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AES Corp. Beats Q2 Earnings, Lags Sales

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The AES Corp. (AES - Free Report) reported second quarter 2013 adjusted earnings per share of 32 cents, above the Zacks Consensus Estimate of 26 cents. Adjusted earnings for the reported quarter also increased approximately 78% from the year-ago figure of 18 cents.

The results were driven by a lower effective tax rate, the addition of new capacity and higher availability in Chile, cost reductions and a lower share count. However, these positives were partially offset by the unfavorable impact of dry hydrological conditions in Latin America.

On a GAAP basis, the company reported earnings of 22 cents compared with 9 cents in the year-ago quarter. The 10-cent variance between adjusted and GAAP earnings came from a 2 cent loss on unrealized foreign currency transactions, a 17 cent loss on extinguishment of debt, unrealized derivative gains of 6 cents and gains on acquisitions and dispositions of 3 cents per share.

Operating Highlights

In the reported quarter, revenues were $4,068.0 million, missing the Zacks Consensus Estimate of $4,296 million. It also declined 0.5% year over year.

The results reflect higher year-over-year sales in Andes, Brazil, Mexico, Central America and the Caribbean (MCAC) and Europe, Middle East and Africa (EMEA), partially offset by lower year-over-year sales in U.S. and Asia.

In the reported quarter, total cost of sales was $3,150 million, down 7.2% year over year.

General and administrative expenses declined to $59.0 million, down 20.3% year over year.

Business Highlights

During the quarter, the company sold its wind turbine inventory. It also sold its 10% interest in the 720 MW gas-fired plants in Trinidad.

The company is on track to complete the 2,191 MW of capacity under construction, which is expected to come on-line through 2016.

In Jul 2013, AES Gener entered into a partnership agreement with Antofagasta Minerals for a 40% stake in the Alto Maipo 531 MW hydroelectric generation development project in Chile.

Financial Condition

AES Corp. reported cash and cash equivalents of $1,611 million as of Jun 30, 2013 versus $1,966.0 million as of Dec 31, 2012.

Consolidated operating cash flow was $567 million versus $580 million in the year-ago period. Capital expenditures during the quarter were $570 million versus $498 million a year ago.

During the second quarter 2013, the company repurchased 1.6 million shares for a total investment of $18 million. Post quarter, the company repurchased an additional 3.7 million shares for a total investment of $45 million.


AES Corp. reaffirmed its adjusted earnings guidance for 2013 in the range of $1.24 to $1.32 per share. Proportionate free cash flow is estimated in the range of $750.0 million to $1,050.0 million in 2013. Cash flow from operating activities for 2013 is projected to be between $2,500.0 million and $3,100.0 million.

The company is on track to achieve $145 million in cumulative annual cost reductions in 2014.

At the Peers

Integrys Energy Group, Inc. reported second quarter 2013 pro forma earnings of 45 cents per share, up 66.7% from the year-ago quarter. Earnings also breezed past the Zacks Consensus Estimate of 32 cents by 40.6%.

Diversified utility, NiSource Inc. (NI - Free Report) posted net operating earnings of 23 cents per share in the second quarter of 2013, a penny or 4.2% lower than the Zacks Consensus Estimate. Earnings were however 4.5% higher than the year-ago quarter.

Our Take

The company succeeded in beating the Zacks Consensus Estimate. The company is progressing well with its operational performance, share repurchases and power generation.

However, the company’s long-term supply contracts expose the company to commodity price risk. Moreover, being a non-dividend paying stock, it is less attractive for investors. AES Corp. currently retains a Zacks Rank #4 (Sell).

In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer IdaCorp, Inc. (IDA - Free Report) .

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