PG&E Beats on Earnings, Falls Y/Y
PG&E Corporation’s (PCG) adjusted operating earnings per share of 42 cents in the fourth quarter of 2013 were ahead of the Zacks Consensus Estimate of 40 cents, backed by higher rate base earnings. However, the reported figure came in below the year-ago number of 59 cents by 28.8% due to lower regulated return on equity and debt compared to last year and a higher number of shares outstanding.
On a reported basis, the company clocked earnings per share of 19 cents as against a loss of 3 cents in the year-ago quarter.
Full year 2013 adjusted earnings were $2.72 per share, beating our projection by 1.1%. However, the reported number decreased 15.5% from last year. On a GAAP basis, earnings were $1.83 in 2013 versus $1.92 in 2012.
Revenue Update
PG&E’s top line increased 3.7% to $15,598.0 million in 2013 from $15,040 million in the year-ago period and surpassed our expectation of $15,298 million. Electric revenue generated $12,494 million in the quarter (up 4.0% year over year), while Natural Gas clocked $3,104.0 million (up 2.7%).
Expenses
On the cost front, total operating expenses stood at $13,836 million in 2013, up 3.7% from the year-earlier level of $13,347.0 million. The rise was mainly due to the surge in cost of electricity as well as natural gas.
Guidance
Due to the company’s pending major rate cases and the California Public Utilities Commission's delays in resolving the gas penalty proceedings, the company has not provided any earnings expectation for 2014.
At the Peer
Recently, American Electric Power Company Inc. (AEP) reported fourth quarter 2013 operating earnings of 60 cents per share, beating the Zacks Consensus Estimate of 56 cents by 7.1%. The quarterly figure also improved 20% from the year-ago profit of 50 cents.
Again, Michigan-based CMS Energy Corp. (CMS) posted fourth-quarter 2013 earnings per share of 37 cents on both adjusted and GAAP basis. The quarterly figure was on par with the Zacks Consensus Estimate, but increased 48% on a year-over-year basis.
Zacks Rank
The company holds a Zacks Rank #3 (Hold). In the near term, we would advise investors to focus on its Zacks Rank #1 (Strong Buy) peer Korea Electric Power Corp. (KEP).
PG&E Corporation nevertheless has a solid portfolio of regulated utility assets that offer a stable earnings base and substantial long-term growth potential. The company strives to optimize generation margins by improving its cost structure, performance and reliability of its nuclear as well as fossil units.
In 2013, the company validated the safe operating pressure for all of its 6,750 miles of gas transmission pipelines, and opened a cutting-edge control center for its gas transmission and distribution operations. PG&E is thus committed to ensure the safety of its gas pipeline systems.
Going forward, we expect the company’s earnings growth to be driven by favorable decisions from California Public Utilities Commission and Federal Energy Regulatory Commission, as well as long-term supply agreements, diversification into alternative power sources and infrastructure improvement programs resulting in rate base growth.
However, the present unfavorable macro backdrop, tepid demand for electricity, any accidental charges or severe fluctuation in prices keep us concerned.
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