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Power utility company Progress Energy Inc. (PGN) announced first-quarter 2012 operating earnings of 48 cents per share, falling short of the Zacks Consensus Estimate of 64 cents. The results of the company were 21 cents lower than year-ago earnings.

Reported earnings declined as a result of unfavorable weather impact leading to lower demand in the Carolinas and high operation and maintenance expenses due to additional planned nuclear refuel outage at Progress Energy Carolinas.

GAAP earnings in the quarter were 51 cents per share versus 62 cents per share in the year-ago period. The difference between GAAP and operating earnings can be attributed to a 2 cent impact from tax levelization, merger related costs of 2 cents, 4 cents gain from discontinued operations and 3 cents gain from CVO (Contingent Value Obligation) market effects.

Total Revenue

Total revenue in the reported quarter was $2,092.0 million versus $2,167.0 million in the year-ago quarter, reflecting a decline of 3.4%. Lower sales contribution from Progress Energy Carolinas as well as Progress Energy Florida was responsible for the overall revenue decline.

Reported results came in below the Zacks Consensus Estimate of $2,171.0 million.

Progress Energy’s Sales and Production Update

Total electricity sales increased marginally to 21.6 billion kilowatt hours (KWh) from 22.6 billion KWh in the year-ago quarter. Progress Energy Carolinas' electricity sales totaled 13.1 billion KWh, down 7%, while Progress Energy Florida marginally grew to 8.4 billion KWh from the prior-year period.

Total energy supply during the quarter was 22.8 billion KWh, down 4.2% from 23.8 billion KWh in the prior-year quarter, with Progress Energy Carolinas contributing 13.8 billion KWh (60% of total supply) and Progress Energy Florida the remaining 9.0 billion KWh (40% of total supply).

Operational Highlights

Operating expenses during the quarter increased modestly to $1,728.0 million from $1,716.0 million in the comparable prior-year period. The rise in expenses was mainly due to higher operation and maintenance expenses of 7.0% and a 7.7% increase in depreciation & amortization expenses. This was partially mitigated by a decrease in fuel costs of 4.5% during the quarter.

Total operating income posted a 19.2% decline to $364.0 million compared with the year-ago quarter. The impact of larger decline in revenue than costs affected the operating margins of the company.

Financial Screening

Cash and cash equivalents as of March 31, 2012, were $565.0 million versus $230.0 million as of December 31, 2011.

As of March 31, 2012 net long-term debts of the company were $11,742.0 million compared with $11,718.0 million as of December 31, 2011.

Cash flow from operations totaled $356.0 million, down 20.1% from the prior-year level of $446.0 million.

Guidance

Progress Energy maintained its operating earnings per share guidance for 2012 in a range of $3.10 to $3.25 per share.

Peer Comparison

NextEra Energy Inc. (NEE) competing directly with Progress Energy announced first-quarter 2012 operating earnings of $1.02 per share, 8 cents lower than the year-ago quarter. Earnings results topped the Zacks Consensus Estimate by 5 cents.

The earnings growth can be attributed to increase in retail sales as well as a widening of the customer base. NextEra Energy’s total operating revenue for first-quarter 2012 was $3.37 billion, up 7.6% from $3.13 billion reported in the year-ago period. This is on account of higher sales performance from NextEra Energy Resources.

Reported quarter revenue also surpassed the Zacks Consensus Estimate of $3.31 billion.

Our View

The merger of Progress Energy Inc. with Duke Energy Corporation (DUK) is in progress. On fruition, the merger between these two North Carolina companies will widen the number of customers by more than 7 million. It will lead to increase in import capabilities of both Power Energy Carolinas and Duke Energy Corp. as well as expansion of service territories thereby enhancing its competitive edge in the power sector.

However, delay in receiving necessary regulatory approval required for the completion of merger and lower energy sales in its both its service territories are offsetting the positive impact of the marginal expansion of the customer base.

Progress Energy Inc. currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We give a neutral recommendation in the long run.

Based in Raleigh, North Carolina-based Progress Energy Inc. is an energy utility engaged in regulated electricity operations in the southeastern U.S. The company also has certain non-regulated businesses. Progress Energy is a holding company, comprising two electric utilities, serving 3.1 million customers in North Carolina, South Carolina and Florida.

 
DUKE ENERGY CP (DUK): Free Stock Analysis Report
 
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