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AES Corporation Beats Estimates

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The AES Corporation (AES - Free Report) reported third-quarter 2012 adjusted earnings per share (EPS) of 36 cents, beating the Zacks Consensus Estimate of 35 cents and the year-ago figure of 17 cents.

The significant year-over-year upside reflects higher contributions from new businesses, cost cutting and a lower share count. This was partially offset by unfavorable foreign currency exchange rates

On a GAAP basis, the company digested net loss per share of $2.10 versus loss of 17 cents per share in the prior-year quarter.

The wide variance of $2.46 between GAAP and adjusted earnings in the reported quarter stems primarily from a goodwill impairment loss at its subsidiary DPL. Earlier, in November 2011, AES acquired DPL Inc. in a transaction valued at $4.7 billion. Upon closing of the transaction, DPL became a wholly owned subsidiary of AES.

Quarterly Operational Results    

In the reported quarter, consolidated revenue increased by $280 million year over year to approximately $4.6 billion. The figure also comfortably beat the Zacks Consensus Estimate of $4.5 billion. The upside came from the contributions of the company’s new businesses, and recovery of pass through costs of energy in Brazil. These increases were partially offset by the unfavorable impact of foreign currency.

During the quarter, consolidated gross profit decreased by $6 million year over year to slightly more than $1 billion. This was due to the unfavorable impact of foreign currency; lower electricity tariffs in Brazil; and an increase in fixed costs in Latin America.

These declines were offset by the contribution of the company’s new businesses; and the favorable impact of unrealized mark-to-market derivative adjustments at Sonel in Cameroon. General and administrative expenses in the quarter were $64 million, down 28.9% year over year.

Financial Condition

AES Corp. ended the quarter with cash and cash equivalents of $1.9 billion, down from $3.4 billion at the end of the year-ago period.

Consolidated cash flow from operating activities decreased by $121 million to $1.0 billion stemming from a decrease at its utility businesses in Latin America. This decline was partially offset by an increase from the acquisition of DPL; and an increase at the company’s generation businesses in Latin America.

As previously planned, the company has declared the first quarterly cash dividend since 1993. On November 15, 2012, the company will pay a quarterly dividend of 4 cents per share to shareholders of record as of October 30, 2012.


AES Corp. reaffirmed its full year 2012 adjusted earnings per share guidance in a range of $1.22–$1.30, which is based on foreign exchange and commodity price assumptions as of September 30, 2012, and includes all announced and closed asset sales.

For full-year 2012, the company expects consolidated cash flow from operating activities in the range of $2.9 billion to $3.1 billion. It expects consolidated free cash flow in the range of $1.7 billion to $1.9 billion.

Our Take    

AES Corporation’s results were above our expectation. Going forward, with new businesses in the United States, Bulgaria and Latin America and the cost cutting initiatives, the company will be able to reach its earnings growth target while meeting its goal for full-year 2012. Also, the company’s geographic diversity insulates it from specific risks which will add visibility to the story.

Over the long term, we suggest investors to wait for a favorable entry point. The company presently retains a short-term Zacks #2 Rank (Buy). Over the longer run we maintain our long-term Neutral recommendation on the stock, in line with its peers like American Electric Power Company Inc. (AEP - Free Report) .

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