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American Electric Power Company Inc. (AEP - Analyst Report) reported first quarter 2014 operating earnings of $1.15 per share, beating the Zacks Consensus Estimate of 91 cents by 26.4%. The quarterly figure also improved a whopping 43.8% from the year-ago adjusted profit of 80 cents per share. The upbeat performance was supported by favorable weather and high power prices.

On a GAAP basis, the utility’s first quarter 2014 earnings were on par with the operating number. In the year-ago quarter GAAP earnings were 75 cents per share taking into account a one-time charge of 5 cents.

Total Revenue

American Electric Power’s quarterly operating revenue was $4.6 billion, surpassing the Zacks Consensus Estimate as well as the year-ago number of $3.8 billion by 21.1%.

Operational Update

Fuel & Other Consumables used for electric generation stood at $1.2 billion in the quarter, up 13.3% from the year-earlier level of $1.0 billion.

Total expenses in the reported quarter were $1.80 billion, up 10.4% year over year from $1.63 billion.   

American Electric clocked net income of $560 million in the reported quarter, up from $387 million a year ago.

Segmental Performance

Vertically Integrated Utility Operations: Operating earnings in the quarter surged 37.6% year over year to $278.0 million. This improvement was due to the positive impact of rate changes, higher off-system sales margins, and colder weather.

Transmission & Distribution Operations: Operating earnings experienced a major boost, improving 12.8% year over year to $97.0 million in the quarter, attributable to the positive effect of rate changes as well as severe cold temperatures.

AEP Transmission Holdco: This unit generated income of $24 million during the quarter versus $13 million in the first quarter 2013, backed by increased transmission investment.

Generation and Marketing: Operating earnings were $163 million, up 83.1% from $89 million in the first quarter 2013. The improvement reflects robust fleet performance and favorable power prices.

AEP River Operations: This segment registered an income of $3 million versus a year-ago loss of $2 million. This reflects improvements in river conditions and in grain export demand.

All Other: The segment incurred a wider loss of $5 million during the quarter when compared with a loss of $1 million in the year-ago period.

Financial Condition

American Electric Power’s cash and cash equivalents as of Mar 31, 2014 were $292 million versus $118 million as of Dec 31, 2013.

Long-term debt was $16.5 billion as of Mar 31, 2014 versus $16.8 billion as of Dec 31, 2013.

American Electric Power’s cash flow from operating activities in the first quarter 2014 was $1.1 billion compared with $0.8 billion in the first quarter 2013. The company increased its capital spending for transmission projects by $200 million to $1.7 billion. Of the total increase, $140 million went to Transmission Holding Co. and $60 million was allocated to the utility operating companies.

Guidance

American Electric Power, one of the largest electric utilities in the U.S., raised its 2014 GAAP earnings guidance to $3.35–$3.55 per share from its earlier expectation of $3.20–$3.40 per share.

The company’s operating earnings guidance is in the range of $3.30–$3.60 per share for 2015 and $3.45–$3.85 per share for 2016.

Other Releases

Entergy Corp. (ETR - Analyst Report) posted robust first-quarter 2014 earnings. Its operational earnings came in at $2.29 per share in the quarter, beating the Zacks Consensus Estimate by 8.5%. Quarterly earnings increased a considerable 143.6% year over year on the back of higher wholesale electricity prices owing to a frigid winter and pipeline infrastructure constraints in the Northeast U.S.

CMS Energy Corp. (CMS - Analyst Report) posted first-quarter 2014 earnings per share of 75 cents both on an adjusted and GAAP basis. The quarterly figure surpassed the Zacks Consensus Estimate of 64 cents by 17.2% and increased 41.5% on a year-over-year basis.

Our Take

American Electric exceeded both our top- and bottom-line estimates for the reported quarter. The uptrend was driven by strong performances 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.

American Electric Power is also focused on expanding its line of businesses. In Feb 2014, its unit AEP River Operations started a new Liquids Division with the receipt of the first of 20 tank barges. The company will transport liquid commodities, including petrochemicals and agricultural chemicals, which will definitely boost its profits.

In addition, heightened industrial activity in its service territories is expected to drive an additional 270 megawatt of fresh demand. This will to a large extent compensate for the loss of Ormet, an aluminum smelter in Ohio, which shut down in October last year.

American Electric Power current holds a Zacks Rank #3 (Hold). Other better-ranked stocks in the industry include Entergy and NRG Energy, Inc. (NRG - Analyst Report), both sporting a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on AEP
Read the Full Research Report on CMS
Read the Full Research Report on ETR
Read the Full Research Report on NRG


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