Edison International (EIX) is the parent of Southern California Edison and other companies that generate or distribute electricity or that provide financing for these activities. Edison, which traces its roots back to 1886, is one of the largest investor-owned electric utilities in the U.S.
When we analyzed Edison after the December quarter, the Overall gauge score was only 13 of 100 points. Of the four individual gauges that fed into this composite result, Cash Management was the strongest at 7 out of 25 points. Value was weakest at zero points.
Now, with data available from the March 2008 quarter, our gauges display the following scores:
- Cash Management: 0 of 25 (down from 7 in December)
- Growth: 1 of 25 (unchanged)
- Profitability: 3 of 25 (down from 5)
- Value: 3 of 25 (unchanged)
- Overall: 5 of 100 (down from 13)
Before we examine each gauge, we will review the latest quarterly Income Statement. We did not issue a prediction of Edison's earnings for this quarter. The company reports both GAAP earnings and non-GAAP, "core" earnings. Unless stated otherwise, our evaluation is limited to the GAAP results.
Please note that the presentation format below, which we use for all analyses, may differ in material respects from company-used formats. A common difference is the classification of income and expenses as Operating and Non-Operating. The standardization is simply for convenience and to facilitate cross-company comparisons.
| ($M) | | March 2008 (actual) | March 2007 (actual) |
| Revenue (1) | | 3083 | 2912 |
| Op expenses | | | |
| | CGS (2) | (2002) | (1683) |
| | Depreciation (3) | (298) | (313) |
| | Other (4) | (172) | (289) |
| Operating Income | | 611 | 627 |
| Other income | | | |
| | Investments (5) | (6) | (2) |
| | Asset sales | 17 | 0 |
| | Interest, etc. (6) | (157) | (166) |
| Pretax income | | 465 | 459 |
| Income tax | | (161) | (129) |
| Net Income | | 304 | 330 |
| Discontinued ops | | (5) | 3 |
| | | $0.92/sh | $1.00/sh |
| Shares outstanding | | 329 | 330 |
2. Fuel + Purchased Power + Other Operation and Maintenance + Property and Other Taxes.
3. Depreciation, Decommissioning, and Amortization.
4. Provision for Regulatory Adjustment Clauses + Miscellaneous.
5. Equity in Income from Partnerships, etc., + Minority Interests
6. Interest and Dividend Income + Other Non-operating Income - Interest Expense - Other Non-operating Deductions - Dividends on Preferred Securities
Edison's Revenue in the recent quarter was 5.9 percent more than in the year-earlier period. Year-over-year (i.e., trailing four quarters) Revenue growth was 3.9 percent. The Gross Margin in the quarter was 35.1 percent, down sharply from 42.2 percent of Revenue in the March 2007 quarter. The margin translates into a Cost of Goods Sold (CGS) -- fuel, purchased power, etc. -- was 64.9 percent of Revenue. An 55 percent increase in purchased power cut deepest into the Gross Margin. Depreciation was 9.7 percent of Revenue, down from a year-earlier value of 10.7 percent.
Other Operating Expenses, which in this case are "Net Provisions for Regulatory Adjustment Clauses," were $117 million (40.5 percent) less than in the year-earlier period. These provisions, which fluctuate substantially, are income in some quarters and expenses in others. We don't gain any insight into the company's operating performance from the swings in Net Provisions, but they can have a significant impact on quarterly results.
Despite higher Revenue and lower Net Provisions, the much higher CGS resulted in Operating Income, as we define it, declining 2.6 percent from the amount in the year-earlier quarter.
Non-operating income and expenses were similar in the March 2008 and March 2007 quarters, with the exception that the more recent quarter included a $17 million gain on a contract buyout and on the sale of assets.
The Income Tax Rate was 34.6 percent in the March 2008 quarter, up dramatically from 28.1 percent in the year-earlier quarter. The rate in the earlier quarter was lower-than-normal because of the favorable resolution of an income tax matter. The higher rate in the recent period contributed to Net Income from continuing operations falling 7.9 percent from the year-earlier quarter.
Cash Management. This gauge declined to 0 from 7 points in December.
| March 2008 | 3 months ago | 12 months ago | |
| Current Ratio | 1.0 | 1.0 | 1.3 |
| LTD/Equity | 99.3% | 96.3% | 102.0% |
| Debt/CFO | 3.3 yrs | 3.0 yrs | 2.6 yrs |
| Inventory/CGS | N/A | N/A | N/A |
| Finished Goods/Inventory | N/A | N/A | N/A |
| Days of Sales Outstanding (DSO) | 27.2 days | 28.5 days | 26.2 days |
| Working Capital/Market Capitalization | 0.1% | -0.1% | 4.2% |
| Cash Conversion Cycle Time | 14.8 days | 6.9 days | 12.7 days |
With a zero point score, it's not surprising that none of the Cash Management metrics are improving significantly. The increase in total Debt from 2.6 years of Cash Flow to 3.3 years of Cash Flow is the most negative change in the last year.
Growth. This gauge didn't change from 1 points in December.
| March 2008 | 3 months ago | 12 months ago | |
| Revenue growth | 3.9% | 3.9% | 5.1% |
| Revenue/Assets | 35.0% | 34.9% | 34.9% |
| CFO growth | -17.9% | -10.5% | 45.4% |
| Net Income growth | -12.6% | 1.6% | 12.0% |
The best we can say about Edison's growth performance is that the Revenue growth rate has stopped declining, and Revenue is increasing fast enough to keeping up with Assets.
While the income tax rate surged in the March 2008 quarter, putting pressure on Net Income, the effective income tax rate was 32.8 percent in the four quarters ending in March 2008 and in the four quarters ending in March 2007.
Profitability. This gauge decreased from 5 points in December to 3 points now.
| March 2008 | 3 months ago | 12 months ago | |
| Operating Expenses/Revenue | 80.1% | 78.8% | 74.0% |
| ROIC | 9.9% | 10.9% | 13.4% |
| FCF/Equity | 7.8% | 9.7% | 11.4% |
| Accrual Ratio | 2.0% | 1.5% | 1.5% |
Energy price increases have significantly raised Edison's operating costs, which reduces returns.
Value. Edison's stock price slipped over the course of the quarter from $53.37 to $49.02. The Value gauge, based on the closing price, remained stuck on 0.
| March 2008 | 3 months ago | 12 months ago | 5 year median | |
| P/E | 15.0 | 16.0 | 13.2 | 13.3 |
| P/E to S&P 500 average P/E | 90.5% | 90.0% | 83.0% | 82.0% |
| Price/Revenue | 1.2 | 1.3 | 1.3 | 1.1 |
| Enterprise Value/Cash Flow (EV/CFO) | 8.1 | 8.0 | 6.3 | 8.1 |
At 5 out of 100 possible points, the Overall gauge for Edison is abysmally weak. All gauges are registering poor scores and two are declining. Most Value metrics suggest that the shares are expensive compared to norms.
Posts
No comments:
Post a Comment