One of the toughest things for a company to do is to figure out a new strategic path after a planned acquisition goes awry. That's exactly what electric utility ITC Holdings (ITC) has had to deal with over the past couple of years, with the electricity-transmission specialist having to break off a deal that would have resulted in a substantial purchase of high-voltage power lines to expand its network. Coming into Thursday morning's second-quarter financial report, ITC investors had seen the value of their shares slump significantly since the beginning of 2015, but they were hopeful that the utility would continue to work on its growth initiatives and produce a stock-price recovery. ITC's results met earnings expectations, although top-line growth was more sluggish than hoped. Let's look more closely at ITC Holdings to see how the utility fared this quarter and what's ahead in its future.
ITC stays positively charged
ITC's second-quarter results showed the consistent growth that investors have come to expect from the utility. Operating revenue climbed 4.5% to $275.1 million, which was quite a bit slower than the nearly 7.5% growth that investors had wanted to see from ITC. The utility fared better on the bottom line, though, with net income rising by a third to $72.3 million. Operating earnings of $0.52 per share matched the consensus forecast among those following ITC.
Looking more closely at ITC's numbers, the utility said that the revenue increase came largely from a higher rate base at its regulated-utility operating subsidiaries. In addition, ITC brought in more money from regional cost-sharing revenue arrangements through the Midcontinent Independent System Operator, because of ITC's having added capital projects that MISO identified as eligible for cost-sharing. ITC's earnings growth also came largely from the regulated side of ITC's business.
ITC has also continued its strategy of ongoing capital investment. During the first half of 2015, the company has spent $331 million on capital projects. The bulk of the money went to its ITC Midwest unit, accounting for $183 million in capital spending, but ITC also spent $83 million in its Transmission segment and $51 million at Michigan Electric Transmission.
Still, perhaps the most important accomplishment was the completion of the Thumb Loop project in the Transmission segment. CEO Joseph Welch noted that "we completed the largest project in ITC's history ... ahead of schedule and under budget, while also delivering operational excellence to our customers and superior growth to our shareholders."
What's ahead for ITC Holdings?
ITC Holdings largely reiterated its previous guidance for the full 2015. The utility still expects to bring in between $2 and $2.15 per share in operating earnings for the year, and it expects to spend between $710 million and $810 million on capital improvements, with roughly half of that total going to the ITC Midwest unit.
The completion of the Thumb Loop transmission line could have huge implications for ITC going forward. The line will help deliver as much as 5,000 megawatts of energy produced by wind turbines across the so-called Thumb region in the state of Michigan near the Lake Huron coast. The project has allowed landowners to get new sources of revenue while also providing valuable renewable energy to industries such as agricultural processing. The project had originally been scheduled to come online for 2016 and beyond, but as one ITC executive said, "The entire ITC team worked tirelessly to bring the Thumb Loop into service ahead of the original end-of-2015 target."
ITC investors didn't react all that favorably to the report, sending the stock down nearly 2% in the first few minutes of regular trading following the announcement. Still, with the utility working hard to make the most of its opportunities in its home region, ITC Holdings could see brighter days ahead if its ongoing projects pan out well.