Con Edison Falls Behind Consensus - Analyst Blog

Consolidated Edison Inc.'s (ED) fourth quarter earnings from continuing operations came in at 69 cents, a penny below the Zacks Consensus Estimate of 70 cents. This follows in the footsteps of the year-ago quarter when earnings also underperformed the market. However, results compared favorably with earnings from continuing operations of 67 cents in the year-ago quarter.

On a reported basis, the company reported earnings of 81 cents per share compared with 73 cents in the year-ago quarter. Earnings were boosted year-over-year due to higher rates for the utility subsidiaries and savings in operating expenses through cost control efforts. However, this was partially offset by higher costs for demand side management programs and employee health insurance costs.

The GAAP EPS variations reflect the year-over-year differences, where Con Edison of New York (CECONY) benefited by 37 cents per share as higher rates authorized higher recovery of costs and 2 cent from lower interest expense. This was partially offset by 18 cents from higher operations and maintenance expense, 12 cents from depreciation, and 6 cents from dilutive effects of new stock issuances.

The upshot was a 3-cent upside in EPS year over year while the Orange and Rockland utilities' EPS was a penny lower. In the Competitive Energy businesses, EPS rose by 7 cents while higher parent company expenses weaned away a penny year-over-year.

Operational Results

Consolidated Edison reported operating revenue of $3.1 billion, a decrease of $133 million over the year-ago quarter and $381 million lower than the Zacks Consensus Estimate of $3.5 billion. Of this Electric revenues rose $147 million to $2.1 billion, while Stream revenues rose $30 million to $169 million. However the upside was more than offset by lower Gas and Non-utility revenues. Gas revenues fell $29 million to $484 million and Non-utility revenues fell $281 million to $382 million.

Consolidated Edison's earnings from ongoing operations were $201 million compared with $184 million in the year-ago quarter. Its net income was $233 million compared with $202 million in the year-ago quarter. Earnings were boosted by higher rates but were partially offset by higher operations and maintenance expense, and depreciation.

Dividend Update

Concurrent with the earnings release, Consolidated Edison hiked its quarterly dividend to 60 cents per share, representing an annualized dividend of $2.40. The dividend will be paid on March 15, 2011 to shareholders of record on February 16, 2011. This represents an annualized increase of 2 cents over the previous annualized dividend of $2.38 per share. This is the 37th consecutive annual dividend hike by the company.

Outlook

Consolidated Edison expects its EPS from ongoing operations for fiscal 2011 in the range of $3.45 – $3.65. The forecast reflects capital investments of $2.1 billion, substantially all of which will be spent on the company's regulated utilities.

New York City-based Consolidated Edison is a diversified utility holding company with subsidiaries engaged in both regulated and unregulated businesses. Consolidated Edison's regulated businesses operate through two subsidiaries — Consolidated Edison Company of New York (CECONY) and Orange and Rockland Utilities (O&R). 

Consolidated Edison of New York is a regulated utility in New York City and Westchester County. O&R serves electric and gas customers in southeastern New York State, northern New Jersey, and northeastern Pennsylvania. Consolidated Edison's unregulated businesses operate through three subsidiaries – Consolidated Edison Development (engaged in infrastructure development), Consolidated Edison Energy (supplies energy in the wholesale market) and Consolidated Edison Solutions (provides retail energy).

Consolidated Edison is a predominantly regulated utility with multi-year rate plans for its services. However the stock is currently trading at a premium per the current fiscal earnings estimates vis-à-vis its peers like American Electric Power Company Inc. (AEP) and Edison International (EIX). Consolidated Edison currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock.

 
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