25 May 2010

EIX: Financial Gauge Analysis for the March 2010 Quarter

Edison International (NYSE: EIX) earned $0.72 per share on a GAAP basis in 2010's first quarter, which ended on 31 March 2010.  Reported earnings were $0.04 less per share than the $0.76 Edison made in the same quarter of 2009.  Excluding special items, Edison's "Core" earnings, a non-GAAP measure, rose from $0.79 to $0.82 per share.

In our earlier review of Edison's Income Statement, we compared the actual results to our "look-ahead" estimates

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for Edison and the associated financial gauge scores.  The metrics were calculated using data from Edison's current and historical financial statements, including the latest 10-Q report.

Edison International owns Southern California Edison and Edison Mission Group.  SCE is a regulated utility that generates and acquires electricity and delivers it to customers in parts of Southern California.  Edison Mission Energy owns, or has interests in, various independent power-generation facilities.  Additional background information about Edison International and the business environment in which it is now operating can be found in the look-ahead.

In summary, Edison's latest quarterly results produced the following changes to the gauge scores:

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Cash Management31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Current Ratio1.
Debt/CFO (years)
Inventory/CGS (days)N/AN/AN/AN/A
Finished Goods/InventoryN/AN/AN/AN/A
Days of Sales Outstanding (days)28.929.829.030.9
Working Capital/Revenue8.5%7.9%2.9%7.1%
Cash Conversion Cycle Time (days)12.313.014.313.5
Gauge Score (0 to 25)12336

Working Capital, which is the difference between Current Assets and Current Liabilities, increased during the first quarter of 2010 from $643 million to $1.01 billion.  This rise is reflected in the uptick to the Current Ratio, which looks at the same figures.  Edison's Working Capital tends to vary widely from quarter to quarter. 

Long-term Debt on 31 March 2010 stood at $11.0 billion, up nearly $600 million from December.  However, the debt level is actually slightly less than it was in March 2009.  As a percentage of Equity, Long-term debt has been stable to declining.

Total debt, short and long, now represents 3.9 years of Cash Flow from Operations, but matching the five-year average.

Days of Sales Outstanding, which tracks Accounts Receivable, is down slightly.  This is  a modest improvement in Cash Management efficiency.

Growth31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Revenue growth-10.5%-12.4%4.3%0.9%
Operating Profit growth-8.9%-4.3%-0.6%-5.6%
CFO growth25.3%34.7%-22.5%9.0%
Net Income growth-28.2%-29.6%1.6%-1.0%
Gauge Score (0 to 25)5529
1. Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters. 
2. The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.

Reduced demand for power in a slow economy and the resulting lower prices for energy products have negatively affected Edison's Revenue, offset in part by increasing rates at SCE. 

The major contraction in Net Income during the last year is mostly due to a $262 million charge in the June 2009 quarter for a tax settlement and the termination of "cross-border, leveraged leases."  If the special items in that quarter are excluded, the current trailing year Net Income growth rate would be a much less severe minus 8 percent, instead of minus 28 percent listed above.

Cash Flow from Operations increased sharply on a trailing year basis, but it was down in the March 2010 quarter.  Much of the trailing year gain was due to regulatory account balancing in the September 2009 quarter.

Profitability31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Operating Expenses/Revenue82.1%81.5%82.0%81.1%
Free Cash Flow/Invested Capital-2.4%-1.2%-2.9%1.2%
Accrual Ratio1.3%0.4%4.0%2.3%
Gauge Score (0 to 25)4525

The Operating margin is consistent with historical results, but Return on Invested Capital has sagged.

Free Cash Flow has been negatively affected by increases in Capital Spending.

Greater Cash Flow from Operations relative to reported earnings is seen in the improved Accrual Ratio (lower is better) from one year ago.

Value31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)57175
Share Price ($)$34.17$34.78$28.81-

Edison's share price didn't change much during the first quarter.  However, Price/Earnings multiple at quarter's end was higher than its five-year average.

Counterbalancing this downward pressure on the Value gauge, the Price-to-Sales Ratio remained attractive. 

The Enterprise Value /Cash Flow multiple is also in line with it historical range.

Overall31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Gauge Score (0 to 100)24213323

The gauges  turned in a mixed performance during the first quarter, with the Cash Management gauge serving as the best performer and the others remaining tepid.

If we replace the quarter's end share price with the current share price of around $31, the Value gauge would pick up 3 points to 8, and the Overall gauge score would rise to 29.  Better, but hardly enticing.

Full disclosure: Long EIX at time of writing.

No comments:

Post a Comment