American Electric Power Beats on Earnings, Revs
American Electric Power Company Inc. (AEP) reported fourth quarter 2013 operating earnings of 60 cents per share, beating the Zacks Consensus Estimate of 56 cents by 7.1%. The quarterly figure also improved 20% from the year-ago profit of 50 cents.
On a GAAP basis, the utility earned 71 cents a share versus earnings of 5 cents in the year-ago period. The difference between GAAP and operating earnings resulted from reversal of a third-quarter Texas regulatory disallowance.
American Electric had provided operating earnings guidance of $3.05 to $3.25 per share for 2013. American Electric Power’s earnings for the year came in at $3.23 per share, on the higher end of the guidance range. The bottom line was 0.9% higher than the Zacks Consensus Estimate and 4.5% higher than the prior year.
GAAP earnings for 2013 were $3.04 versus $2.60 in the previous year. The difference of 19 cents between operating and GAAP earnings in 2013 was due to plant impairments of 25 cents, 5 cents of regulatory disallowance resulting from a Virginia State Corporation Commission order related to the ownership transfer of Amos Plant Unit 3, 4 cents reversal of a storm cost deferral in Virginia and one cent of restructuring charge. These were partially offset by a 16 cent U.K. windfall profit tax credit.
Total Revenue
American Electric Power’s quarterly revenue was $3.8 billion, surpassing the Zacks Consensus Estimate of $3.3 billion by 15.1%. The reported number was 4.4% higher than the year-earlier level.
Total revenue of $15.4 billion in 2013 came in ahead of the Zacks Consensus Estimate of $15.03 billion by 2.5%. Revenue was 2.8% higher than the year-ago figure of $14.9 billion.
Operational Update
Fuel & Other Consumables used for electricity generation in the fourth quarter was $961 million versus $974 million in the comparable year-ago period.
Total expenses in the reported quarter were $1.81 billion, up 3.2% year over year.
Net income of American Electric in the reported quarter was $297 million versus $242 million in the year-ago quarter.
Segmental Performance
Utility Operations: Operating earnings in the quarter decreased 13.4% year over year to $245.0 million. This decline was due to the negative impact of the transition to competition in Ohio, including reduced capacity payments in the PJM Interconnection (:PJM), and a change in the effective tax rate.
Transmission Operations: Operating earnings experienced a major boost, improving 107.7% year over year to $27.0 million in the quarter, attributable to an increase in transmission investment.
AEP River Operations: This segment registered an income of $24 million, much higher than the year-ago figure of $4 million.
Generation and Marketing: Operating earnings were $1.0 million, down 66.7% from $3.0 million in the fourth quarter 2012.
All Other: The segment broke even during the quarter compared to a loss of $61.0 million in the year-ago period. The results benefited from increased interest income associated with a favorable court decision related to U.K. windfall profit taxes and costs associated with the early retirement of parent debt in fourth-quarter 2012.
Financial Condition
American Electric Power’s cash and cash equivalents as of Dec 31, 2013 were $0.12 billion versus $0.28 billion as of Dec 31, 2012.
Long-term debt was $18.4 billion as of Dec 31, 2013 versus $17.8 billion as of Dec 31, 2012.
American Electric Power’s cash flow from operating activities during 2013 was $4.1 billion compared with $3.8 billion last year. Free cash flow at the end of 2013 was $0.48 billion versus $0.78 billion in 2012.
In 2013, the company used $0.95 billion to pay dividends. The strong cash flow generation capacity enables the company to boost ts dividend rate.
Guidance
American Electric Power, one of the largest electric utilities in the U.S., reaffirmed its 2014 earnings guidance of $3.20 to $3.40 per share.
The company is also planning to make capital investments of $3.8 billion per year from 2014 through 2016 with the investment primarily skewed towards transmission asset additions.
Other Upcoming Releases
ALLETE, Inc. (ALE) is expected to release its fourth quarter 2013 financial results on Feb 14, 2014. The Zacks Consensus Estimate is 84 cents.
Exelon Corporation (EXC) is expected to release its fourth quarter 2013 financial results on Feb 6, 2014. The Zacks Consensus Estimate is 53 cents.
Brookfield Infrastructure Partners (BIP) is expected to release its fourth quarter 2013 financial results on Feb 5, 2014. The Zacks Consensus Estimate is 85 cents.
Our View
American Electric exceeded both our top- and bottom-line estimates for the reported quarter as well as full year 2013. The uptrend was driven by strong performances across the board from all its segments.
American Electric increased its 2013 energy delivery nominally by 0.1% from the 2012 level. The 6.8% year-over-year increase in wholesale electric sales benefited the results, partly offset by a 1.5% decline in retail electric delivery. We believe the company will need to take initiatives to revive its retail delivery to post stronger results in 2014.
As announced earlier, the company will report its earnings under five new reporting segments from the first quarter of 2014.
American Electric Power currently has a Zacks Rank #3 (Hold).
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