Business Context and Reporting Period
Company: PNM Resources, Inc. (and subsidiaries PNM, TNMP, First Choice Power, EnergyCo)
Filing Type: Form 8-K (Current Report)
Date of Report: August 11, 2008
Reporting Period: Unaudited results for the three and six months ended June 30, 2008.
PNM Resources is an energy holding company operating regulated utilities in New Mexico and Texas, alongside unregulated competitive retail and generation businesses. The filing announces second-quarter results, a significant reduction in dividends, and strategic shifts regarding its unregulated assets.
Key Financial Metrics
| Metric | Q2 2008 (GAAP) | Q2 2007 (GAAP) | YTD 2008 (GAAP) | YTD 2007 (GAAP) |
|---|---|---|---|---|
| Net Earnings (Loss) | $(143.5) million | $20.2 million | $(192.1) million | $49.9 million |
| Diluted EPS | $(1.76) | $0.26 | $(2.42) | $0.64 |
| Ongoing Earnings (Loss) (Non-GAAP) |
$(7.4) million | $15.1 million | $(4.1) million | $44.8 million |
| Ongoing Diluted EPS (Non-GAAP) |
$(0.09) | $0.19 | $(0.05) | $0.57 |
| Operating Revenues | $580.3 million | $505.6 million | $944.8 million | $942.6 million |
| Operating Income (Loss) | $(122.8) million | $25.9 million | $(181.7) million | $74.4 million |
Dividend: The Board declared a quarterly dividend of $0.125 per share, reducing the indicated annual rate to $0.50 per share (down from $0.92).
Material Changes vs. Prior Period
- Significant GAAP Losses: The company reported a GAAP loss of $143.5 million in Q2 2008 compared to earnings of $20.2 million in Q2 2007. This is primarily driven by non-cash impairment charges totaling $140.7 million (after-tax) related to goodwill and intangible assets at PNM, TNMP, and First Choice Power.
- First Choice Power Performance: The unregulated retail subsidiary in Texas recorded ongoing losses of $13.0 million ($0.16/share) due to volatile ERCOT market prices, higher purchased power costs, and reduced retail margins (approx. $3/MWh vs. $21/MWh in 2007).
- Regulated Utility Performance: PNM Electric reported ongoing earnings of $4.1 million, improved by new electric rates and an emergency fuel clause implemented in June. TNMP reported ongoing earnings of $5.7 million, aided by reduced interest expense and load growth.
- EnergyCo: PNM Resources' 50% share of EnergyCo's ongoing EBITDA was $11.5 million. However, GAAP results included a $7.1 million impairment charge due to the decision not to expand the Twin Oaks Power facility.
Guidance, Outlook, and Management Commentary
- Strategic Alternatives: Management announced it is pursuing strategic alternatives for First Choice Power, citing challenges in restoring financial health to the PNM utility subsidiary and the difficulty of the Texas market environment.
- Dividend Reduction: The dividend was cut by 46% to improve liquidity and align with industry averages while the company navigates the sale of its gas business and First Choice Power strategy.
- Updated Guidance (Ongoing EPS):
- 2008: Revised range of $0.13 to $0.28 per diluted share.
- 2009: Preliminary range of $0.45 to $0.75 per diluted share. This range includes known adjustments for the PNM rate case outcome, reduced First Choice Power performance, additional financing costs, and the termination of the Cap Rock Energy acquisition.
- Liquidity: Management emphasized the dividend cut as a prudent step to improve liquidity. The filing notes that the sale of the gas operations is pending regulatory approval.
Investor Verification Checklist
- Impairment Finalization: Verify the final calculation of the goodwill impairment at First Choice Power, as the filing notes the current figure is an estimate subject to revision.
- First Choice Power Strategy: Monitor progress on the "strategic alternatives" for First Choice Power, including potential sale or restructuring, given its significant drag on earnings.
- Gas Sale Closing: Confirm the regulatory approval and closing date for the sale of PNM Gas operations, which are currently classified as discontinued operations.
- Rate Case Outcomes: Track the filing and resolution of upcoming rate cases for PNM and TNMP in the third quarter, which are excluded from the current 2009 guidance.
- Liquidity Position: Review the upcoming Form 10-Q for detailed cash flow statements to assess the impact of the dividend reduction and increased financing costs on working capital.