AES Misses EPS but Reaffirms

AES Corporation’s (AES - Analyst Report) adjusted EPS of 22 cents in the first quarter of 2011 came below the Zacks Consensus EPS estimate of 26 cents. Also, adjusted EPS for the reported quarter fell short of the year-ago EPS of 28 cents. On a GAAP basis the company reported EPS of 28 cents compared to 27 cents in the year-ago quarter.

The 8-cent variance in adjusted and GAAP EPS came from currency transaction gain (7 cents) and derivative mark-to-market gain (1 cent).

Quarterly Operational Results

In the reported quarter, consolidated revenue increased $344 million to approximately $4.3 billion, comfortably beating the Zacks Consensus Estimate of $3.7 billion. Of that increase, $155 million was attributable to favorable foreign currency translation impacts.

Further improvements to revenue resulted from higher prices and volumes in Chile and Argentina; contributions from its Ballylumford plant in Northern Ireland; and increased demand at its Brazil utilities. These gains were partially offset by lower prices at its utility business in Latin America; lower volume in Sri Lanka; and lower prices at Kilroot in Northern Ireland.

Gross profit increased $55 million to slightly above $1 billion, compared to $961 million in the year-ago quarter. The upside came from favorable impacts of foreign currency; higher prices and volumes in Chile; increased demand at its Brazilian utilities; and contributions from its Ballylumford plant in Northern Ireland.

These gains were partially offset by an increase in fixed costs; lower prices at Kilroot in Northern Ireland; lower prices at its utility businesses in Latin America; increased outages, primarily in Panama; and lower volume in the Philippines. Net income was $224 million compared to $187 million in the year-ago quarter.

Financial Condition

AES Corporation reported cash and cash equivalents of slightly above $2 billion at the end of the reported period from $2.6 billion at the end of fiscal 2010. The company generated $505 million in cash from operating activities in the reported period compared to $668 million of cash generated in the year-ago period.

This decrease is primarily attributed to higher tax payments and increased collections of past due government receivables in the year-ago period. Consolidated Free Cash Flow decreased to $263 million compared to $512 million at the end of the year-ago period. Long term liabilities decreased to $21.8 billion from approximately $22 billion at fiscal-end 2010.

Outlook

For fiscal 2011, AES Corporation reaffirmed adjusted earnings per share guidance range of $0.97–$1.03. In the near term, we see shares of the company performing in line with the broader market and thus reiterate a short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation. In the near term, we would advise investors to accumulate its short-term Zacks #1 Rank (Strong Buy rating) peer - TransAlta Corporation (TAC - Snapshot Report).

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