TECO Energy (TE) Exceeds Estimates

Energy utility TECO Energy Inc. (TE) announced its second-quarter 2010 operating earnings of 37 cents per share, which beat the Zacks Consensus Estimate of 34 cents. The results of the company also came in stronger than the 29 cents reported in the year-ago quarter. GAAP earnings in the quarter were 35 cents per share versus 29 cents per share in the second quarter of 2009.

The difference between the GAAP net income of $75.5 million and the operating net income of $79.6 million during the reported quarter was due to a $4.1 million charge for early retirement of debt in April 2010.

Total Revenue

Total revenue of the TECO Energy at the end of the second quarter was $898.8 million versus $825.2 million in the year-ago period, reflecting growth of 8.9%.

The increase in total revenue was primarily driven by contribution from the unregulated segments. The unregulated segment comprised 26% of total revenue during the reported quarter versus 19.7% a year ago.

Operational Update

The cost of fuel, purchased power and cost of natural gas sold during the quarter was $293.9 million versus $332.5 million in the year-ago quarter, reflecting a decline of 11.6%.

TECO Energy experienced an increase in mining related cost during the quarter, amounting to $137.6 million versus $110.9 million in the year-ago quarter.

The company saw a marginal year-over-year increase in total expenses during the quarter. However, as a percentage of total revenue, total expenses during the second quarter 2010 decreased 4% over the prior year.

The positive impact of the relative decline in total expenses as a percentage of revenue was reflected in the year-over-year growth in income from operations. Income from operation during the reported quarter was $169.9 million versus $123.1 million in the second quarter of 2009, reflecting growth of 38.0%.

Interest charges during the quarter increased marginally to $58.2 million from $56.4 million in the year-ago quarter, owing to a slight increase in long-term debt.

Financial Update

TECO Energy continues to maintain a strong cash balance. Cash and cash equivalents of the company as of June 30, 2010 were $97.8 million versus $28.0 million as of June 30, 2009.

Capital expenditure of the company during the quarter was $132.2 million versus $176.8 million in the prior-year quarter.

Long-term debt of the company as of June 30, 2010 was $3.4 billion versus $3.2 billion as of June 30, 2009.

Dividend

On August 4, 2010, the board of directors of TECO Energy declared a quarterly dividend of 20.5 cents per share. The dividend is payable on August 27, 2010 to shareholders of record as of August 16, 2010.

Guidance

TECO Energy expects earnings per share for 2010 to range between $1.25 and $1.35, up from the previous range of $1.20 to $1.35 provided in February 2010.

TECO Coal now expects to sell 9 million tons, up from the previous range of 8.3 to 8.7 million tons. The average sales price per ton expectation upped to $77 from $75 per ton earlier.

TECO Guatemala expects 2010 earnings to be above the 2009 level. However, the possibility of spot energy sales at good margins is limited in the second half of the year due to the resumption of normal rainfall.

Parent & other is expected to benefit from lower interest rates in the second half of 2010 as a result of the debt refinancing completed in April.

Our View

TECO Energy’s customer base improved year over year, which also resulted in increased sales for the company. The company is expected to enjoy the benefit of a quantum increase in customers for the rest of the year.

However, the growth in customer base in the future is uncertain as the year-to-date growth was heavily influenced by the home-buyer tax credit program.

We have a short-term Zacks #2 Rank (Buy) and a long-term Neutral recommendation on the stock.

TECO ENERGY (TE): Free Stock Analysis Report

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