Stable Results From Entergy - Analyst Blog

Entergy Corporation (ETR) has reported strong operational earnings per share (EPS) of $2.76 in the third quarter of fiscal 2010, beating both the Zacks Consensus Estimate of $2.73 and the year-ago quarterly EPS of $2.40. On a reported basis, including one-time items, earnings came in at $2.62 for the reported quarter compared to $2.32 in the year-ago quarter.

The variance between as-reported and operational in both the reported and year-ago quarters was due to non-utility nuclear spin-off expenses for outside services to pursue the previously planned spin-off and the charge in connection with the business unwind of Enexus Energy Corporation and EquaGen LLC in 2010.

In April 2010, Entergy announced the shelving of its long-in-the-making separation of its non-utility nuclear generation and nuclear services companies into a new company (Enexus Energy Corporation). Entergy had been contemplating the spin-off since fiscal 2007 to separate its regulated utilities and open-market generation units. EquaGen L.L.C. was supposed to be the joint venture between Entergy Corporation and Enerxus Energy Corporation.

Operational Results

Revenue in the reported quarter rose 13.5% year-over-year to $3.3 billion, soundly beating the Zacks Consensus Estimate of $3.4 billion. Of this Electricity revenue were up 20.2%, Natural Gas up 13.5% while Competitive Businesses were down 7.2%.

On an operational basis, earnings were $518.1 million compared with $470.7 million in the year-ago quarter; while on a reported basis Entergy's earnings came in at $492.9 million compared with $455.2 million in the year-ago quarter.

Segment Results

Utility

Utility's quarterly earnings both on reported and operational basis were $333.6 million compared to $294.8 million in the year-ago quarter. Earnings in the reported quarter reflect higher net revenue due to increased sales across all customer classes and rate adjustments at Entergy Arkansas, Entergy Texas, Entergy Gulf States Louisiana and Entergy Louisiana under their formula rate plans.

Residential sales, on a weather-adjusted basis, increased 0.9% year-over-year. Commercial and governmental sales, on a weather-adjusted basis, increased 1.7%, while industrial sales increased 8.5%. The industrial customer segment reflected strong sales growth on continuing signs of economic recovery, which was also evident in the residential and commercial classes.

In addition, residential and commercial sales benefited from significantly warmer-than-normal weather. The improvement in industrial sales in the reported quarter was driven by inventory restocking and strong exports with the chemicals, refining, and miscellaneous manufacturing sectors leading the improvement.

Entergy Nuclear

Entergy Nuclear's earnings were $133.9 million on an as-reported basis, compared to as-reported earnings of $200.4 million in the year-ago quarter. On an operational basis, quarterly earnings were $159.1 million, versus $210.7 million, in the third quarter of the prior year.

Entergy Nuclear's operational earnings decreased mainly as a result of lower net revenue due primarily to lower generation resulting from additional planned and unplanned outages. Partially offsetting these decreases was lower income tax expense, which was primarily due to adjustments to the income tax reserve.

Parent & Other

Parent & Other reported earnings of $25.4 million, on both as-reported and operational bases compared to losses of $40.0 million on an as-reported basis and $34.8 million on an operational basis in the year-ago quarter.

Lower income tax expense on Parent & Other activities was the primary factor boosting results for the reported quarter. Along with this an adjustment in income tax reserves resulting from a favorable Tax Court ruling and beneficial effects of consolidated income tax adjustments also contributed to the improvement.

Financial Condition

Entergy in the reported quarter generated $1.7 billion from operating activities compared to $993 million in the year-ago quarter. Cash and cash equivalents at the end of the reported period were $1.9 billion versus $1.7 billion at fiscal-end 2009. Long-term debt increased to $11.4 billion compared to slightly above $10.7 billion at fiscal-end 2009.

Guidance

Entergy reaffirmed its fiscal 2010 earnings guidance in the range of $6.40−$7.20 per share on an operational basis and $5.95–$6.80 per share on a reported basis.

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 2.6 million customers in Arkansas, Louisiana, Mississippi and Texas.

In the near-term, however, we retain our long-term Neutral stance on Entergy in the absence of any positive triggers, which is supported by a Zacks #3 Rank (short-term Hold recommendation) for the stock.