AES Corporation (AES) reported second quarter results with adjusted earnings per share (EPS) of 28 cents, 4 cents above the Zacks Consensus Estimate as well as the year-ago figure.
Better performing existing operations coupled with income from new construction projects and acquisition in Northern Ireland aided the company to deliver strong numbers in the quarter under review.
Including currency transaction gain of 1 cent, impairment loss of 4 cents and a debt retirement loss of 1 cent, net income came in at 24 cents per share, compared with 19 cents in the year-ago quarter.
Quarterly Operational Results
In the reported quarter, consolidated revenue increased $621 million to approximately $4.5 billion. The results were driven by favorable impacts of $274 million of foreign currency, contributions from new businesses including Ballylumford in Northern Ireland, Angamos in Chile and Maritza in Bulgaria, higher prices and volumes in Chile and Argentina and increased demand at its Brazilian utilities.
These positives were, however, partially offset by lower prices at Eletropaulo in Brazil and lower volume at Cartagena in Spain.
During the quarter, gross profit increased by $17 million to approximately $1 billion driven by favorable impacts of foreign currency of $61 million, contributions from new businesses, higher prices and volumes in Chile, and increased volume at its Brazilian utilities.
These were partially offset by an increase in fixed costs, primarily in Latin America, generation outage in Panama related to tunnel repairs, lower prices at Eletropaulo in Brazil, lower spot prices and volumes at its Europe and Asia Generation businesses.
Financial Condition
AES Corp. ended the quarter with cash and cash equivalents of $3.6 billion compared with $2.9 billion at second quarter 2010 end.
Total long-term liabilities increased to $24.5 billion from approximately $23.6 billion at second quarter 2010 end.
Consolidated free cash flow in the quarter decreased to $460 million from $588 million in the year-ago quarter.
Outlook
For fiscal 2011, AES Corp. reaffirmed its adjusted EPS guidance range of 97 cents –$1.03 and net earnings between 93 cents to 99 cents.
Cash from operations is expected in the band of $2.7 million to $2.9 billion. Consolidated free cash flow is expected to be in the range of $1.8–$2.0 billion in fiscal 2011.
For 2012, AES Corp. guided adjusted EPS to a range of $1.27 to 1.37 and net earnings to $1.15 to 1.25.
Cash from operations is guided to a range of $3.3 million to $3.5 billion. Consolidated free cash flow is expected to be in the range of $2.2–$2.4 billion in fiscal 2012.
Acquisition
In April this year, AES Corp. entered into a definitive agreement to acquire DPL Inc. (DPL), the parent company of Dayton Power & Light Company, for a total value of $4.7 billion. It had agreed to pay $30 per share in cash to DPL shareholders.
It will pay a total of $3.5 billion in cash for the equity and $1.2 billion in net debt for the total transaction. Upon closing of the transaction, DPL will become a wholly owned subsidiary of the company.
Subsequently, in June 2011, the company announced that it had commenced a private offering of $1 billion of Senior Notes to eligible purchasers due 2021. Net proceeds from this offering will be used to partially finance its DPL acquisition. The transaction is expected to be completed later in fiscal 2011 or early 2012.
DPL Inc. reported second quarter 2011 financial results. Earnings for the quarter were 33 cents per share, below the Zacks Consensus Estimate of 52 cents per share and year-ago earnings of 53 cents per share. Lower electricity sales volume impacted earnings.
Our Take
AES Corp.has a diversified business exposure that insulates it from any region-specific risk. It is also investing a substantial chunk of funds for capacity expansion in the power hungry regions of Latin America and Asia. Also AES’ ongoing merger transaction with DPL Inc., seen as a boost for its regulated electricity business, is expected to be a strategic fit.
Over the long term, we suggest investors to wait for a favorable entry point. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
AES Corp. is a global power company spread over 28 countries in five continents. It operates in two lines of business – Generation and Utilities.
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