Before the bell, American Electric Power Company Inc. (AEP) reported strong third quarter fiscal 2010 results. In the reported quarter, the company comfortably beat the Zacks Consensus Estimate of $1.04 by 11 cents with an EPS of $1.15. The company’s results also climbed from the year-ago quarterly EPS of 93 cents. Earnings in the reported quarter were boosted by a warmer climate throughout its entire service territory while industrial sales recorded growth for two consecutive quarters.
In the reported quarter earnings on a reported basis were a penny higher than the adjusted basis owing to the dilutive effect of additional shares outstanding.
Operational Performance
Quarterly revenue at American Electric Power rose $517 million to $4.1 billion from $3.5 billion in the year-ago period. However, this was $113 million below the Zacks Consensus Estimate for the quarter. The company clocked GAAP earnings of $555 compared with $443 million in the year-ago quarter. American Electric Power’s ongoing earnings were $552 million compared with $443 million.
In the reported quarter retail sales rose $243 million to $2.1 billion, primarily because of the favorable impact of weather, favorable rate changes and improved industrial sales, indicating some overall improvement in the economy. Off-System Sales increased $42 million to $112 million, primarily due to increased sales volumes and improving market prices. Transmission revenues came in at $95 million similar to the year-ago period.
However other operating revenue slipped $51 million to $151 million primarily because of the absence of the accidental-outage insurance payments related to the September 2008 turbine vibration and subsequent outage at the Donald Cook Nuclear Plant in Bridgman, Michigan. Receipt of insurance payments ceased when the unit returned to service in December 2009.
Segmental Performance
Ongoing earnings from Utility Operations increased $89 million to $534 million in the reported quarter. The improvement was driven by a favorable impact of rate changes and constructive weather throughout its utility service territory.
Ongoing earnings from AEP’s River Operations rose $5 million to $15 million from the prior period boosted by increased southbound traffic volumes resulting from the earlier-than-normal harvest season.
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, decreased $5 million to break-even.
All Other, which includes the Parent Company and other investments, improved from a $17 million loss in the prior year quarter to earnings of $3 million, primarily as a result of favorable tax adjustments.
Financial Condition
American Electric Power reported cash and cash equivalents of $1.1 billion at the end of the reported period from $877 million during the year-ago period. The company reported $1.7 billion in cash from operating activities in the first nine months of 2010 compared to $1.9 billion of cash generated in the year-ago period. Long term debt increased to approximately $16 billion from $15.8 billion at fiscal-end 2009.
Outlook
American Electric Power narrowed its ongoing earnings guidance range for fiscal 2010 to $2.95 – $3.05 per share from the previous guidance range of $2.80 – $3.20. This is in line with the Zacks Consensus EPS Estimate of $3.04 for fiscal 2010.
Columbus, Ohio-based American Electric Power is one of the largest public utility holding companies, catering to approximately 5.2 million customers in 11 states.
American Electric Power currently has a Zacks #3 Rank (Hold), along with a longer-term Neutral recommendation.
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