American Electric Power Co., Inc. :AEP-US: Earnings Analysis: Q1, 2017 By the Numbers : May 4, 2017

American Electric Power Co., Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of American Electric Power Co., Inc. – Entergy Corporation, Exelon Corporation, NRG Energy, Inc. and Xcel Energy Inc. (ETR-US, EXC-US, NRG-US and XEL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 3,912.60 million, Net Earnings of USD 592.20 million.
  • Gross margins widened from 28.12% to 28.92% compared to the same period last year, operating (EBITDA) margins now 35.50% from 35.17%.
  • Year-on-year change in operating cash flow of 0.86% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 3912.6 3710.3 4635.1 3865 4019.4
Revenue Growth (%YOY) -2.66 2.73 5.44 -1.23 -13.13
Earnings (mil) 592.2 373.4 -765.8 504.6 501.2
Earnings Growth (%YOY) 18.16 83.58 -249.86 17.35 -20.32
Net Margin (%) 15.14 10.06 -16.52 13.06 12.47
EPS 1.2 0.76 -1.56 1.03 1.02
Return on Equity (%) 13.49 8.59 -17.14 11.05 11.12
Return on Assets (%) 3.7 2.34 -4.91 3.21 3.17

Access our Ratings and Scores for American Electric Power Co., Inc.

Market Share Versus Profits

Revenues History
Earnings History

AEP-US‘s change in revenue this period compared to the same period last year of -2.66% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that AEP-US is holding onto its market share. Also, for comparison purposes, revenues changed by 5.45% and earnings by 58.60% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 28.12% to 28.92% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 35.17% to 35.50% compared to the same period last year. For comparison, gross margins were 20.22% and EBITDA margins were 25.09% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

AEP-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to -90.27 days from -69.19 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

AEP-US‘s change in operating cash flow of 0.86% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 21.79% to 22.28% and (2) one-time items. The company’s pretax margins are now 23.27% compared to 17.75% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for American Electric Power Co., Inc.

Company Profile

American Electric Power Co., Inc. is a public utility holding company that engages in the business of generation, transmission and distribution of electricity. It operates through the following segments: Vertically Integrated Utilities, Transmission and Distribution Utilities, AEP Transmission Holdco, and Generation & Marketing. The Vertically Integrated Utilities segment engages in the generation, transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries. The Transmission & Distribution Utilities segment engages in the business of transmission and distribution of electricity for sale to retail and wholesale customers through assets owned and operated by its subsidiaries. The AEP Transmission Holdco segment engages in the development, construction and operation of transmission facilities through investments in its wholly-owned transmission subsidiaries and joint ventures. The Generation & Marketing segment engages in non-regulated generation; and marketing, risk management, and retail activities. The company was founded on December 20, 1906 and is headquartered in Columbus, OH.

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