Integrys Excels, But Misses Ests.

Integrys Energy Group Inc. (TEG) posted a rise in its bottom line compared to the year-ago quarter while it missed the Zacks Estimate. Integrys’ adjusted earnings of $1.57 per share for the first quarter 2011 were 8 cents above $1.49 earned in the first quarter of 2010. The company’s bottom line was, however, short of the Zacks Consensus Estimate of $1.62 by 5 cents.

Integrys’ year-over-year outperformance was driven by strong earnings performance at its Regulated Natural Gas Utility segment and at Integrys Energy Services.

Operating Results

Total revenue for Integrys Energy in the quarter was $1.63 billion, down 14.5% from $1.90 billion in the prior-year quarter and below the Zacks Consensus Estimate of $1.87 billion. Decline in Non-regulated as well as Utility revenues led to the shortfall.

Costs of operation at Integrys Energy declined significantly during the quarter, which greatly helped the company’s operating results. Total cost of fuel, natural gas and purchased power in the quarter was $1,064.7 million, down 22% year over year. Operating and maintenance expenses showed a decline of 2.3%, while depreciation and amortization expense dipped 2.8% compared to last year.

As a result, first quarter operating income for Integrys Energy was $208.7 million, a 74.7% increase compared with $119.4 million in the year-ago period. Interest expense in the quarter declined 11.7% to $34.8 million.

Segment Results

During the first quarter, earnings at the Regulated Natural Gas Utility segment increased by $1 million to $77.2 million from the year-ago quarter, due to net rate increases at some of the natural gas utilities.

Adjusted earnings at Integrys Energy Services were $11.6 million, an improvement of 103.5% from last year, mainly owing to decreased tax expense due to the revaluation of deferred tax assets and a decrease in employee payroll and benefit expenses, primarily related to the reduction in workforce at Integrys Energy Services as a result of the strategy change announced by management in the first quarter of 2010.

The Regulated Electric utility segment posted a decline of $5.4 million in adjusted earnings compared to the first quarter 2010, with earnings coming in at $25.2 million in the first quarter 2011. The decline was mainly driven by a decrease in Wisconsin Public Service Corporation’s revenue from the previous rate order and higher fuel and purchased power costs, partially offset by decrease in depreciation and amortization and reduced labor costs.

Earnings at Integrys Energy Group’s investment in American Transmission Company were $11.4 million, down marginally from $11.6 million in the prior-year period.

Adjusted loss related to the Holding Company and Other segment was $1.8 million, an improvement from a loss of $8.6 million in the prior-year period, largely driven by lower credit facility fees in 2011 and higher intercompany fees related to a credit agreement that was signed in the second quarter of 2010 between the holding company and Integrys Energy Services.

Financial Update

Cash and cash equivalents of Integrys Energy as of March 31, 2011, were $195.3 million, up from $179.0 million as of the year-end 2010. Long-term debt at year-end was $2.16 billion, in line with the December 31, 2010 levels.

Net cash generated from operating activities as of March 31, 2011, was $395.5 million, down from $419.4 million in the corresponding period of last year. Capital expenditure for the first quarter totaled $51.2 million compared with $63.2 million in the year-ago quarter.


Management retained its adjusted earnings guidance of $3.24 – $3.57 per share, while it slightly adjusted its GAAP earnings guidance to range within $3.27 – $3.60 per share for 2011.

Management expects long-term earnings per share to grow at a rate of 4% to 6% on an average annualized basis between 2011 and 2015.

Our View

We maintain our long term ‘Neutral’ recommendation on Integrys shares. Integrys currently has a short term Zacks #3 Rank (Hold), in line with one of its peers Wisconsin Energy Corp. (WEC) who has the same rank.

Integrys Energy Group is a diversified holding company providing products and services in both regulated and non-regulated energy markets, through its subsidiaries.

WISC ENERGY CP (WEC): Free Stock Analysis Report

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