AEP Misses but Reaffirms Guidance - Analyst Blog

Before the bell, American Electric Power Company Inc. (AEP) reported its fourth quarter and fiscal 2010 results. In the reported quarter, the company with ongoing earnings of 38 cents a share came marginally below the Zacks Consensus Estimate of 39 cents. The company's results also came way below the year-ago quarterly earnings of 50 cents.

Earnings in the reported quarter were lower than the year-ago period due to lower utility earnings (5 cents), loss from property casualty (1 cent) and a charitable contribution along with a fleet lease buyout (6 cents). Utility earnings were lower mainly due to the directive of Public Utilities Commission of Ohio (PUCO) to the company to refund excess profits to its customers per the completion of the Significantly Excessive Earnings Test (SEET) in Ohio.

On a reported basis, the company clocked earnings of 37 cents per share in the fourth quarter versus 50 cents per share in the year-ago period. The anomaly of a penny per share between the reported and ongoing earnings in the quarter was due to an internal restructuring program employed by the company.

Fiscal 2010 ongoing earnings came in at $3.03 per share, easily beating the Zacks Consensus Estimate of $2.90. However, this came below fiscal 2009 earnings of $2.97 per share.

Operational Performance

Quarterly revenue at American Electric Power rose to $3.4 billion from $3.3 billion in the year-ago period. However, revenues came below the Zacks Consensus Estimate of $3.6 billion for the quarter. Ongoing earnings were $179 million in the reported quarter, lower than $238 million in the prior-year quarter. The company reported net earnings of $176 million, down from the prior-year figure of $238 million.

Fiscal 2010 revenue was $14.4 billion versus the Zacks Consensus Estimate of $15.0 billion. Full year revenue however outdid the $13.5 billion generated a year ago. The company witnessed three consecutive quarters of increased industrial sales in a gradually recovering economy in its service area.

Segment Performance

Ongoing earnings from Utility Operations decreased $22 million to $185 million in the reported quarter. This reflects the effect of an order from the PUCO related to the 2009 SEET, higher taxes and other expenses. The downside was partially offset by favorable weather conditions, higher rates and cost-reduction initiatives.

Ongoing earnings from AEP's River Operations fell $4 million to $21 million from the prior-year period due to a property casualty loss.

Ongoing earnings from Generation and Marketing, which includes AEP's non-regulated generating, marketing and risk management activities primarily in the Electric Reliability Council of Texas (ERCOT) area, was $8 million, in line with the year-ago quarter.

All Other, which includes the Parent Company and other investments, dropped $33 million to a loss of $35 million year over year. This was primarily because of a charitable contribution and a fleet lease buyout.

Guidance

American Electric Power reaffirmed its ongoing earnings guidance range for fiscal 2011 at $3.00 – $3.20 per share.

Outlook

Columbus, Ohio-based American Electric Power is one of the largest public utility holding companies, catering to approximately 5.2 million customers spread over 11 states. In light of the weakness in the economies of the states in its service area along with a high exposure to industrial customers, we currently have a Zacks #3 Rank (Hold) on the stock, along with a longer-term Neutral recommendation.

The day hasn't been kind to utilities with another utility Dominion Resources Inc. (D) also letting down market optimism. However, the miss is largely attributed to an absence of earnings from its Appalachian exploration and production business divested in the last fiscal.

 
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