Ameren Misses Ests, Backs View

Before the bell, Ameren Corporation (AEE) reported its first quarter 2011 results. In the reported quarter, the company with pro forma earnings of 25 cents a share missed the Zacks Consensus Estimate of 37 cents as well as the year-ago figure of 40 cents a share.

The results reflect reduced margins in the Merchant Generation segment and increased storm-related expenses for Ameren Missouri and Ameren Illinois. Other factors that resulted in the significant decline include lower capitalized financing costs, a decline in electricity and natural gas sales to native load customers, and a higher effective income tax rate due to an increased income tax rate in Illinois.

However, this was partially offset by lower interest expense and electric rate changes in Missouri and Illinois that occurred in 2010.

On a reported basis, Ameren Corporation clocked earnings of 29 cents per share versus 43 cents in the year-ago period. The difference between reported and pro forma earnings was due to the effect of the gains from net unrealized mark-to-market activity.

Operational Performance

Net revenues in the quarter decreased 1.9% from the year-ago quarter to $1.9 billion. The reported revenue missed the Zacks Consensus Estimate by $32 million.

Electricity revenue rose 1% to $1.5 billion, while Gas revenue at $434 million declined from $485 million in first quarter 2010. Volume sales of electricity to native load utility customers increased from 27.3 billion Kilowatt-hour (KWh) to 27.8 billion KWh.

Of this volume sales, KWh sales to residential and commercial customers declined 4%, while KWh sales to industrial customers rose 7% on the back of economic growth.

Segment Performance

Ameren Missouri Segment: The segment reported pro forma earnings of $21 million, down 34% year over year due to increased storm-related expenses, lower capitalized financing costs and reduced electricity sales. This was, however, offset by lower interest expense, new electric rates effective in June 2010, and lower plant operations and maintenance expenses.

Ameren Illinois Segment: The segment pro forma earnings in the current quarter were $33 million versus $37 million in the year-ago period. The results reflect a change in the mix of electricity sales and increased storm-related expenses partially offset by new electric rates effective in 2010.

Merchant Generation Segment: The segment reported pro forma earnings of $11 million, down from the year-ago earnings of $29 million due to lower realized power prices, higher fuel and related transportation costs, and a higher effective income tax rate. These decreases were partially offset by reduced financing costs.

Financial Condition

Ameren reported cash and cash equivalents of $573 million at the end of the quarter compared with $360 million in the year-ago period. Long-term debt, net decreased slightly to $6.9 billion versus $7.1 billion at the end of first quarter 2011. Net cash provided by operating activities in the reported quarter was $554 million as compared with $380 million in the year-ago period.


Ameren Corporation reaffirmed its pro forma and GAAP EPS guidance in the range of $2.20–$2.60. It expects free cash flow to be positive in 2011.

Our Take

Ameren’s stable and regulated electric power operations in the Midwest generate a relatively stable and growing earnings stream. Future growth is expected to be driven by improved plant operations, a focus on cost management, rate relief in Missouri, a recovering economy boosting industrial sales and installation of emissions reduction equipment (scrubbers) at its generation plants. The company is committed to seek utility rates and constructive regulatory frameworks that allow it to recover costs and that provide an opportunity to earn a fair return on its investments.

However, valuation continues to be restrained by merchant generation, its predominantly coal-based generation assets and pending regulatory cases. Ameren Corporation presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Exelon Corporation (EXC), one of the competitors of Ameren, announced first-quarter 2011 operating earnings of $1.17 per share versus $1.00 per share in the year-ago quarter. The results of the company surpassed the Zacks Consensus Estimate of $1.06 by 11 cents.

Ameren Corporation is a holding company which operates in the generation and distribution of electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. Through its utility subsidiaries the company distributes electricity to 2.4 million customers and natural gas to approximately 1 million customers in Missouri and Illinois.

AMEREN CORP (AEE): Free Stock Analysis Report

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