PEG Public Service Enterprise Group Inc

Public Service Enterprise Group Inc. (PEG) or PSEG reported fourth quarter and fiscal 2011 results. In the fourth quarter of 2011, operating earnings per share were 47 cents, in line with the Zacks Consensus Estimate. However, earnings were lower than the year-ago figure of 60 cents per share.

In the reported quarter, GAAP EPS was 71 cents, up from 57 cents per share in the year-ago period. The variance between GAAP and operating earnings was due to a mark-to-market gain of 24 cents per share.

In fiscal 2011, pro forma EPS of $2.74 matched the Zacks Consensus Estimate. The figure was lower than the year-ago figure of $3.12. Including a charge of 34 cents related to the lease transaction loss and related activity, income from discontinued operations of 19 cents and a mark-to-market gain of 37 cents per share, GAAP EPS reported by the company was $2.96 compared with $3.08 in the prior-year period.

Earnings for fiscal 2011 were on the higher end of the company’s guidance range of $2.50 to $2.75. The results were driven by the company’s strong, customer-focused operations.

Operational Performance

Revenue in the reported quarter was $2.6 billion, down from the year-ago figure of $2.7 billion. The top line was also lower than the Zacks Consensus Estimate by $473 million. The fiscal year 2011 top-line figure of $11.1 billion was marginally lower than the year-ago figure of $11.8 billion. It was far below our expectation of $12.2 billion.

In the reported quarter, Public Service Enterprise Group generated operating income of $709 million compared with $589.0 million in the fourth quarter 2010. Net income for the reported quarter also declined to $237 million from $303 million in the year-ago period.

Residential sales in the quarter under review were 2,685 million Kwh while Commercial & Industrial sales were 6,534 million Kwh in the reported quarter. Total sales were 9,283 million Kwh.

Segment Performance

PSEG Power: Segment operating earnings were $134 million in the quarter versus $212 million in the prior-year period. The results reflect a decline in realized energy and capacity prices, decline in volume, higher depreciation expense coupled with lower capitalized interest, customer migration, increase in operation and maintenance expense and other miscellaneous items.

PSE&G: The segment generated operating earnings of $99 million versus $83 million in the year-ago quarter. The results were driven by control on operating expenditures, increase in transmission revenue, return on investments made under capital adjustment clauses to support investments in energy efficiency, solar and electric and gas infrastructure programs, a reduction in pension related costs, and lower tax rate. However, these were partially offset by cost of storm-related outages, increased operating expenses due to tree trimming work and increase in depreciation expense.

PSEG Energy Holdings: Segment operating loss was $1 million in the quarter compared with a profit of $1 million in the prior-year period. The downside reflects the company’s ongoing efforts to reduce the legacy portfolio which results in a decline in lease income and the absence of asset sales gains that were recorded in the comparable period, a year ago.

Guidance

The company is confident of its stable regulated business, expecting it to grow year over year. However, it does not expect the regulated operations to offset the impact of lower power prices. Currently, it expects earnings to be in the range of $2.25 to $2.50 per share in 2012.

Our Take

The company is currently focusing on building energy infrastructure and making capital investments. Moreover, it seems to be in a mood to distribute more of its income to its shareholders. Only this month it increased its dividend by 3.6%, bringing the annualized dividend to $1.42 per share from the previous payout of $1.37 per share. The company avowed that it would reward shareholders with a greater percentage of its earnings versus its previous range of 40% to 50% of income.

We believe that Public Service Enterprise Group has a solid portfolio of regulated and non-regulated utility assets that offer a stable earnings base and substantial long-term growth potential. Going forward, we believe that the low-cost nuclear fleet, assumed rate relief and added generating capacities will drive earnings growth at the company. Moreover, management has taken several measures to improve financial stability and reduce the overall risk profile of Public Service.

However, we are concerned about the increasing cost of coal, higher pension and financial costs, and power-price volatility. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Public Service Enterprise Group Incorporated, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.  The company mainly competes with FirstEnergy Corporation (FE) and Consolidated Edison Inc. (ED).

 
CONSOL EDISON (ED): Free Stock Analysis Report
 
FIRSTENERGY CP (FE): Free Stock Analysis Report
 
PUBLIC SV ENTRP (PEG): Free Stock Analysis Report
 
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