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Consolidated Edison Inc. (NYSE:ED), also known as ConEd, announced second quarter fiscal 2011 results with pro forma earnings per share ('EPS') of 57 cents above the Zacks Consensus Estimate of 53 cents and the prior-year figure of 51 cents. GAAP and pro forma EPS in the reported quarter were the same while GAAP EPS in the prior-year quarter was 65 cents.

The EPS upside was driven by changes in the rate plans of ConEd's utility subsidiaries. Incremental revenues from revised rate plans helped offset the increase in certain operations and maintenance expenses, and depreciation and property taxes.

Operational Results

ConEd reported operating revenue of $3.0 billion, missing the Zacks Consensus Estimate by $131 million but jumping ahead of the prior-year revenue by $24 million. Of this Electric revenues fell $103 million to $2.2 billion and gas revenues were up $59 million to $333 million. Revenues from steam were $107 million compared with $89 million a year ago and non-utility revenues were up by $2 million to $400 million.

During the quarter, total operating expenses were $2.6 billion, up $7 million year over year. Other operations and maintenance expenses incurred were up $54 million to $732 million due to higher costs for pension and other postretirement benefits and employee health insurance, partially offset by savings from cost control efforts in place.

The company generated operating income of $398 million compared with $429 million in the prior-year period. Pro forma net income in the quarter was $166 million compared with $144 million in the year-ago period.

Financial Condition

ConEd ended the quarter with cash and temporary cash investments of $492 million, compared with $338 million of cash at prior-year quarter end. Long-term debt of $10.7 billion remained flat year over year.

Outlook

ConEd reaffirmed its pro forma EPS guidance range of $3.45 – $3.65 for fiscal 2011.

Peer Comparison

Recently, one of ConEd’s peers, American Electric Power Co. Inc. (NYSE:AEP) reported second quarter 2011 adjusted EPS of 73 cents, down from the year-ago figure of 74 cents and the Zacks Consensus Estimate of 76 cents.

Our Take

Consolidated Edison’s robust portfolio of regulated utility assets provides a steady earnings base and significant growth prospects for the long run. Its cost management strategies keep the operations efficient and the company strong and sustainable. Going forward, the growth momentum will depend on positive investment factors, such as favorable regulatory decisions, higher electricity rates in New York, revenue insulation from demand volatility and infrastructure improvement programs.

However, valuation continues to be restrained by the expected lower demand for electricity, earnings dilutive issuances and regulatory risks. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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

Read the full analyst report on AEP

Read the full analyst report on ED

Source: ConEd Tops EPS, Sales Miss