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AES Corp. Beats on Earnings, Guides Higher

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The AES Corporation (AES - Free Report) reported fourth quarter 2013 adjusted earnings per share of 29 cents, beating the Zacks Consensus Estimate by 7.4%. However, operating earnings for the reported quarter lagged the year-ago figure of 31 cents by 6.4%.

The year-over-year decline was primarily due to poor hydrology in Panama and a one-time expense related to potential customer refunds at Eletropaulo.
Including one-time charges of 52 cents in the reported quarter, GAAP loss was 23 cents compared with earnings of 29 cents in fourth quarter 2012.

2013 operating earnings were $1.29 per share, surpassing the Zacks Consensus Estimate by a penny and the year-ago earnings of $1.21 per share by 6.6%. Operating earnings were on the higher end of the guidance range of $1.24 to $1.32 per share provided earlier.

The results were driven by a lower effective tax rate and general & administrative expenses. In addition, management???s prudent capital decision benefited the bottom line.

Total Revenue

AES Corporation generated total revenue of $3.8 billion in the fourth quarter, down 11.7% year over year. The top line also missed the Zacks Consensus Estimate of $5.57 billion by 30.7%.

2013 total revenue was $15.9 billion, 14.4% lower than the Zacks Consensus Estimate of $18.6 billion and also down from $17.2 billion in the prior year by 7.4%.

The softer performance of the regulated as well as the competitive energy services segment impacted results.

Highlights of the Release

In the reported quarter, the company registered a marginal gain in sales from the U.S. and Europe, Middle East and Africa (EMEA) region, which was quite insufficient to make up for lower sales in other geographical areas.

In the reported quarter, total cost of sales was $3.1 billion, down 10.3% year over year. General and administrative expenses were $60.0 million, down 11.8% year over year.

Interest expenses in the reported quarter were $0.4 billion, up 15.5% year over year, leading to higher debt levels.

AES Corporation enhanced its generation capability by 522 megawatts (MW) which will definitely enable the company to meet increasing demand in its service territories.

Financial Condition

AES Corp. reported cash and cash equivalents of $1.64 billion as of Dec 31, 2013 versus $1.9 billion as of Dec 31, 2012. Non-recourse debt was $13.3 billion versus $12.3 billion as of Dec 31, 2012.

Cash from operating activities in 2013 was $2.7 billion versus $2.9 billion in 2012. Capital expenditures in 2013 were $1.98 billion versus $2.1 billion a year ago. Free cash flow in the financial year was $0.72 billion compared with $0.79 billion in 2012.


AES Corp. provided adjusted earnings guidance for 2014 in the range of $1.30 to $1.38 per share. Cash flow from operating activities for 2014 is projected between $2.2 billion and $2.8 billion.

Free cash flow is estimated in the range of $1.35 billion to $1.95 billion in 2014.

The company expects 4% to 6% earnings growth in 2015 from 2014 levels. The year-over-year improvement is expected to be driven by positive contributions from completed construction projects, including Mong Duong in Vietnam and IPP4 in Jordan.

In 2016, AES Corporation expects earnings to remain in line with 2015 levels. However, the company expects earnings to increase by 6% to 8% annually in 2017 and 2018. AES Corporation expects impending projects in Chile and India to boost earnings.

Other Company Releases

Dominion Resources, Inc. (D - Free Report) reported fourth-quarter 2013 operating earnings of 80 cents per share, missing the Zacks Consensus Estimate by 9.1%.

Duke Energy Corp. (DUK - Free Report) reported adjusted fourth quarter 2013 earnings of $1.00 per share that came in ahead of the Zacks Consensus Estimate of 94 cents by 6.4%.

FirstEnergy Corp. (FE - Free Report) announced fourth-quarter 2013 operating earnings of 75 cents per share, beating the Zacks Consensus Estimate of 68 cents by 10.3%.

Our Take

AES Corporation was able to keep the earnings surprise streak alive taking the tally to straight three quarters. We appreciate the strategic move of the company to increase its international generation capability. The company is presently constructing 1,851 MW of projects in Chile and India.

The investor friendly moves of share repurchases and dividend hikes could attract growth and income seeking investors.

The earnings growth projection of AES Corp. is tied to the completion of development projects on time and schedule. Although we do not doubt the ability of the company to finish projects on time, any potential delay could force the company to modify its long-term growth targets.

AES Corp. currently retains a Zacks Rank #3 (Hold).

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