AEP tempers earnings outlook with warning on economy

Oct. 23, 2001
Utility holding company American Electric Power Co. Inc. Tuesday said wholesale operations helped boost third quarter earnings 13% to $1.43/share from year ago results. The stock fell after the company warned a weaker economy could make it more difficult to achieve the upper range of estimated earnings this year and next.

By the OGJ Online Staff

HOUSTON, Oct. 23 -- Utility holding company American Electric Power Co. Inc. Tuesday said wholesale operations helped boost third quarter earnings 13% to $1.43/share from year ago results.

The Columbus, Ohio, company posted ongoing earnings of $458 million, up from $408 million, or $1.27/share in the same quarter last year.

The Wall Street consensus estimate was for $1.44/share, according to research firm Thomson Financial/First Call. AEP's stock fell $1 to $42.79 in mid-day trading on the New York Stock Exchange, after company officials warned a weaker economy could make it more difficult to achieve the upper range of estimated earnings this year and next.

Company officials said on a conference call AEP still expected to meet the $3.50-$3.60/share earnings estimate this year, but the current economic downturn could make the upper range more difficult to achieve.

Treasurer Armando Pena said AEP is also sticking to earnings guidance of $3.80-$3.90/share for next year, but also warned a weaker economy could make it difficult to achieve the upper range. Wall Street expected earnings of $3.59/share in 2001 and $3.87/share in 2002.

AEP, which plans to separate its regulated and unregulated businesses at the beginning of next year, reported revenues of $18 billion, up from $12 billion in the prior-year quarter. Henry Fayne, who will become president of the regulated businesses, said next year's earnings will continue to be driven by wholesale operations, recent coal acquisitions, regulated operations, and UK generating assets.

"We find what is going on in the coal industry very interesting," said Eric van der Walde, executive vice-president, marketing and trading. Acquisition of the Quaker Coal Co. will continue the build out of the company's trading and marketing program, he said.

AEP's wholesale business contributed 98¢/share in the quarter, up from 97¢/share in the third quarter last year. Earnings from trading and marketing increased 29% from the same quarter last year despite current lower market prices and reduced volatility, the company said, helping offset a decline in earnings from energy sales, which were adversely affected by reduced demand and lower wholesale prices.

Van der Walde said gas marketing accounted for the bulk of the increase, compared to last year. The company was able to take advantage of the big price movements during the past year, he said. "We continue to see opportunity in gas," Van der Walde explained.

Domestic wholesale natural gas volume for the quarter was 1,337 bcf, or 14.5 bcfd, a 265% increase from third quarter 2000. The addition of gas pipeline and storage assets, through acquisitions like Houston Pipe Line completed in June, also contributed to the rapid growth in gas markets, the company said.

Domestic wholesale electric trading volume for the quarter was 148 million Mw-hr, a 66% increase from third quarter 2000 volume.

The energy delivery business, consisting of domestic electric transmission and distribution, contributed 80¢/share in the quarter, compared with 70¢/share in third quarter 2000. AEP attributed the improvement to higher retail sales with growth in sales to residential and commercial customers more than offsetting a 3% decrease in sales to industrial customers.