Tag Archives: earnings

Just Energy Group Q2 Earnings Review – No Slowdown In Sight

Summary Shares have appreciated substantially since July. Total revenue grew 18%, with the more profitable consumer segment growing 20%. The U.K. operation and the solar program will pave the way for future growth. After a poor performance in 2014 and trading flat in H1 2015, Just Energy (NYSE: JE ) is finally back on track. Since my last analysis on the company in July, shares have appreciated by 30% from $5.23 to $6.82 today. Let’s see how the company performed in Q2 (year end is in March). The company continued to deliver top-line growth. Increasing sales by a whopping 18% quarter on quarter from C$918 million to C$1.1 billion. This doesn’t surprise me one bit. With the exception of FY 2012, the company has always delivered consistent growth from year to year. (see below). Many consumers are aware of Just Energy’s incessant marketing, and the financials reflect that. Sales can be broken down into consumer sales and commercial sales. Quarter on quarter, consumer sales have grown by 20% and commercial sales by 16%. The growth from consumer sales are much more valuable because traditionally commercial customers simply paid less. In Q2, gross margin for the consumer division was 22%. In contrast, the commercial division only yielded 9%. After deducting various operating expenses, the consumer division is more than twice as profitable as the commercial division (C$27 million of operating profit vs. C$10 million of operating profit). We can also examine growth from by looking at how much money the company charges its customers, which would reflect more of an “organic growth” as opposed to revenue generated by acquiring new customers. For the consumer segment, margin per customer rose 24% from C$176/RCE in Q2 2015 to C$219/RCE in Q2 2016. Evidently, the company should be able to achieve sales growth even if customer acquisition slows. Despite these great results, the company still reported a loss. The main culprit is derivative losses. During the quarter, the company made a fair value adjustment of C$117 million due to declining commodity prices (i.e. the company would have to purchase commodities at higher prices than the market if contracts are settled now). These losses will eventually go away as the contracts expire (i.e. not recurring). Outlook I believe that the future is bright for Just Energy. The company is still rather small in the U.K. and has plenty of run way to expand. Just two quarters ago, U.K. contributed 202,000 RCEs. In Q3, this number has grown 36% to 275,000 RCEs. In addition, the company is also exploring non-traditional initiatives such as the partnership with Clean Power Finance to enter the residential solar market, which is all the rage right now. While the exact impact on the bottom line is not clear yet as results are still preliminary, I believe that this program will be a smash hit. Because the company is marketing to existing customers, I believe that the adoption rate should be fairly high. This means that the solar program should be able to generate incremental profit without the company spending too much money (as opposed to a new customer acquisition).

Suburban Propane Partners Q4 Earnings Review: Good Performance Despite Higher Losses

Summary Operating loss increased from $34 million to $48 million. Integration costs and pension charges skewed results. Earnings should improve once these charges are eliminated. It’s been a week since Suburban Propane Partners (NYSE: SPH ) reported Q4 earnings, and the market remained neutral. Despite declining revenue and $48 million in operating loss, I believe that results were fantastic. Let me tell you why. As with many other natural gas related companies, sales suffered, dropping from $241 million to $174 million. The difference between this revenue decline and say a midstream company with POP contracts is that a lot of the company’s costs are variable. As the result of lower commodity prices, the company was actually able to increase the gross margin from 50% last year to 67%. This is a phenomenon that is common among refiners as well. What about the net loss? After all, the company did report an operating loss of $48 million. I would like to remind readers that the propane business is highly seasonal, and losses during warmer months are expected. (see below) As mentioned in my previous article , the company sells around two-thirds of retail volume from October to March, so the goal during hotter months is really to minimize loss. Unfortunately, the company does not seem to have accomplished that goal, as Q4’s operating loss of $48 million was higher than Q4 2014’s loss by 39%. However, there were multiple one-time costs that hurt Q4 results. First there is the integration cost. As mentioned in the previous article, the company acquired Inergy in 2012, and the integration process was still in progress in Q4 2015. During the quarter, the company spent $6.4 million on integration costs versus $3.2 million last year. This may be alarming since it would appear that integration costs are ramping up as opposed to going down. However, the management stated that the integration process was essentially complete, leading me to believe to that this cost increase is related to the “final push” as the company wraps up everything. Going forward, I expect integration costs to decline significantly or be eliminated. In addition to the integration costs, the company also had two pension related charges. First there was $11.3 million relating to the company’s partial withdrawal from a pension plan covering some former Inergy employees, which will save the company money later. If we account for these one-time charges, operating loss would actually decrease $30 million, which would be a 3% improvement from Q4 2014’s adjusted loss of $31 million. Keep in mind that the company was able to achieve this result despite the warmer weathers that we’ve been experiencing. When we take the above factors into consideration, I think it’s clear that the company’s Q4 performance was very impressive. Takeaway Despite mounting losses, I believe that the company had a great quarter when we take one-time factors into account. When you invest in Suburban Propane Partners, there is always the risk of warmer weather. Unfortunately that is what we’ve experienced in Q4, but that is what makes Q4 performance even more impressive. Overall, I believe that the company will improve earnings going forward as it gets rid of the one-time charges.

Otter Tail Corporation: Reaffirmed Guidance Leading To Next Dividend Bump

Otter Tail Corporation reported 2015 third quarter earnings on November 2, 2015. Guidance for the full year was reaffirmed. Recent events introduce both support and uncertainty for Otter Tail’s near-term future earnings. Otter Tail’s dividend growth history points to another increase in February 2016. Otter Tail Corporation (NASDAQ: OTTR ), a diversified electric utility, started the year a tad slow. In the first quarter, the company lowered its full-year guidance. The second quarter brought an unofficial bump in the full-year projections. On November 2nd, the company reported 2015 third quarter earnings and officially confirmed its unofficial guidance bump. Full-year earnings per share is still expected to be in the middle to upper half of the $1.50 to $1.65 range. In other words, EPS for 2015 is expected to be $1.57 to $1.65. The company’s overall target is for the utility segment to deliver 75% to 85% of total earnings while the manufacturing segment delivers 15% to 25%. Like many utility companies, Otter Tail pays an attractive dividend – $1.23 annually. Its strategy is to allocate the utility segment’s earnings in support of the dividend. Its manufacturing segment’s earnings are intended to cover corporate costs and drive share price appreciation. For the third quarter, the utility segment earned $0.34 per share exceeding the dividend payment of $0.3075. The manufacturing segment earned $0.15 per share exceeding the corporate costs of $0.07. Year-to-date, the utility segment has earned $0.91 per share trailing the year-to-date dividends of $0.9225. The manufacturing segment has earned $0.40 which is $0.24 ahead of corporate costs of $0.16. Third quarter results revealed both support and uncertainty for full-year projections and Otter Tail’s near-term future. In support of its long-term goals, on September 1st, Otter Tail acquired Impulse Manufacturing. Impulse is located in Dawsonville, Georgia. The metal fabricator will join Otter Tail’s BTD Manufacturing segment. The acquisition is expected to be accretive to earnings in 2016. In 2014, Impulse generated $27 million in revenue compared to BTD’s $219.6 million. On August 3rd, the EPA (Environmental Protection Agency) published its final Clean Power Plan. The fully-implemented plan is designed to reduce carbon dioxide in machines from power plants by 30% of 2005 levels. Otter Tail believes the final Section 111(d) rule was a major change from the proposed rule. Its initial analysis showed the impacts to Otter Tail were improved under the final rule as compared to the proposed rule. Compliance begins in 2022 and must be complete before 2030. States must submit plans for approval by September 2016 and must receive approval by September 2018. Otter Tail is working with South Dakota, North Dakota and Minnesota to determine a framework and plan for each state’s compliance. At this point, Otter Tail is encouraged regarding its plant in South Dakota, concerned regarding the required addition of renewable energy in North Dakota and expecting its planned retirement of a plant in Minnesota to aid in compliance. Overall, the company expects the legislation to create increases in the costs of generation for its customers. Regarding renewable energy, the plan establishes eligibility dates: “Incremental emission reduction measures, such as RE and demand-side EE, can be recognized as part of state plans, but only for the emission reductions they provide during a plan performance period. Specifically, this means that measures installed in any year after 2012 are considered eligible measures under this final rule, but only the quantified and verified MWh of electricity generation or electricity savings that they produce in 2022 and future years, may be applied toward adjusting a CO2 emission rate.” In North Dakota, Otter Tail expects the state to have to add a substantial amount of wind power. In 2013, South Dakota was producing more than 25% of its electricity from wind. Minnesota will require 25% of its electricity to be generated from wind by 2025. Finally, Otter Tail’s third quarter information mentions a potential impact to earnings before year-end. “Should the federal government change current tax law before the end of 2015, the corporation’s consolidated earnings guidance could be negatively impacted in the range of $0.02 to $0.04 per share.” Considering there are $0.08 in the range of $1.57 to $1.65, the potential negative impact could be absorbed and Otter Tail would still meet its own projections. The company has earned $1.15 per share in the first nine months of 2015. Therefore, Otter Tail’s fourth quarter must deliver $0.42 to $0.50 in EPS. Since Otter Tail is a “winter-peaking” utility, achieving full-year guidance should not be a problem. The company’s dividend yield is healthier than other diversified utility companies. With full-year guidance reaffirmed, the stability of Otter Tail’s dividend is also presumed. Prior to 2009, the company increased its dividend for 33 consecutive years. In February of both 2014 and 2015, Otter Tail reestablished the tradition. February, 2016 should yield yet another increase.