Morningstar | FirstEnergy Reports Flat Earnings; Any Change to FES Settlement Not Material to FVE
We are reaffirming our $41 per share fair value estimate after FirstEnergy reported solid 2019 first-quarter operating earnings and reaffirmed its 6%-8% annual earnings growth outlook through 2021. The utility also reaffirmed its 2019 earnings guidance of $2.45 to $2.75 per share, and our $2.60 estimate at the midpoint of guidance is unchanged.FirstEnergy reported operating earnings of $0.67 per share for the first quarter, flat with the same period last year. Total weather-adjusted distribution sales were up 0.7% for the quarter and 0.9% for the trailing 12 months. We had expected total demand to flatten as a result of weaker industrial sales from steel and automotive customers following 10 straight quarters of increasing industrial sales. Industrial sales were 0.1% lower in the first quarter, but weather-adjusted residential sales were up 2.6%. The strong residential performance was a modest positive we had not expected.
FirstEnergy management does not believe they have any increase in the liabilities or obligations from bankrupt FirstEnergy Solutions' potential environmental responsibilities for the future retirement of coal and nuclear plants. Earlier this month, a federal bankruptcy court judge rejected FES’ reorganization plan over concern that FirstEnergy could walk away from these obligations.
Although we expect the broad third-party releases in the separation agreement to be modified to appease the judge, we think it is unlikely that cleanup of these sites would significantly exceed the trusts, surety bonds, and other funding already in place before the separation. Thus, in the unlikely event that FES couldn’t meet these obligations, we think the ultimate responsibility falling on FirstEnergy would be small and not material to our fair value estimate.
FirstEnergy is a public utility holding company. The company and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. The company's reportable operating segments are comprised of: Regulated Distribution, which distributes electricity through the company's utility operating companies and also controls regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey; and Regulated Transmission, which provides transmission infrastructure owned and operated by the transmission companies and certain of the company's utilities to transmit electricity from generation sources to distribution facilities.
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