Electric utility company American Electric Power Co., Inc. (AEP) reported Thursday a 18.4% year-over-year increase in profit for the third quarter, helped by rate increases and cost cutting. This was partially offset by weak industrial demand amid the economic downturn, mild weather as well as a quarterly revenue drop.
Earnings per share for the quarter remained flat with last year, but topped analysts' expectations by eight cents, while quarterly revenues missed consensus estimate. The company also raised the low-end of its prior ongoing earnings forecast range for fiscal 2009.
American Electric, one of the largest electric utilities in the U.S., provides electricity to more than 5 million customers in 11 states. American Electric owns more than 38,000 megawatts of generating capacity in the U.S, and also owns the nation's largest electricity transmission system, a nearly 39,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
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, especially considering the number of factors that worked against us in the third quarter. This was the coolest summer in 30 years for the Eastern states that we serve and the fourth-coolest summer in 30 years for our customers in the Southwest Power Pool - Oklahoma, Arkansas, Louisiana and northeast Texas. The cool summer weather reduced both retail and wholesale sales.
According to the Energy Information Administration, total U.S. electricity consumption fell 1.6% in the 2008 and is forecast to decline by 3.3% in 2009, and then grow by 1.3% in 2010 as the improving economy leads to slowly recovering industrial sector electricity sales.
Third Quarter Results
The Columbus, Ohio-based American Electric reported net income of $443 million or $0.93 per share for the third quarter, compared to $374 million or $0.93 per share in the prior-year quarter.
On average, eleven analysts polled by Thomson Reuters expected the company to report earnings of $0.85 per share. 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 $0.17 per share when compared to the prior year. The results for the third quarter were calculated on 477 million outstanding shares, compared to 402 million outstanding shares in the year-ago quarter.
Revenues for the quarter dropped to $3.5 billion from $4.2 billion the same quarter last year, and missed three Wall Street analysts' consensus estimate of $3.97 billion.
Among American Electric's peers, New Orleans, Louisiana-based Entergy Corp. (ETR) reported last week a year-over-year decline in profit for the third quarter to $455.2 million or $2.32 per share from$470.3 million or $2.41 per share in the prior-year quarter. On an operational basis, earnings were $470.7 million or $2.40 per share, down from $487.3 million or $2.50 per share last year. Total quarterly operating revenues dropped 25.9% to $2.94 billion from $3.96 billion a year ago.
Another peer, Charlotte, North Carolina-based Duke Energy Corp. (DUK) is scheduled to report its financial results for the third quarter on Friday, October 30, 2009. Wall Street analysts expect the company to report earnings of $0.38 per share on revenues of $3.80 billion for the third quarter.
Yet another peer, Houston, Texas-based CenterPoint Energy, Inc. (CNP) reported on Wednesday a year-over-year decline in net income for the third quarter to $114 million or $0.31 per share from $136 million or $0.39 per share in the prior-year quarter, as total quarterly revenues dropped to $1.58 billion from $2.51 billion a year ago.
Segmental Details
Ongoing earnings for utility operations increased to $445 million or $0.93 per share from $357 million or $0.89 per share in the year-ago quarter. The rise in earnings was primarily due to increased rates throughout AEP's utility footprint and lower operation and maintenance expenses.
AEP river operations posted ongoing earnings of $10 million or $0.02 per share, compared to $11 million or $0.03 per share in the prior-year quarter, and was hurt by a decline in barge freight revenue as a result of a weak import market.
Generation and marketing reported ongoing earnings of $5 million or $0.01 per share, lower than $16 million or $0.04 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 $17 million or $0.03 per share from $10 million or $0.03 per share in the comparable quarter a year ago, due to higher interest expense at American Electric.
Nine Month Highlights
For the nine-month period, American Electric reported GAAP net income of $1.12 billion or $2.47 per share, compared to $1.23 billion or $3.06 per share in the prior-year period. Excluding items, ongoing earnings was $1.12 billion or $2.49 per share, compared to $1.06 billion or $2.65 per share in the year-ago period.
Revenues for the year-to-date period decreased to $10.2 billion from $11.2 billion in the same period last year.
Looking Ahead........
"We did see an increase in sales to several large metals customers from second quarter to third quarter. We hope that's a sign of better things to come, but we don't see it as a cause for celebration yet," Morris added
For fiscal 2009, AEP currently anticipates ongoing earnings in a range of $2.90 and $3.05 per share, raising its low-end of the prior outlook in the range of $2.75 and $3.05 per share. The Street is looking for full year 2009 earnings of $2.84 per share.
Stock Quote
AEP closed Wednesday's regular trading session at $29.66, down $0.45 on a volume of 6.25 million shares, sharply higher than the three-month average volume of 3.59 million shares. In the past 52-week period, the stock has been trading in a range of $24.00 to $34.34.
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