American Electric Power Company Inc. (AEP) reported second quarter 2014 operating earnings of 80 cents per share, beating the Zacks Consensus Estimate of 75 cents by 6.7%. The quarterly figure also improved 9.6% from the year-ago adjusted profit of 73 cents per share. The upbeat performance was supported by investments in infrastructure and transmission as well as system improvement.
On a GAAP basis, the utility’s second quarter 2014 earnings were on par with the operating number. In the year-ago quarter, GAAP earnings were 69 cents per share taking into account a one-time charge of 4 cents.
Total Revenue
American Electric Power’s second quarter operating revenues were $4.0 billion, surpassing the Zacks Consensus Estimate of $3.8 billion by 5.3% as well as the year-ago number of $3.6 billion by 11.1%.
Operational Update
Fuel & Other Consumables used for electric generation stood at $1.0 billion in the quarter, up 14.9% from $908 million a year ago.
Total expenses in the reported quarter were $1.76 billion, down 0.4% year over year from $1.77 billion.
Segmental Performance
Vertically Integrated Utility Operations: Operating earnings in the quarter increased $2 million year over year to $154 million. This improvement was due to the positive impact of rate changes and higher off-system sales margins.
Transmission & Distribution Operations: Operating earnings experienced a major boost, improving 20% year over year to $90 million in the quarter, attributable to the positive effect of increased transmission investment.
AEP Transmission Holdco: This unit generated income of $47 million during the quarter versus $18 million in the second quarter 2013, backed by increased transmission investment.
Generation and Marketing: Operating earnings were $98 million, up 8.9% from $90 million in the second quarter 2013. The improvement reflects encouraging power prices.
AEP River Operations: This segment registered an income of $3 million versus a year-ago loss of $9 million. This reflects improvements in barge freight demand.
All Other: The segment incurred a loss of $2 million during the quarter compared with an operating income of $31 million in the year-ago period.
Financial Condition
American Electric Power’s cash and cash equivalents as of Jun 30, 2014 were $190 million versus $118 million as of Dec 31, 2013.
Long-term debt was $15.6 billion as of Jun 30, 2014 versus $16.8 billion as of Dec 31, 2013.
American Electric Power’s cash flow from operating activities in the first six months of 2014 stood at $2.2 billion compared with $1.5 billion in the same period last year. The company increased its capital spending for transmission projects by $100 million to $1.9 billion.
Guidance
American Electric Power, one of the largest electric utilities in the U.S., reaffirmed its 2014 operating earnings guidance of $3.35–$3.55 per share.
Earlier, the company had issued operating earnings guidance in the range of $3.30–$3.60 per share for 2015 and $3.45–$3.85 per share for 2016.
Peer Release
CMS Energy Corp. (CMS) reported second-quarter 2014 earnings per share of 30 cents both on an adjusted and GAAP basis. Quarterly earnings surpassed the Zacks Consensus Estimate of 26 cents by 15.4% and the year-ago number by a penny on higher revenues.
Our Take
American Electric exceeded both our top- and bottom-line estimates for the reported quarter. The uptrend was driven by a strong performance across the board.
We believe American Electric Power’s ongoing investments in transmission projects and in regulated as well as non-regulated businesses are set to drive its earnings in the future.
In addition, economic improvement in its service territories – mainly in areas with shale gas development – is encouraging. Overall industrial sales increased 4.5% in the second quarter. The counties with large shale gas development witnessed industrial sales growth of 39%. Again, industrial sales improved in 9 of its top 10 industrial sectors in the first half of 2014. Commercial sales also improved for the fourth consecutive quarter; residential usage however declined marginally this quarter.
American Electric Power current holds a Zacks Rank #2 (Buy). Other well-ranked stocks in the industry include Unitil Corp. (UTL) and Wisconsin Energy Corp. (WEC), both sporting a Zacks Rank #1 (Strong Buy).
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