CMS Energy Falls Short by a Penny

Energy utility CMS Energy Corporation (CMS) announced its operating earnings for the second-quarter 2010 of 26 cents per share, compared with 28 cents per share in the year-ago quarter. The results of the company were lower than the Zacks Consensus Estimate of 27 cents by a penny.

GAAP earnings of CMS Energy for the second quarter of 2010 were 32 cents per share in line with earnings recorded in the year-ago period. The difference between GAAP and operating earnings, during the second quarter, was owing to the one-time items of a gain of 13 cents for sale of assets and a 7-cent loss from discontinuing operations.

Total Revenue

Total revenue of CMS Energy at the end of second quarter 2010 was $1,340 million versus $1,225 million in the year-ago period, reflecting a growth of 9.4%. The year-over-year growth was driven by higher contributions from Electric and Enterprise segments, the results were marginally impacted by lower results from the Gas segment.

The revenue contribution from Electric, Gas and Enterprise segments during the second quarter 2010 were $975 million, $301 million and $55 million, respectively. The contribution from Electric, Gas and Enterprise segments during the second quarter of 2009 were $848 million, $334 million and $37 million respectively.

The second quarter revenue of the company was marginally lower than the Zacks Consensus estimate of $1,364 million.

Operational Update

Operating Expenses during the second quarter 2010 increased by 0.3% to $1,078 million from $1,075 million in the year-ago period. However, as a percentage of total revenue, operating expenses during the second quarter 2010 decreased significantly from the year-ago period.

The positive impact of the relative decline in operating expenses as a percentage of revenue was reflected in the year-over-year growth in operating income. Operating income during the second quarter was $262 million versus $150 million in the second quarter of 2009, reflecting a growth of 74.7%.

Interest expenses of the company at the end of the second quarter 2010 were $117 million, versus $105 million in the year-ago period, reflecting an increase of 11.4%. The increase in interest expenses was due to higher other interest payments of the company as the interest on long-term debt remained constant year over year.

Financial Update

The cash position of the company deteriorated on a half-yearly basis. CMS Energy ended the first half of 2010 with a cash balance of $563 million, versus $1,023 million in the first half of 2009.

Total debt and capital and finance leases of CMS Energy at the end of second quarter 2010 were $6.5 billion, versus $6.9 billion at the end of the second quarter 2009.

Guidance

CMS Energy reaffirmed its guidance for adjusted earnings of $1.35 per share for 2010. The 2010 earnings expectation of the company reflects a 7.1% growth over 2009 operating earnings of $1.26 per share.

CMS Energy did not provide any GAAP earnings guidance for 2010, as earnings tend to differ with the impact of legacy issues associated with previously sold assets.

Our View

It is encouraging to see that CMS Energy has entered into quite a few contracts during the second quarter of 2010, which will benefit the company over the next few years.

We appreciate the decision taken by CMS Energy to defer the development of the 830 megawatt (MW) clean coal power plant due to lack of demand and excess capacity in the Midwest region.

Based in Jackson, Michigan, CMS Energy is an energy company primarily catering to its customers in Michigan.

CMS ENERGY (CMS): Free Stock Analysis Report

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