Ameren Beats 3Q Estimates

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 |  About: Ameren Corporation (AEE)
by: Zacks Investment Research

Click to enlargeAmeren Corporation (NYSE:AEE) released third quarter adjusted earnings of $1.40, sweeping past the Zacks Consensus estimate of $1.26 on strong electricity sales and disciplined cost management. Earnings also beat the year-ago quarterly earnings of $1.16. (See conference call transcript here.)

Performance in the reported quarter was boosted by warmer summer weather leading to higher electricity sales boosted by higher utility rates. This was partially offset by lower realized power prices and higher fuel and related transportation costs in its merchant generation business.

On a reported basis the company reported a loss per share of 70 cents compared to third quarter 2009 earnings of $1.04.

The variance between reported and adjusted earnings in the reported quarter was due to Goodwill and other asset impairment charges ($2.19). This was partially offset by net unrealized mark-to-market activity (9 cents).

Operational Performance

Net revenues in the quarter rose 24.2% from the year-ago quarter to $2.3 billion, with Electric revenue jumping 26.4% to $2.1 billion. However, this was partially offset by Gas revenue, which shrunk 2.9% to $132 million. Quarterly revenues also comfortably beat the Zacks Consensus Estimate of $2.1 billion. In the reported quarter kilowatthour (KWh) sales of electricity to native load utility customers increased 16% year over year.

The higher KWh sales reflected warmer summer weather, a recovering economy and the return to full capacity, in March 2010, of a large customer's aluminum smelter plant. KWh sales to industrial customers rose 18%. Excluding KWh sales to the smelter plant, industrial KWh sales increased 10%. KWh sales to residential customers rose 28%, and KWh sales to commercial customers rose 11%.

Segmental Performance

Ameren Missouri Segment: Segmental earnings in the third quarter of 2010 were $221 million compared to $145 million in the third quarter of 2009. This was due to a 12% increase in electricity sales to native load customers, as a result of warmer summer weather, a recovering economy and the return to full capacity, in March 2010, of the segment's largest customer, the Noranda Aluminum smelter plant.

Apart from these higher electric rates, effective June 21, 2010, higher capitalization of financing costs for construction projects also contributed to the earnings improvement. The impact of these positive factors was partially reduced by higher plant operations and maintenance expenses.

Ameren Illinois Segment: Segmental earnings in the quarter were $89 million compared to $62 million in the year-ago quarter. This was due to a 19% increase in electricity sales as a result of warmer summer weather and a recovering economy. This was partially offset by higher financing costs and higher taxes.

Merchant Generation Segment: Segmental earnings were $34 million, a decline from $62 million in the same quarter of the previous year. This decline was largely due to lower realized power prices and higher fuel and related transportation costs.

Financial Condition

Ameren reported cash and cash equivalents of $608 million, compared to cash and cash equivalents of $622 million as of December 31, 2010. Long-term debt decreased slightly to $6.9 billion versus $7.1 billion at fiscal-end 2009. The company generated cash of approximately $1.5 billion from operating activities compared to $1.7 billion in the same period of fiscal 2009.

Outlook

Ameren raised its fiscal 2010 EPS guidance range to $2.60 – $2.80 from its earlier guidance range of $2.50 – $2.80. We are bullish on the Zacks #2 Rank (Buy) stock based on its consistently solid performance. Going forward, the growth momentum will be maintained by higher rates, a strong balance sheet and a relatively cheap earnings-based valuation.

Disclosure: No position