Before the bell, American Electric Power Company Inc. (AEP) reported its fourth quarter and fiscal 2011 results. In the reported quarter, the company clocked ongoing earnings of 40 cents per share, in line with the Zacks Consensus Estimate. The company’s results, however, came above the year-ago quarterly earnings of 38 cents per share. Earnings in the reported quarter were higher by 5 cents than the year-ago period due to the absence of a contribution to the AEP Foundation and a fleet lease buyout in December 2010. This was partially offset by 3 cents owing to lower trading margins, power prices and unfavorable wind farm results.

On a reported basis, the company registered earnings of 64 cents per share in the reported quarter versus 37 cents per share in the year-ago period. The variance of 24 cents between the reported and ongoing numbers was due to a gain of 28 cents from Texas Capacity Auction, Tax Normalization & Carrying Charges; and 4 cents from Carbon Capture & Storage. This was partially offset by 8 cents from Turk plant impairment and other items.

Fiscal 2011 ongoing earnings came in at $3.12 per share, in line with the Zacks Consensus Estimate. However, this came above fiscal 2010 earnings of $3.03 per share. On a reported basis earnings came in at $4.02 versus $2.53 in fiscal 2010.

Operational Performance

Quarterly revenue at American Electric Power was $3.4 billion, flat versus both the Zacks Consensus Estimate and the year-ago period. Ongoing earnings were $194 million in the reported quarter, higher than $179 million in the prior-year quarter. The company reported net earnings of $308 million, down from the prior-year’s earnings of $176 million.

Fiscal 2011 revenue was $15.1 billion versus the Zacks Consensus Estimate of $15.2 billion. However, revenue for the reported fiscal was greater than the fiscal 2010 number of $14.4 billion.

Segmental Performance

Fiscal 2011 ongoing earnings from Utility Operations increased $56 million year over year to $1.5 billion. This was due to the favorable impact of rate changes, partially offset by regulatory disallowances in Ohio and Virginia, customer losses and higher storm restoration.

Fiscal 2011 ongoing earnings from the company’s River Operations rose $5 million to $45 million from the prior period due to a property casualty loss incurred in 2010.

Ongoing earnings from Generation and Marketing, which includes American Electric’s non-regulated generating, marketing and risk management activities primarily in the Electric Reliability Council of Texas (ERCOT) area, decreased $11 million to $14 million in fiscal 2011. The downcast in numbers is attributed to lower availability of units, decreasing trading margins cum power prices, and unfavorable wind farm operating results in fourth-quarter 2011.

All Other, which includes the Parent Company and other investments, improved $3 million in fiscal 2011 compared to a loss of $40 million last year.

Financial Condition

American Electric Power ended fiscal 2011 with cash and cash equivalents of $221 million and other cash deposits of $294 million. At fiscal-end 2010, the company had $294 million in cash and cash equivalents and $416 million of other cash deposits. The company generated approximately $3.8 billion of cash from operating activities in fiscal 2011, compared with approximately $2.7 billion generated in fiscal 2010. Long-term debt decreased to $15.1 billion at the end of the reported fiscal from $15.5 billion at the end of fiscal 2010.

Outlook

American Electric Power is experiencing a growth in industrial volume. In fiscal 2011, the company saw a 4% jump in industrial volume owing to increased production. We view the growth in industrial demand as a significant indicator of a reviving economy, a fact that will surely benefit the company going forward.

We appreciate the decision taken by the company to focus on shareholder value through payment of incremental dividends. The company currently dishes out an annualized dividend of $1.88 with a yield of 4.5%. American Electric Power also received a favorable ruling as recent as January 12, 2012, from the Public Utilities Commission of Texas to securitize funds. The company expects to receive proceeds of approximately $800 million from the securitization later in the first quarter of 2012. The company plans to utilize these cash proceeds to reduce liabilities and strengthen the balance sheet.

American Electric Power presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock. Some of its main competitors are Duke Energy Corporation (DUK) and Entergy Corporation (ETR)

Columbus, Ohio-based American Electric Power is a public utility holding company which, through directly and indirectly owned subsidiaries, generates, transmits, and distributes electricity, natural gas, and other commodities. The company derives revenues mainly from power-generating activities.

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