American Electric Power Co., Inc. :AEP-US: Earnings Analysis: Q4, 2016 By the Numbers : March 16, 2017

American Electric Power Co., Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of American Electric Power Co., Inc. – Duke Energy Corporation, Westar Energy, Inc., PPL Corporation, Entergy Corporation, Dominion Resources, Inc., Exelon Corporation, NRG Energy, Inc., AES Corporation, Southern Company and Xcel Energy Inc. (DUK-US, WR-US, PPL-US, ETR-US, D-US, EXC-US, NRG-US, AES-US, SO-US and XEL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 3,710.30 million, Net Earnings of USD 373.40 million.
  • Gross margins widened from 19.73% to 20.22% compared to the same period last year, operating (EBITDA) margins now 25.09% from 27.62%.
  • Year-on-year change in operating cash flow of 31.25% 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 3710.3 4635.1 3865 4019.4 3611.6
Revenue Growth (%YOY) 2.73 5.44 -1.23 -13.13 -11.76
Earnings (mil) 373.4 -765.8 504.6 501.2 203.4
Earnings Growth (%YOY) 83.58 -249.86 17.35 -20.32 6.49
Net Margin (%) 10.06 -16.52 13.06 12.47 5.63
EPS 0.76 -1.56 1.03 1.02 0.44
Return on Equity (%) 8.59 -17.14 11.05 11.12 4.57
Return on Assets (%) 2.34 -4.91 3.21 3.17 1.3

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Market Share Versus Profits

Revenues History
Earnings History

AEP-US‘s change in revenue this period compared to the same period last year of 2.73% 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 -19.95% and earnings by 148.76% 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 has been influenced by the year-on-year improvement in gross margins from 19.73% to 20.22%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

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

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 31.25% 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 13.09% to 13.48% and (2) one-time items. The company’s pretax margins are now 10.97% compared to 8.11% 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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