HE Hawaiian Electric Industries

Hawaiian Electric Industries Inc. (HE) posted second quarter 2013 earnings of 41 cents per share, beating the Zacks Consensus Estimate of 38 cents. Also, earnings came in ahead of the year-ago figure by a penny.

The results reflect higher bank earnings compared to the same quarter last year. The positives were partly offset by lower utility earnings due to a customer refund recorded in the quarter.

Operating Statistics

Total revenue at the end of the reported quarter was $796.7 million, down 6.7% year over year. Reported results were also below the Zacks Consensus Estimate of $830.0 million.

Segment Net Income

Electric Utility: Segment net income declined 2.4% year over year to $28.7 million. The results reflect higher depreciation expense, higher customer service costs and relatively flat revenue owing to the customer refund granted in its recent final rate case decision. However, these were partially offset by lower operations and maintenance (O&M) expenses because of the temporary delays in overhauls and reversals of previously expensed costs.

Banking: Hawaiian Electric’s Banking segment recorded net income of $15.9 million in the reported quarter, up 12.2% from $14.2 million in the year-ago quarter. The increase reflects a lower provision for loan losses of $2 million, $1 million of which related to the strategic third quarter sale of American's credit card portfolio, and $1 million higher gains on sales of investment securities. However, these were partially offset by lower mortgage banking income and higher non-interest expense.

Overall, the segment continued to deliver solid results in second quarter 2013 with a return on average equity of 12.6% and a return on average assets of 1.25%.

Other: The segment digested a quarterly net loss of $4.0 million, narrower than the year-ago loss of $4.8 million.

Financial Update

Cash and cash equivalents as of Jun 30, 2013, were $153.7 million, down from $219.7 million as of Dec 31, 2012. Long-term debt, net was $1,422.9 million, approximately flat year over year. Net cash provided by (used in) operating activities was $130.8 million in the first half of 2013 versus ($3.6) million in the year-earlier period.

Guidance

Recently, Hawaiian Electric lowered its earnings guidance for 2013. The lowered guidance reflects Maui Electric Company, Limited’s (MECO) 2012 test year final rate case decision and order (D&O) issued by the Public Utilities Commission of the State of Hawaii (“PUC”).

The company expects adjusted earnings per share in the range of $1.54 to $1.64 and GAAP earnings in the range of $1.52 to $1.62 per share. The guidance reflects $7.8 million lower MECO annual revenues as a result of the final D&O. With its first quarter results, the company had issued 2013 earnings guidance in the range of $1.58 to $1.68 per share.

For Hawaiian Electric Company, Inc., the company expects adjusted earnings per share in the range of $1.19 to $1.25 and GAAP earnings per share in the range of $1.17 to $1.23.

Zacks Rank

The company presently retains a short-term Zacks Rank #3 (Hold).

Going forward, we expect the company to benefit from investment in local infrastructure. The company made $140 million of infrastructure investments in the first half of 2013. Also, its common stock offering would bring in capital, and a more modern electric grid and lower-cost renewable energy would benefit customers. The company is trying to reduce its dependence on oil and is constantly seeking ways to increase the use of lower-cost renewables.

Year to date, Hawaiian Electric Company has already provided nearly 18% of customers' electricity usage from renewable sources. This is higher than the 2015 renewable portfolio standard of 15%.

We are nevertheless concerned about lower electricity volume sales, a tourism-dependant Hawaiian economy and the volatile Japanese economy.

Stocks that are well placed in the energy space are Zacks Ranked #1 (Strong Buy) Huaneng Power International, Inc. (HNP) and UNS Energy Corp. (UNS), and Zacks Ranked #2 (Buy) Alliant Energy Corp. (LNT).
 

 
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