TECO Energy (UNKNOWN:TE.DL) reported earnings last week, beating top-line estimates but falling short of bottom-line predictions. With cheap coal prices pulling on TECO's profits, here's what you need to know about this dividend stock's latest quarter.

Number crunching
TECO's top line came in better than expected this quarter. Although sales fell a seasonally adjusted 6.7%, the utility managed to add $10 million on top of analyst expectations of $726 million.

On the bottom line, things aren't looking so good. Adjusted EPS fell 29% from Q2 2012, clocking in at $0.24. Analysts were expecting a dip, but their prediction of $0.26 EPS proved too optimistic.

For a peck of perspective, here's how TECO's trailing-12-month sales and adjusted EPS have fared over the last five years (essentially since the bottom of the Great Recession). Sales have headed steadily lower, decreasing 13.5%. After dropping almost 50% in 2009, TECO's adjusted trailing-12-month EPS has managed a slight increase to end the quinquennial period down 37%.

TE Revenue TTM data by YCharts

Focusing on fundamentals
Although utilities' revenues are largely driven by local economies, NextEra Energy (NYSE:NEE), another key Florida player, saw sales rise a seasonally adjusted 5.9% this quarter. The differences between the two utilities become even starker when you consider their allowed return on equity. NextEra's Florida Power & Light utility currently enjoys 11% ROE, while TECO expects its Tampa Electric utility's ROE to clock in at less than 9% for 2013.

Unlike NextEra, the nation's largest producer of renewable energy, TECO's earnings are closely tied to coal's competitiveness. Not only does the company rely on coal for around 60% of Tampa Electric's generation capacity, it also owns and operates coal mines and facilities in the Appalachians capable of processing 9 million tons of the solid black gold annually.

This quarter's average selling price of $86 per ton is $8 lower than last year's average and $4 lower than TECO had calculated for its full-year expectations. Despite the recent rise in natural gas prices, it seems that utilities are increasingly skeptical about returning to reliance on coal.

FirstEnergy (NYSE:FE) recently announced that it will cut out a whopping 10% of its total capacity with the closure of two coal-fired power plants, citing out of proportion environmental costs as a main cause for the decision. American Electric Power (NYSE:AEP) plans to retire 3,123 MW of coal by 2016, and expects to take a $150 million-$170 million non-operating pre-tax hit for Q2 to cover its most recent closure.

Just last week, Duke Energy (NYSE:DUK) made a big announcement that puts the clamp on new coal and existing nuclear, positioning the company for a closer look at new natural gas capacity. Duke currently relies on coal for about 40% of its regulated capacity and wholesale generation, but higher emissions compliance costs are pushing the company to consider early retirement for one 875-MW facility.

Improving odds
Looking ahead, there are two bright spots for TECO's future. First, Tampa Energy should be able to catch up to Florida & Energy's 11% ROE by 2014 if its rate request goes as planned. If approved, TECO will be poised to pull in $135 million more in regulated earnings.

Second, TECO's realized it needs to diversify beyond coal. The company announced in May that it would be acquiring a regulated New Mexico natural gas utility for $950 million. The move will increase TECO's overall customer base by 50% and, more importantly, decrease its overall dependence on volatile coal.

Will TECO tumble?
TECO shares are down 7.1% over the last three months, but the company's valuation metrics remain close to average for utilities. Its attractive 5% dividend yield probably has some income investors yearning for more, but TECO hasn't proven itself just yet. Until the utility has higher regulated returns in the bag and has increased its overall generation diversity, I'm happy picking other dividend stocks to pull profit for my portfolio.