Electric utility company American Electric Power Co., Inc. (AEP) reported Thursday a 57% year-over-year surge in profit for the fourth quarter, helped by rate increases across its service area, cost cutting as well as revenue growth, partially offset by weak industrial demand amid the economic downturn.
However, ongoing earnings per share for the quarter declined 15%, but topped analysts' expectations by four cents. The company also reaffirmed its ongoing earnings forecast range for the full year 2010.
The utility sector is more or less protected from general factors such as consumer sentiment amid severe economic downturn, as it is difficult for people to live without their services. They are highly regulated and have less competition as the territories are more or less insulated from peers, resulting in only one electricity provider in most towns. Also, their revenues are consistent as customers pay the bills in time for continuity of service.
However, like other utility companies, American Electric has been hit hard by weak demand for power amid the severe economic crisis. The slowdown in residential and commercial real estate growth has also impacted the utility companies' steady profits. The economic crisis has forced people to be more prudent in their electricity usage, with the weather also having a key role in determining electricity usage, as cooler weather translates to less use of electricity.
In a statement, chairman, president and chief executive officer, Michael Morris said, "We're pleased with our results for the quarter and year when considering the economic conditions we faced. We anticipated reduced sales in 2009 and took steps to maintain our levels of service while tightly controlling costs. The success of this effort is evident in our operations and maintenance expenses for 2009."
The company noted that industrial sales in the fourth quarter were consistent with the third quarter and actually showed a slight uptick in December. Meanwhile, residential and commercial sales have stalled, but has not declined as much as expected, the company added.
According to the Energy Information Administration, total U.S. electricity consumption fell 3.6% in the 2009, but is estimated to grow by 1.9% in 2010, reflecting projected increase in residential and commercial sector electricity sales as assumed summer air conditioning use this year returns to normal after the mild summer in 2009. Improving economic conditions would help drive growth in electricity sales to the industrial sector over the next two years, with projected consumption of electricity in this sector growing by 0.9% in 2010 and 2.0% 2011.
Fourth Quarter Results
The Columbus, Ohio-based American Electric reported GAAP net earnings of $238 million or $0.50 per share for the fourth quarter, up from $152 million or $0.38 per share in the prior-year quarter.
Excluding special items, ongoing earnings for the quarter were $238 million or $0.50 per share, compared to $237 million or $0.59 per share in the year-ago quarter. On average, eleven analysts polled by Thomson Reuters expected the company to report earnings of $0.46 per share for the fourth quarter. Analysts' estimates typically exclude special items.
The per-share results for the latest quarter reflect the dilutive effect of additional shares outstanding, which reduced ongoing earnings by $0.09 per share when compared to the prior year. The results for the fourth quarter were calculated on 478 million outstanding shares, compared to 404 million outstanding shares in the year-ago quarter.
Revenues for the quarter grew to $3.3 billion from $3.2 billion the same quarter last year. Three Wall Street analysts had a consensus revenue estimate of $3.54 billion for the quarter.
Peer Performance
Among American Electric's peers, New Orleans, Louisiana-based Entergy Corp. (ETR) is scheduled to report its financial results for the fourth quarter on February 2, 2010. Wall Street analysts expect the company to report earnings of $1.55 per share on revenues of $3.71 billion for the fourth quarter.
Another peer, Charlotte, North Carolina-based Duke Energy Corp. (DUK) is scheduled to report its financial results for the fourth quarter on February 12, 2010. Wall Street analysts expect the company to report earnings of $0.25 per share on revenues of $3.44 billion for the fourth quarter.
Segmental Details
Ongoing earnings for utility operations was $207 million or $0.44 per share, compared to $182 million or $0.45 per share in the year-ago quarter. The rise in earnings was primarily due to increased retail rates throughout AEP's utility footprint, partially offset by higher expenses and lower sales to industrial customers.
AEP river operations posted ongoing earnings of $25 million or $0.05 per share, down from $34 million or $0.09 per share in the prior-year quarter, hurt by a weak import market and lower grain rates, partially offset by lower operating expenses.
Generation and marketing reported ongoing earnings of $8 million or $0.02 per share, lower than $22 million or $0.05 per share in the corresponding quarter last year, attributable to lower gross margins from marketing activities.
Ongoing loss from all other operations, which include the parent company and other investments, widened to $2 million or $0.01 per share from $1 million or breakeven per share in the comparable quarter a year ago, due to lower interest income and favorable tax adjustments in the prior year, partially offset by lower interest expense, all at the parent, American Electric.
Full-Year Highlights
For fiscal 2009, American Electric reported GAAP net earnings of $1.36 billion or $2.96 per share, down from $1.38 billion or $3.43 per share in the prior year.
Excluding special items, ongoing earnings for the year was $1.36 billion or $2.97 per share, compared to $1.30 billion or $3.24 per share in the previous year. Analysts expected the company to report earnings of $2.95 per share for fiscal 2009.
Revenues for the full year period decreased to $13.5 billion from $14.4 billion reported in fiscal 2008. The Street was looking for full-year revenues of $14.12 billion.
Looking Ahead........ For fiscal 2010, AEP reaffirmed its ongoing earnings forecast in a range $2.80 to $3.20 per share, which was provided in early November. Analysts expect the company to earn $3.06 per share.
Stock Quote
AEP closed Wednesday's regular trading session at $35.53, down $0.01 on a volume of 3.91 million shares, lower than the three-month average volume of 4.21 million shares. In the past 52-week period, the stock has been trading in a range of $24.00 to $36.86.
For comments and feedback contact: editorial@rttnews.com
June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.