ConEd's Earnings Increase 13% Year Over Year, But Is It A Buy?

Consolidated Edison Inc. (ED) is a holding company that owns Consolidated Edison Company of New York and Orange & Rockland Utilities. The company reported earnings after the market closed on 20Feb14, and on the surface, all the results seemed bad with the company reporting earnings of $0.80 per share (in line with estimates) on revenue of $2.87 billion (missing estimates by $110 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Revenues (millions)	4Q13	4Q12	Y/Y
Electric	$ 1,957	$ 2,003	-2%
Gas	$ 488	$ 458	7%
Steam	$ 161	$ 181	-11%
Non-utility	$ 262	$ 259	1%
Total Revenue	$ 2,868	$ 2,901	-1%

Compared to last year, total revenue has decreased 1%. The item to note here is that steam revenue decreased by 11% from the prior year. The steam segment produces steam which is then used to heat and cool some of New York's most known addresses and accounts for 5.6% of total revenue.

Income Statement

Income statement	4Q13	4Q12	Y/Y
Revenue	$ 2,868	$ 2,901	1%
Purchased power	$ 677	$ 676	0%
Fuel	$ 60	$ 97	-38%
Gas purchased for resale	$ 192	$ 147	31%
Other operations and maintenance	$ 737	$ 817	-10%
Depreciation and amortization	$ 261	$ 246	6%
Taxes other than income taxes	$ 464	$ 465	0%
Total Operating Expenses	$ 2,391	$ 2,448	-2%
Operating Income	$ 477	$ 453	5%
Investment and other income	$ 5	$ 4	25%
Allowance for equity funds used during construction	$ 2	$ 1	100%
Other deductions	$ (2)	$ (3)	-33%
Total Other Income	$ 5	$ 2	150%
Income before interest and income tax expense	$ 482	$ 455	6%
Interest on long term debt	$ 145	$ 145	0%
Other interest	$ -	$ 4	-100%
Allowance for borrowed funds used during construction	$ (1)	$ (1)	0%
Net Interest expense	$ 144	$ 148	-3%
Income before income tax expense	$ 338	$ 307	10%
Income tax expense	$ 104	$ 100	4%
Net Income	$ 234	$ 207	13%
Avg. number basic shares	292.9	292.9	0%
Avg. number diluted shares	294.4	294.5	0%
Earnings per basic share	$ 0.80	$ 0.71	13%
Earnings per diluted share	$ 0.79	$ 0.70	13%

Looking at the income statement, at first glance, it is very appealing as you look at the bottom line and notice that earnings increased by 13% from last year. I'd like to sift through the income statement to see why that was the case. First thing to notice is that fuel expenses decreased 38%, while gas purchased for resale increased 31%; but overall operating expenses decreased 2%. When subtracting total operating expenses from operating revenue we see a 5% increase in operating income. Though investment and other income, allowance for equity funds used during construction, and other deductions increased 25%, 100%, and decreased 33%, respectively, they didn't contribute much to the change in income before interest and income taxes, which gained a total of 6%. Other interest decreased 100% but overall net interest expense decreased 3% while income before income tax expenses increased 10%. After subtracting income taxes, you get an increase in net income of 13% which translated to a 13% gain in earnings per share.

Conclusion

The company reported earnings which were 13% higher than the year before on decreasing revenue while the share price was down 5.45% in the past year excluding dividends. The increase in earnings was due primarily to excellent operating efficiency. The share count actually was stagnant and didn't contribute to earnings. This earnings report is crappy to say the least because I don't like to see a drop in revenues. On a fundamental basis, I believe this company is inexpensively valued with respect to 2015 earnings. The stock was down 0.02% the day of reporting earnings in the face of an S&P500 which lost 0.19%. I'm going put the stock in the penalty box till I see some better revenue.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: ConEd's Earnings Increase 13% Year Over Year, But Is It A Buy?

Disclosure: I am long ED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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