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Integrated energy company, Entergy Corporation (ETR) provided fourth-quarter 2012 preliminary operational earnings expectation of approximately $1.71 per share and as-reported earnings expectation of approximately $1.65 per share. Results for fourth-quarter 2011 were as-reported earnings of 87 cents per share and operational earnings of 94 cents per share.

The increase in fourth-quarter 2012 earnings reflects upside in the Utility and Parent & Other segments. This would be partially offset by lower earnings at Entergy Wholesale Commodities.

Segment Details

Utility

    
The quarter-over-quarter increase in Utility fourth quarter 2012 operational earnings reflected lower income tax expense. Higher net revenue also contributed to the Utility earnings improvement, driven by volume and price. Both comparable periods had roughly similar negative weather effects. On a weather-adjusted basis, retail sales were higher, driven by growth in the residential and commercial segments. Partially offsetting these items was an increase in depreciation expense.

Entergy Wholesale Commodities (EWC)

The quarter-over-quarter decrease in earnings at Entergy Wholesale Commodities was due to lower net revenue and increases in income tax and decommissioning expenses. EWC net revenue declined due to lower pricing for the nuclear fleet. Higher decommissioning expense was incurred this quarter versus the prior year due to the benefit from an adjustment to the decommissioning liability recorded in the fourth quarter of 2011.

Parent & Other

At Parent & Other, operational results improved during the quarter due to a decrease in income tax expense on Parent & Other activities. This was partially offset by higher interest expense.

Earnings Guidance

Entergy affirmed its 2013 operational earnings guidance in the range of $4.60 to $5.40 per share. Entergy noted it currently expects earnings to be on the lower half of the operational guidance range due to updated pension and post-retirement cost estimates, which include an approximate 75 basis point decrease in the discount rate assumption.

Entergy had earlier, in December 2011, entered into a definitive agreement with ITC Holdings Corporation (ITC), under which the former will divest its electric transmission business to the latter for gross cash of $1.775 billion. The divested business would be merged with the operations of ITC Holdings. Recently, Entergy Arkansas Inc. along with ITC Holdings Corp. and ITC Midsouth LLC, filed a request at the Arkansas Public Service Commission to spin off the Arkansas electric transmission business and merge it into a subsidiary of ITC. The company expects the transaction to complete by 2013.

Entergy is expected to release its fourth-quarter 2012 earnings on Feb 8, 2013. The Zacks Consensus Estimates for fourth-quarter 2012 and fiscal 2012 are currently pegged at 96 cents per share and $5.49 per share, respectively.

New Orleans, Louisiana based Entergy is primarily engaged in electric power production and retail distribution of power. With 30,000MW of generating capacity, the company distributes electricity to 2.8 million customers in Arkansas, Louisiana, Mississippi, and Texas. Of this, 14,631MW are gas/oil based, 2,259 are coal based, 70MW are hydro based and the rest are nuclear based. The company also distributes natural gas to 240,000 customers in Louisiana. Entergy is the second largest U.S. nuclear power generator after Exelon Corporation (EXC).

Entergy is well positioned with its geographically-diverse mix of regulated and merchant operations. The company is focused on maximizing its shareholder value through steady investment for rate base growth, as well as through its ongoing stock buyback program and incremental dividend.

However, we are concerned regarding the tepid growth of its competitive business due to lukewarm power demand in the Northeast, pending regulatory approvals and the fate of its Indian Point plant.

Entergy faces stiff competition from CenterPoint Energy Inc. (CNP). The latter is also focusing hard on the development of its pipeline assets. Entergy has a short-term Zacks #3 Rank (Hold rating) in view of the continued weak economic environment in the U.S. which will weigh on the company’s power sales.


 
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Zacks Investment Research Inc. is an equity research firm. It offers research through quantitative and qualitative analysis. The firm caters to individual and institutional clients. Zacks Investment Research Inc. was founded in 1978 and is based in Chicago, Illinois.