American Electric Power Co. Inc. (AEP) reported third quarter 2011 adjusted EPS of $1.17, beating the year-ago figure of $1.15 and the Zacks Consensus Estimate of $1.14.
GAAP earnings during the quarter were $1.93 per share compared with $1.16 per share in the year-ago period.
The difference between operating and GAAP earnings of 76 cents per share during the reported quarter was due to a gain of 88 cents resulting from a favorable Supreme Court decision, offset by a loss of 6 cents related to the impairment of Sporn Plant Unit, a 5 cent loss due to the suspended scrubber project on the Muskingum River Plant Unit 5 and 1 cent relating to a settlement in Ohio.
Revenue
American Electric Power reported net revenue of $4.3 billion in the third quarter, below the Zacks Consensus Estimate of $4.78 billion but ahead of year-ago revenue of $4.1 billion.
Operational Performance
During the reported quarter the company registered a 6.8% year-over-year growth in the energy delivery level. Total energy delivery was mainly driven by a 23.2% spurt in wholesale energy delivery, while retail energy delivery grew by 3.0%.
Interest expenses of the company in the reported quarter were lower by $15 million from year-ago levels mainly due to lower borrowings compared to 2010.
Despite an increase in total operating expenses by $22 million in the reported quarter, the company was able to register growth in operating earnings, attributable to higher demand and growth in industrial volumes.
Ongoing earnings were $566 million in the reported quarter, higher than $552 million reported in the prior-year quarter.
Segment Performance
Ongoing earnings from Utility operations increased by $17 million to $551 million in the quarter. The results reflect the positive impact of rate changes, favorable weather in the company’s western service territory, partly offset by the disallowance of Provider of Last Resort (POLR) revenues.
The company’s River Operations earnings in the reported quarter delivered a growth of $2 million over the prior year.
Ongoing earnings from Generation and Marketing, which includes the company’s non-regulated generating, marketing and risk management activities, primarily in the Electric Reliability Council of Texas (ERCOT) area, were up $8 million year over year due to weather driven increase in volume.
Earnings from the Other category, which includes the parent company and other investments, decreased $13 million over the prior-year period, primarily as a result of favorable tax adjustments in the prior year.
Peer Update
Duke Energy Corporation (DUK), which competes with American Electric Power, is expected to report its third-quarter 2011 earnings on October 27, 2011. The Zacks Consensus Estimate, for third-quarter 2011, is presently pegged at 47 cents per share.
Duke Energy expects its adjusted earnings per share for 2011 to be in the range of $1.35 to $1.40.
Guidance
The company has tightened its EPS guidance for 2011 to $3.07–$3.17 for 2011 from $3.00–$3.20 provided earlier.
Our Take
American Electric Power is experiencing a growth in industrial volume. In the reported quarter, the sector saw a 5% jump in volume owing to increased production at its metals customers and refiners. 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 increase shareholder value through payment of increased dividends. The Board of Directors has approved a 2.2% hike in the quarterly dividend rate of the company, setting the new rate at 47 cents.
The company 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 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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