CPN Calpine Corp.

Energy generation company NRG Energy Inc. (NRG) reported an adjusted net income of 89 cents per share in first-quarter 2011, way ahead of the Zacks Consensus Estimate of 12 cents. Results also compare favorably with 22 cents earned in the prior-year quarter. Adjusted income was $221 million, up from $58 million in the year-ago quarter.

Lower operating costs aided the better-than-expected results in the quarter.

Including $481 million asset impairment charge announced in April related to NINA’s post-Fukushima STP 3&4 nuclear development, the company reported net loss of $260 million, or $1.06 per share.

Operational Update

Total revenue during the first quarter decreased 10% year over year to $1.995 billion from $2.215 billion in the year-ago quarter. Quarterly revenue was lower than the Zacks Consensus Estimate of $2,541 million.

Total operating cost and expenses during the quarter declined 15% over the prior-year period to $1.68 billion, largely driven by lower cost of operations.

Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) were $455 million, down 24% from $601 million in the year-ago quarter.

Operating income in the quarter declined 22% year over year to $314 million.

Segment Update

Reliant Energy: EBITDA declined 20% year over year resulting from decline in volumes sold as well as lower unit margins.

Net income was $272 million, reversing the loss of $188 million in the prior-year quarter.

Texas: EBITDA declined 14% year over year primarily due to lower hedge pricing and increased coal transportation costs.

Net income of $7 million plummeted from $375 million in first quarter 2010.

Northeast: EBITDA plummeted 87% year over year largely due to increased fuel costs caused by higher oil and gas generation, lower hedge prices as well as a 25% decline in coal generation

Net loss was $32 million compared with net income of $52 million in the prior-year quarter.

South Central: EBITDA increased 8% year over year due to higher sales.

Net income was $14 million, reversing the loss of $4 million in the prior-year quarter.

West: EBITDA surged 40% year over year resulting from additional capacity sales at El Segundo and an Encina tolling agreement price increase.

Net income increased more than two fold to $13 million in the quarter.

International: EBITDA remained flat over the prior year at $12 million. Net income also remained flat with the prior-year quarter at $8 million.

Thermal: EBITDA increased 25% year over year. Net income increased 25% year over year to $5 million in the quarter.

Financial Update

The company ended the quarter with cash and cash equivalents of $2.71 billion, lower than $2.95 billion at 2010 end.

Long-term debts and capital leases of the company as of March 31, 2011 were $8.8 billion versus $8.7 billion as of 2010 end.

Cash provided by operating activities in the first quarter was $216 million, up 89% year over year.

Share Repurchases

NRG spent $130 million to buy back 6.2 million shares at an average cost of $20.87 per share. The company is still left with $50 million of share repurchases under the 2011 Capital Allocation Plan.

Guidance for 2011

NRG Energy retained its 2011 EBITDA expectation in the range of $1.750 billion to $1.95 billion.

The company raised its estimate for free cash flow before growth investment in the range of $1 billion to $1.2 billion from the previous range of $825 million to $1,025 million.

Free cash flow after growth investment is expected in the range of $450 million to $650 million, revised from the prior $150 million to $350 million range.

NRG Energy now expects to invest $205 million in maintenance capital expenditures and $48 million in net environmental capital expenditures in its existing assets.

Cash flow from operations is revised to the range of $1.25 billion to $1.45 billion form $1.15 billion to $1.35 billion.

We maintain a Neutral recommendation on NRG Energy in the long term. The quantitative Zacks # 3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in Princeton, New Jersey, NRG Energy Inc. operates as a wholesale power generation company. The company is also involved in trade of fuel and transportation services, and trade of energy, capacity, and related products in the United States and internationally. It competes with The AES Corporation (AES), Calpine Corp. (CPN) and GenOn Energy Inc. (GEN).

 
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