American Electric Power Co. Inc. (AEP) reported first quarter 2012 adjusted earnings per share (EPS) of 80 cents, at par with the Zacks Consensus projection. However, EPS was short of 2 cents from the prior-year figure.
The year-over-year decline was attributable to the mild weather in the company’s service territories, which lowered the demand for electricity in the reported quarter.
GAAP earnings during the quarter were 80 cents per share compared with 73 cents per share in the year-ago period.
Revenue
American Electric Power reported net revenue of $3,625 million in the first quarter, below the Zacks Consensus Estimate of $3,684 million and the year-ago quarter revenue of $3,730 million.
Operational Performance
During the reported quarter total operating expenses of the company decreased by $34 million from the year-ago quarter. However, the decline in revenue offset the positive impact of the reduction in expenses.
As a consequence, the operating income of the company fell by $53 million year over year to $754 million.
Interest expenses of the company in the reported quarter declined by $13 million from year-ago levels mainly due to lower long-term interest rates.
Segment Performance
Earnings from Utility operations during the first quarter were $383 million versus $389 million in the year-ago quarter. The shortfall was due to lower retail margins, offset marginally by lesser operation and maintenance spending.
Earnings from Transmission operations were $9 million versus $4 million in the year-ago quarter. The growth was a result of the positive return from the investment made by the company in iElectric Transmission Texas and its wholly owned transmission subsidiaries.
Generation and Marketing registered a loss of $1 million versus earnings of $1 million in the year-ago quarter.
Earnings from River operations which include the company’s non-regulated generating, marketing and risk management activities were $9 million versus $7 million in the year-ago quarter.
Earnings from the Other category, which includes the parent company and other investments, were ($11 million) versus ($9 million) in the prior-year period.
Financial Condition
Cash and cash equivalents of the company as of March 31, 2012 were $286 million versus $221 million as of December 31, 2011.
Long-term debt of the company as of March 31, 2012 was $15.3 billion, increasing from $15.1 billion as of December 31, 2011.
Cash flow from operating activities during the first quarter 2012 was $876 million versus $830 million in the year-ago period.
Peer Update
Duke Energy Corporation(DUK), which competes with American Electric Power, is expected to report its first quarter 2012 earnings on May 4, 2012. The Zacks Consensus Estimate, for first quarter 2012, is presently pegged at 38 cents per share.
Guidance
The company did not reaffirm its EPS guidance for 2012, which was in the range of $3.05 to $3.25, as the Public Utilities Commission of Ohio decided to terminate the previously approved stipulation agreement in February 2012.
Until there is more clarity in Ohio, the company has decided to hold back its guidance for the fiscal.
Our Take
Performance, this quarter, at American Electric Power was below par as the company’s electricity sales suffered from the tepid demand in its service territories. The fall in demand in its service territories was due to mild weather and switching of customers in Ohio to cheaper operators.
During the reported quarter the company retired 4,600 megawatts of coal-fueled power generation to comply with a series of U.S. Environmental Protection Agency regulations. This move is an appreciable one as the company will now concentrate on generating more environment friendly power.
The company has taken a few initiatives to augment its performance. The acquisition of BlueStar Energy will allow the company to grow its retail operation in competitive markets. American Electric created Transource, a joint endeavor with Great Plains Energy, to develop and invest in competitive transmission projects.
Since all these developments are in a nascent stage, we will wait and watch over the sidelines. The stock retains a short-term Zacks #3 Rank, which translates into a Hold rating, and corresponds with our long-term Neutral recommendation. Some of the company’s main competitors are Duke Energy Corporation 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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