Electric and natural gas utility CMS Energy Corp. (CMS) is slated to release its fourth-quarter earnings before the market opens Wednesday. The utility industry is facing slumping electricity sales in the midst of weakening economic conditions, which resulted in reduced electric use by large commercial and industrial customers, and also soft residential demand growth. Wall Street analysts are expecting CMS Energy to post a slight decline in earnings for the quarter, while expecting good revenue growth.
Michigan-based CMS Energy, through its principal subsidiary Consumers Energy, provides electric and natural gas utility services to about 6.5 million of Michigan's 10 million residents. Through CMS Enterprises subsidiary, CMS Energy is also engaged in North American independent power business.
While announcing a 40% increase in its quarterly dividend to 12.5 cents per share, David Joos, CMS Energy's president and chief executive officer, on January 23 said that the Board's decision to increase the dividend "reflects the company's improved financial strength, even in this challenging economy, and the fundamental soundness of our business strategy. We expect to continue to increase our payout ratio over time as we implement our growth plan and grow our earnings, however, that will be at a slower pace in light of our aggressive capital investment plan."
Recently, Consumers Energy said it would delay a proposed 800-megawatt clean coal unit in Michigan, which is currently expected to be operational in 2017, compared to the original plan of making it operational in 2015, due to regulatory delay and an executive order by the governor for further review of coal alternatives.
Joos said in January, "We plan to invest more than $6 billion in our utility operations over the next five years. Our plan calls for making substantial investments in key areas, primarily energy efficiency, renewable energy, environmental and customer service enhancements, and new power generation."
According to data complied by Energy Information Administration, or EIA, of the US Government, December 2008 retail sales of electricity edged up 0.7% from last year, with an 8.2% rise in average U.S. retail price of electricity, reflecting higher fuel costs involved in the generation of electricity. Meanwhile, retail sales of electricity in the month of November dropped 1.6%, with 8.5% rise in average U.S. retail price of electricity.
In December, total electric power generation in the United States decreased 1.3%, but conventional hydroelectric generation rose 12% as drought conditions began to subside throughout much of the contiguous United States. In November 2008, total electric power generation in the United States dropped 0.6%, while conventional hydroelectric generation was 8.6 percent higher than for November 2007.
On average, nine analysts polled by First Call/Thomson Financial expect CMS Energy to post earnings of $0.24 per share for the fourth quarter, with estimates ranging between $0.21 and $0.27 per share. Analysts' estimates typically exclude special items. Revenues are projected to increase 9.6% year-over-year to $1.84 billion. In the same quarter a year ago, the company had recorded earnings of $0.26 per share on revenues of $1.67 billion.
In its third quarter, CMS Energy had reported a decline in net income to $79 million from $82 million in the previous year, reflecting weak economy and tighter credit markets. On a per share basis, earnings were $0.34, flat with last year. Excluding items, adjusted net income rose to $78 million or $0.33 per share from $32 million or $0.13 per share in the prior-year quarter.
For the year 2008, the company expects adjusted earnings per share of $1.20, excluding a $0.03 per share unrealized loss on nonqualified retirement plan investments. Analysts anticipate the company to report earnings per share of $1.19, while prior year's earnings were $0.89 per share. The company earlier said that, while it expected 2008 reported earnings to be about the same as its adjusted earnings, reported earnings could vary because of gains or charges relating to previous asset sales, unrealized losses on nonqualified retirement plan investments, or other factors.
Among other electric utilities, American Electric Power Co. Inc. (AEP) on January 29 reported a decline in fourth-quarter earnings to $152 million or $0.38 per share from $231 million or $0.58 per share in the prior-year quarter, after being asked by the Federal Energy Regulatory Commission, or FERC, to reallocate off-system sales margins for a six-year period to the AEP West Companies.
Another peer DTE Energy Co. (DTE) said Monday that fourth quarter earnings fell to $129 million or $0.80 per share from $255 million or $1.56 per share last year due to lower sales and higher uncollectible expense at its electric utility Detroit Edison.
CMS closed Tuesday's regular trading session at $10.63, up $0.54 or 5.35%, on a volume of 6.8 million shares. In the past 52 weeks, shares have been trading in a range of $8.33 - $15.89, with a three-month average volume of 4 million shares.
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