Strong 4Q from American Electric

Zacks

Before the bell, American Electric Power Company Inc. (AEP) reported its fourth quarter and full year 2012 results. In the reported quarter, the company clocked operating earnings of 50 cents per share, beating  the Zacks Consensus Estimate of 45 cents. The company’s results also came above the year-ago quarterly earnings of 40 cents per share.

On a reported basis the company registered earnings of 5 cents per share in the reported quarter versus 64 cents per share in the year-ago period. The variance of 45 cents between the reported and operating numbers was due to Ohio Plant impairments charge of 38 cents; restructuring program charge of 4 cents; and UK Windfall Taxes of 3 cents.

Full year 2012 operating earnings came in at $3.09 per share, higher than the Zacks Consensus Estimate of $3.04. However this came below full year 2011 earnings of $3.12 per share. On a reported basis earnings came in at $2.60 versus $4.02 in full year 2011.

Operational Performance

Quarterly revenue at American Electric Power was $3.6 billion higher versus both the Zacks Consensus Estimate of $3.5 billion and the year-ago period number of $3.4 billion.

Full year 2012 revenue was $14.9 billion versus the Zacks Consensus Estimate of $15.4 billion. Revenue for the reported full year was also lower than the full year 2011 number of $15.1 billion.

Segmental Performance

In the reported quarter, operating earnings from Utility Operations increased $108 million year over year to $283 million. This was due to the favorable impact of successful rate proceedings and lower spending as a result of cost-containment efforts. This was partially offset by customer switching in Ohio, higher storm restoration costs and milder temperatures in relation to last year.

Operating earnings from Transmission Operations for the fourth-quarter of 2012 rose $2 million year over year to $13 million.

Operating earnings from AEP River Operations for fourth-quarter 2012 fell $18 million year over year to $4 million. This was primarily due to the 2012 drought, which had significant impacts on river conditions and crop yields, resulting in reduced grain exports.

Operating earnings from Generation and Marketing, which includes American Electric’s non-regulated generating, marketing and risk management activities primarily in the Electric Reliability Council of Texas (:ERCOT) area, increased $9 million to $3 million in the fourth quarter of 2012.

All Other, which includes the Parent Company and other investments, decreased $53 million to a loss of $61 million. The decrease was primarily attributed to costs associated with the early retirement of parent debt in fourth-quarter 2012.

Financial Condition

American Electric Power ended full year 2012 with cash and cash equivalents of $279 million and other cash deposits of $324 million. At year-end 2011, the company had $221 million in cash and cash equivalents and $294 million of other cash deposits. The company generated approximately $3.8 billion of cash from operating activities in full year 2012 flat versus full year 2011. Long-term debt increased to $15.6 billion at the end of the reported full year from $15.1 billion at the end of full year 2011.

Guidance

American Electric Power expects 2013 operating earnings in the range of $3.05 to $3.25 per share.

Outlook

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.

American Electric Power Company posted strong numbers in the reported quarter beating both the earnings and revenue estimates. The beat is commendable as this comes in the face of sluggish demand growth and the negative impact of customer switching in Ohio.

Going forward, key growth drivers of the company are stable regulated operations, growth through transmission network expansion and an above-average dividend yield. However, tepid economies in a number of its service states, uncertainty surrounding pending regulatory cases, its predominantly fossil-fuel based generation assets, lower wholesale sales and no catalysts in the near term compel us to remain on the sidelines.

American Electric Power presently retains a short-term Zacks Rank #3, which translates into a short-term Hold rating.

Other Stocks to Consider

Other stocks to consider are Ameren Corporation (AEE) with a Zacks Rank #1 (Strong Buy), and The AES Corporation (AES) and DTE Energy Company (DTE) that carry a Zacks Rank #2 (Buy).

Read the Full Research Report on AEE

Read the Full Research Report on AEP

Read the Full Research Report on AES

Read the Full Research Report on DTE

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