CNL Cleco Corp.

Public Service Enterprise Group Inc. (PEG) or PSEG reported first quarter 2011 operating per share earnings of 85 cents, beating the Zacks Consensus Estimate of 76 cents and declining from the year-ago earnings of 87 cents.

On a reported basis, including one-time items, earnings came in at $1.04 in the reported quarter compared with 97 cents in the year-ago quarter.

Operational Performance

Revenue fell 6.1% to $3.4 billion in the reported quarter from approximately $3.6 billion in the year-ago period. The top line also fell short of the Zacks Consensus Estimate by $82 million. Operating income was $431 million compared to $439 million in the year-ago period. Overall net income for the reported quarter was $526 million compared to $491 million for the year-ago period.

Segment Operational Performance

PSEG Power: PSEG Power reported operating earnings of $267 million for the first quarter of 2011 versus $312 million in the year-ago period. The downside came from lower dark spreads, increase in customer migration, increase in depreciation expense, and a decline in capitalized interest.

PSE&G: PSE&G reported operating earnings of $163 million versus $117 million in the year-ago quarter. The upside came from higher electricity and gas rates, and a reduction in operating and maintenance expenses.

PSEG Energy Holdings: PSEG Energy Holdings reported a loss of $3 million compared to operating earnings of $7 million in the year-ago period. However, year-ago quarterly results were boosted by a gain on the sale of a lease. In the reported quarter the company also wrote off its investment in the Energy Storage & Power joint venture. Finally low gas prices and a narrow spread between power prices during peak and off-peak seasons affected performance during the quarter.

Financial Condition

Public Service generated slightly more than $1 billion in cash from operating activities in the reported quarter versus $1.1 billion in the year-ago quarter. Cash and cash equivalents at the end of the reported period were $900 million compared with $312 million at prior-year end. Total debt decreased to reach almost $8.9 billion compared with $9 billion at fiscal-end 2010.

Outlook

Public Service reaffirmed its fiscal 2011 earnings per share guidance range of $2.50–$2.75.  Going forward, the company’s robust portfolio of regulated and non-regulated utility assets, offers a steady base earnings and significant long-term growth prospects. The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company’s earnings growth will be driven by a low cost nuclear fleet, assumed rate relief and addition in generating capacities. However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see shares of the company performing in line with the broader market and thus reiterate short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation. In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peers like Cleco Corporation (CNL) and Northeast Utilities (NU).

 
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