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American Electric Power Company Inc. (AEP - Analyst Report) reported its third-quarter 2012 results before the opening bell today. In the reported quarter, the company posted operating earnings of $1.02, in line with the Zacks Consensus Estimate. However, it was below the year-ago figure of $1.17.

The year-over-year decline reflects the negative impacts of customer switching in Ohio, drought and associated low-water conditions that hampered river transportation business. Moreover, restoration costs associated with the June 29 storm that led to lack of power supply to 1.4 million customers in five states also hurt the company’s performance. However, these were partially offset by cost control and positive rate changes across multiple jurisdictions.

Including a charge of 2 cents per share related to the Southwestern Electric Power Co. Texas jurisdictional cost cap on the construction of the John W. Turk Jr. coal-fueled power plant in Arkansas, GAAP earnings reported during the quarter were $1.00 versus $1.92 in third quarter of 2011.

Operational Performance

Quarterly revenue at American Electric Power was $4,156 million, lower than the Zacks Consensus Estimate by $461 million. The figure also fell below the year-ago figure of $4,333 million.

During the reported quarter, maintenance and other operation expenses were $1,033 million versus $1,026 million.

Operating earnings were $496 million in the reported quarter, lower than $566 million in the prior-year quarter. The company reported net earnings of $487 million, down from the year-ago figure of $928 million.

Quarterly Segment Performance

Operating earnings from Utility Operations during third-quarter 2012 were $479 million, down $63 million year-over-year. The decline reflects customer switching in Ohio, higher storm restoration costs and cooler temperatures compared to the previous year period. These negatives were, however, partially offset by the positive impact of successful rate proceedings and lower spending as a result of cost- containment efforts.

Operating loss from the company’s River Operations was $1 million versus earnings of $17 million in the year-ago period. The significant downside reflects drought in 2012 that significantly impacted river conditions.

Operating earnings from the company’s Transmission Operations were $14 million, down $5 million year over year.

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 by $2 million to $10 million year over year.

All Other, which includes the Parent Company and other investments, improved $4 million to a loss of $6 million compared with a loss of $10 million last year.

Financial Update

Cash and cash Equivalents at the end of September 30, 2012 were $443 million versus $221 million at the end of December 31, 2011. Total debt was $18,443 million versus $18,166 million at the end of December 31, 2011.

Guidance

American Electric Power’s earnings guidance remains suspended on account of the ongoing Ohio regulatory proceedings. The company has received orders from the Public Utilities Commission of Ohio regarding capacity charges, the Electric Security Plan and the corporate separation plan. However, still some of these orders are subject to rehearing. Hence, the company has decided to hold back its guidance.

Outlook

American Electric Power Company posted in line earnings, but missed the revenue estimate. The quarter was significantly hampered by customer switching and weather ailments.

Going forward, key growth drivers of the company are growth through transmission network expansion, cost control measures and Turk Plant, the first ultra-supercritical coal plant in the nation, which is expected to begin generating electricity before the end of 2012.

However, tepid economies in a number of its service states restrict opportunities for growth. Also, uncertainty surrounding pending regulatory cases, its predominantly fossil-fuel based generation assets and lower wholesale sales are matters of concern. American Electric Power presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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.

Some of its main competitors are PG&E Corp. (PCG - Analyst Report) and PPL Corporation (PPL - Analyst Report).

 

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