NU Nu Holdings Ltd

Diversified utility company Northeast Utilities’ (NU) first quarter 2012 pro forma earnings of 56 cents per share missed the Zacks Consensus Estimate of 68 cents and also fell short of the year-ago quarter earnings of 64 cents per share.

The decrease in earnings resulted from mild weather experienced in the winter season and higher pension costs.

The GAAP earnings per share during the quarter were 56 cents versus 64 cents per share reported in the year-ago quarter.

Total Revenue

Northeast Utilities reported quarterly operating revenue of $1,099.6 million, down 10.9% from the year-ago quarter figure of $1,235.2 million. The quarterly revenue fell short of the Zacks Estimate of $1,252.0 million.

The decline in revenue can be attributed to lower retail sales from the company’s distribution and generation businesses.

Electric Sales Volumes

Northeast Utilities' retail electric sales in the first quarter were down 5% from the comparable 2011 quarter to 8,271.0 Gigawatt hours (GWh) due to warmer winter weather.

On a weather-adjusted basis, however, retail electric sales increased 0.1% from the year-ago quarter. Yankee Gas' natural gas sales decreased 13.2% to 16.8 billion cubic feet (Bcf). On a weather-adjusted basis, Yankee Gas sales volume showed an increase of 5.0% from the year-ago quarter.

Segmental Earnings

Distribution & Generation: Electric and Gas Distribution earnings totaled $56.7 million in the quarter, compared with $ 78.2 million in the prior-year quarter.

The quarterly earnings fell mainly due to lower earnings from the Connecticut Light & Power (CL&P) and Public Service Company of New Hampshire (PSNH) companies. This was traced to warmer winter temperature, and higher pension and health care expenses. These were partially mitigated by favorable earnings generated from the Western Massachusetts Electric Company (WMECO) with its second solar facility commencing operations.

Yankee Gas Services Company reported earnings of $14.7 million, down 34.6% from $22.5 million in the previous year quarter. It was the result of decline in natural gas sales.

Transmission: The Transmission segment’s quarterly earnings of $46.3 million increased 3.5% from $44.7 million earned in the prior-year quarter. This improvement in earnings reflected higher investments made in the Greater Springfield Reliability Project in Massachusetts and Connecticut.

NU Parent & Other Companies: Net expenses from these companies registered a loss of $3.7 million in the quarter compared with loss of $8.7 million in the first quarter of 2011. This reduction in loss was primarily driven by lower after-tax, merger-related expenses.

Operational Highlights

On the cost side, Northeast Utilities’ results were positive, given its continuous drive towards cost control measures. Total operating expense slipped 12.1% to $885.2 million from the year-ago quarter. Lower fuel and power cost of 16% coupled with lower operating expenses of 10.3% were the major contributors.

Northeast Utilities’ operating income in the current quarter totaled $214.4 million compared with $227.3 million in first quarter 2011.

Interest expense surged 13.5% to $66.4 million from $58.5 million in the year-ago quarter, indicating higher long-term debt.

Financial Update

As of March 31, 2012, Northeast Utilities had cash and cash equivalents of $283.3 million versus $6.5 million as of December 31, 2011.

Cash Flow from operating activities was $8.8 million versus $373.0 million in the year-ago comparable quarter.

Long-term debt as of March 31, 2012 was $4,977.1 million, up 7.8% from $4,615.0 million as of December 31, 2012.

Peer Comparison

Northeast Utilities’ closest peer NiSource Inc. (NI) posted first quarter 2012 net operating earnings of 76 cents per share, surpassing the Zacks Consensus Estimate by 4 cents and the year-ago figure by 2 cents.

Total revenue in the quarter under review declined 20.5% year-over-year to $1.7 billion from $2.14 billion in the first quarter of 2011. The year-over-year decline was attributed to significantly lower performance from the Gas Distribution segment which plummeted 33.6% year over year.

Revenue was below the Zacks Consensus Estimate of $ 2.2 billion.

Our View

The company missed our sales as well as earnings per share expectation in the reported quarter due to the impact of mild weather. However, the continued cost management efforts and the completion of merger with NSTAR can be beneficial for the company in the long run.

However, any unexpected delay in infrastructural expansion projects, coupled with the possibility of demand destruction due to weather variations might act as a negative catalyst on part of the company’s growth potential.

Northeast Utilities hold a Zacks #4 Rank which translates into a short-term Sell rating. We have neutral recommendation in the long run.

Based in Hartford, Connecticut, Northeast Utilities engages in the energy delivery business for residential, commercial, and industrial customers.

 
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