and Other segments. Natural Gas Distribution segment reported a loss in the third quarter.

On a GAAP basis, the company posted earnings of 74 cents per share versus 66 cents per share a year ago. The difference between adjusted and GAAP earnings was due to the after-tax integration charge of a penny.

Revenues

In the third quarter, Northeast Utilities reported operating revenues of $1.89 billion, lagging the Zacks Consensus Estimate by 2.5%. The quarterly top line decreased marginally from the prior-year level.

Operational Highlights

In the quarter under review, Northeast Utilities' overall retail electricity distribution volume decreased 4.5% year over year to 14,555 Gigawatt hours. Over the same period, the company's natural gas distribution volume was 10,200 million cubic feet, up 0.4% year over year.

Northeast Utilities' total operating expenses of $1,451.6 million in the third quarter decreased 2.8% year over year primarily due to an 11% decline in operations and maintenance expenses.

Operating income at the end of the quarter stood at $440.9 million, up 10.4% from $399.3 million a year ago.

The company's interest expenses increased 2.6% year over year to $89.7 million on a higher long-term debt level.

Financial Position

As of Sep 30, 2014, Northeast Utilities had cash and cash equivalents of $41.7 million, down from $43.4 million as of Dec 31, 2013.

Long-term debt as of Sep 30, 2014 was $8,167 million versus $7,776.8 million as of Dec 31, 2013.

In the first nine months of 2014, net cash flows from operating activities were $1,404 million versus $1,177 million in the year-ago period.

Guidance

Northeast Utilities reiterated its guidance for 2014 earnings in the range of $2.60–$2.70 per share.

Another Peer Release

PPL Corporation (PPL) reported third-quarter 2014 adjusted earnings of 54 cents per share, surpassing the Zacks Consensus Estimate of 52 cents by 3.9%.

Our View

Although third-quarter 2014 earnings missed estimates, Northeast Utilities' bottom line increased year over year primarily due to lower operating expenses.

The company's steady efforts of expanding its operations primarily through the addition of new assets to its portfolio will enable it to provide reliable services its customers.

Northeast Utilities is well on track with the Access Northeast project in partnership with Spectra Energy Corp. (SE) and Spectra Energy Partners, LP (SEP). This project will help to meet increasing natural gas demand in New England.

However, we are concerned about strict environmental regulations and volatility in fuel prices, which might challenge the company's future performance.

Northeast Utilities currently has a Zacks Rank #3 (Hold).