Hawaiian Electric Up on Revs

Hawaiian Electric Industries Inc. (HE) announced first-quarter 2011 operating earnings of 30 cents per share, missing the Zacks Consensus Estimate of 31 cents. However, reported earnings were a penny above the year-ago earnings of 29 cents.

Operating Statistics

Total revenue at the end of the first quarter was $710.6 million versus $619 million in the year-ago quarter, reflecting growth of 14.8%. Reported results also came higher than the Zacks Consensus Estimate of $653 million. Hawaiian Electric’s reported net income of $28.5 million compared with $27.1 million in the year-ago quarter.

Segment Net Income

Electric Utility:

Segment net income increased to $19.2 million in the reported quarter compared with $18.1 million in the year-ago quarter. The improvement resulted primarily from higher kilowatt-hour sales, largely due to warmer and more humid weather; and rate relief granted for the Hawaii Island and Maui County rate cases in 2010 and the 2009 Oahu rate case. These were partially offset by higher operations and maintenance expenses, as well as lower allowance for funds used during construction.

Kilowatt-hour sales were up 0.4% and 2.0% for Hawaii Island and Maui County utilities, respectively, in the first-quarter 2011. On the other hand for the Oahu utility, kilowatt-hour sales for the first two months of the reported quarter were 3.2% higher than the year-ago period.

Subsequently, sales decoupling became effective on March 1, 2011 and from that date the actual kilowatt-hour sales failed to remain an earnings driver at Oahu.

Banking:

Hawaiian Electric’s Banking segment recorded a net income of $13.9 million in the reported quarter, compared with a net income of $13.7 million in the year-ago quarter. The increase resulted from lower expenses which were partially offset by lower revenues.

The major variances over the same quarter last year were reduction in expense due to the completion of a performance improvement project. This was offset by reduction in income due to lower fees received as a result of regulatory changes related to overdraft fees which became effective in the third quarter of 2010; and lower yields and lower earning asset balances largely in the residential loan portfolio.

Holding and Other:

Net loss from this segment was $4.6 million in the reported quarter compared with a net loss of $4.7 million in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of March 31, 2011, were $316.3 million versus $330.7 million as of December 31, 2010. Cash used in operations during the reported period totaled $13.2 million versus cash generated from operations of $9.9 million in the year-ago period.

Long-term debt remained at the same level of $1.4 billion at the end of the first-quarter 2011 compared to fiscal 2010 end. The company also declared a regular quarterly cash dividend of 31 cents per share, payable on June 14, 2011, to shareholders of record at the close of business on May 20, 2011.

Our View

Based in Honolulu, Hawaii, Hawaiian Electric along with its subsidiaries primarily engages in electric utility and banking businesses primarily in the state of Hawaii.

Performance in the reported quarter was primarily driven by the results from the Banking segment. The Banking segment performed well in the reported quarter due to lower credit costs and lower operating expenses.

However, the present weak Hawaiian economy and uncertainty regarding the sustainable strength of the Japanese economy continue to weigh on the stock’s valuation. Hence, over the long term, however, we maintain our Neutral rating on the stock.

In the near-term we retain a short-term Zacks #4 Rank on the stock, which translates into a Sell rating. This is in-line with its peers like Ameren Corporation (AEE) and Dominion Resources Inc. (D).

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