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AES Reports 35% Increase In Adjusted Earnings Per Share For Third Quarter 2011; Announces Intent To Declare A Dividend In The Third Quarter Of 2012; On Track For 2011 And 2012 Adjusted EPS And Cash Flow Guidance

Stocks in this article: AES

The AES Corporation (NYSE: AES) today reported strong results for the third quarter of 2011, driven by solid operating performance and a lower effective tax rate. Contributions from new businesses in Bulgaria, Northern Ireland and Chile and volume growth in Latin America offset lower prices at one of the Company’s utilities in Brazil and previously disclosed repairs at Estí, one of its hydroelectric power generation facilities in Panama.

“We had a strong third quarter and remain on track to meet our 2011 and 2012 guidance for cash flow metrics and adjusted EPS. We are executing on our core and growth markets strategy, accelerating our cost savings programs and working to close the acquisition of DP&L,” said Andrés Gluski, AES President and Chief Executive Officer. “With these steps and the completion of more than 1,500 MW of new construction in 2011, we are confident in our future performance, and we intend to declare a $120 million annual dividend in the third quarter of 2012.”

“We now anticipate savings in 2012 of $40 to $50 million, an increase from the $10 to $20 million we announced earlier this year, coming from more focused business development efforts and achieving greater synergies and efficiency from our new organizational structure,” said Victoria D. Harker, Executive Vice President, Chief Financial Officer and President of Global Business Services.

Additional Highlights

  • On October 18 th, the Company announced a new organizational structure and executive leadership changes to achieve greater operating efficiencies, improve profitability and increase speed of execution. Specifically, the Company redefined its operational management and organizational structure around two business lines – Utilities and Generation.
  • Consistent with its core market strategy, the Company closed two sales of non-strategic businesses and signed an agreement to sell a third.
    • Brasiliana, one of AES’ subsidiaries in Brazil, closed the sale of its telecommunications businesses in October and received proceeds of approximately $900 million, which the Company plans to use to repay debt at the Brasiliana holding company.
    • A subsidiary of the Company also sold its interests in its Bohemia business in the Czech Republic in September 2011.
    • On October 20 th, the Company, through one of its subsidiaries, signed a share purchase and option agreement with GDF Suez S.A. (“GdFS”) for the sale of 80% of its interest in a wholly-owned holding company that holds a 70.81% interest in AES Energia Cartagena (“Cartagena”), a 1,199 MW gas-fired generation business in Spain, for €172 million ($234 million). The sale is subject to customary regulatory and lender approvals and is expected to close by the end of 2011.
  • AES’ pending acquisition of DPL Inc. is progressing on schedule and is expected to close in the fourth quarter of 2011 or the first quarter of 2012. DPL shareholders voted in favor of the transaction in September, and FCC approval was also received. The final approvals required for the closing include the Public Utility Commission of Ohio and FERC.
  • The Company repurchased 12 million shares during the third quarter at an average price of $10.28 including commission. It has purchased an additional 5.6 million shares in the fourth quarter through November 3, 2011. Since July 2010, the Company has invested $378 million in 34 million shares at an average price of $11.16 including commission.
 

Table 1: Results for Third Quarter 2011

 
      Third Quarter 2010     Third Quarter 2011     Year To Date

2010

    Year To Date

2011

    Full Year 2011 Guidance 3,4  
Consolidated Revenue     $   3,990   M     $   4,381   M     $   11,777   M     $   13,117   M       NA  
 
Consolidated Gross Margin $ 967 M $ 1,020 M $ 2,901 M $ 3,019 M $ 4,000-4,200 M
 
Proportional Gross Margin 1 $ 588 M $ 563 M $ 1,791 M $ 1,804 M $ 2,450-2,650 M
 
Consolidated Cash Flow from Operating Activities $ 1,000 M $ 1,127 M $ 2,416 M $ 2,308 M $ 2,650-2,850 M
 
Proportional Cash Flow from Operating Activities 1 $ 519 M $ 621 M $ 1,309 M $ 1,237 M $ 1,400-1,600 M
 
Consolidated Free Cash Flow 1 $ 831 M $ 886 M $ 1,932 M $ 1,610 M $ 1,750-1,950 M
 
Proportional Free Cash Flow 1 $ 401 M $ 456 M $ 968 M $ 763 M $ 750-950 M
 
Subsidiary Distributions to the Parent Company 2 $ 235 M $ 346 M $ 888 M $ 967 M $ 1,200-1,300 M
 
Diluted EPS from Continuing Operations $ 0.05 $ (0.15) $ 0.46 $ 0.38 $ 0.93-0.99
 
Adjusted EPS 1 $ 0.20 $ 0.27 $ 0.70 $ 0.76 $ 0.97-1.03
 
Adjusted EPS (Excluding DPL Acquisition Costs) 1,5     $   0.20         $   0.31         $   0.70         $   0.84         $   1.08-1.14      
1   A non-GAAP financial measure. See “Non-GAAP Financial Measures” for definitions and reconciliations to the most comparable GAAP financial measures.
2 See definitions.
3 2011 Guidance includes costs associated with the pending acquisition of DPL Inc. of approximately ($0.13) per share.
4 Assumes Eastern Energy continues to be classified as discontinued operations. For additional information on Eastern Energy, see Item 2 “Key Trends and Uncertainties” of the Form 10-Q for the quarter ended September 30, 2011.
5 Provided for comparison purposes against original 2011 guidance of $1.08-$1.14 given on February 28, 2011.
 

Key drivers of Third Quarter results include (comparison of Q3 2011 vs. Q3 2010):

  • Consolidated Revenue increased by $391 million to $4.4 billion, benefiting from: (i) favorable impact of foreign currency of $173 million; (ii) contributions from new businesses including Ballylumford in Northern Ireland, Angamos in Chile and Maritza in Bulgaria; (iii) higher prices in Chile and Argentina; and (iv) increased demand at its Brazilian utilities. These gains were partially offset by: (i) lower prices at Eletropaulo, its utility in Brazil, primarily related to the estimated impact of the July 2011 tariff reset; and (ii) the unfavorable impact of an unrealized mark-to-market derivative loss at Sonel in Cameroon.
  • Consolidated Gross Margin increased by $53 million to $1 billion, benefiting from: (i) favorable impacts of foreign currency of $51 million; (ii) contributions from new businesses; (iii) higher volumes in Chile; and (iv) decreased fixed costs at its Brazilian utilities. These gains were mostly offset by: (i) the unrealized mark-to-market derivative loss at Sonel; (ii) generation outage in Panama related to tunnel repairs; (iii) lower prices at Eletropaulo in Brazil; and (iv) higher fuel prices at Gener in Chile.
    • Revenue has increased by 10% over the prior year, while gross margin has only increased 5%. This disparity in growth rates is driven primarily by the contractual or regulatory pass through of higher fuel costs and purchased energy, which increases revenues but does not have a corresponding impact on gross margin, as well as the generation outage in Panama.
  • Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $25 million to $563 million due to the outage at the hydroelectric plant in Panama and the non-cash mark-to-market derivative loss at Sonel, our utility in Cameroon.
  • Consolidated Cash Flow from Operating Activities increased by $127 million to $1.1 billion. This increase was primarily due to (i) higher collection of account receivables in Chile; (ii) commenced commercial operations at Maritza in Bulgaria and a full quarter of operations at Ballylumford in Northern Ireland. These gains were partially offset by: (i) higher energy purchases and regulatory charges at Eletropaulo and higher working capital needs in El Salvador and (ii) lower operating income at Masinloc in the Philippines as well as from the sale of Ras Laffan in 2010.
  • Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $102 million to $621 million, driven primarily by higher operating income in Latin America as a result of higher collection of accounts receivables in Chile and the contribution of new businesses in Europe.
  • Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $55 million to $886 million, driven by higher operating cash flow as described above offset partially by $72 million in maintenance capital expenditures, net of reinsurance proceeds, primarily driven by North America Utilities and Latin America.
  • Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $55 million to $456 million.
  • Diluted EPS from Continuing Operations decreased by $0.20 per share to a loss of $0.15 per share due primarily to unrealized foreign currency losses in the third quarter of 2011 compared to unrealized foreign currency gains in the third quarter 2010. In addition, the Company incurred expenses related to the acquisition of DPL, higher debt retirement expense and higher impairment expenses net of tax in the third quarter of 2011. These impacts were partially offset by contributions from new businesses, higher volume in Latin America, and a lower share count.
  • Adjusted EPS (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased $0.07 to $0.27 per share. The increase was primarily attributable to the contributions from new businesses, higher volume in Latin America, a lower effective tax rate and a lower share count. These positive drivers were partially offset by costs associated with the pending acquisition of DPL of $0.04. Table 2 provides a reconciliation of Diluted EPS to Adjusted EPS for third quarter 2011 as compared to third quarter 2010.
 

Table 2: Reconciliation of Diluted EPS to Adjusted EPS for Q3 2011 as compared to Q3 2010

      Q3 2011     Q3 2010
Diluted Earnings/(Loss) Per Share from Continuing Operations     $ (0.15)       $ 0.05
Derivative Mark-to-Market (Gains)/Losses $ 0.02 $ 0.02
Currency Transaction (Gains)/Losses $ 0.10 $ (0.13)
Impairment Losses $ 0.27 $ 0.26
Debt Retirement (Gains)/Losses   $ 0.03         $ -  
Adjusted Earnings Per Share         $ 0.27         $ 0.20  
See Appendix for more detail and additional reconciliations for non-GAAP measures. Diluted weighted-average shares outstanding for non-GAAP measures: 799 million (2010) and 782 million (2011)
 

Key drivers of Year-to-Date results include (comparison of Q3 YTD 2011 vs. Q3 YTD 2010):

  • Consolidated Revenue increased by $1.3 billion to $13.1 billion, benefiting from: (i) favorable impacts of foreign currency of $600 million; (ii) contributions from new businesses including Ballylumford in Northern Ireland, Angamos in Chile and Maritza in Bulgaria; (iii) higher prices and volumes in Chile; (iv) increased prices in Argentina and (v) increased volume at its Brazilian utilities. These gains were partially offset by: (i) lower prices at its utility businesses in Brazil, primarily due to the estimated impact of the July 2011 tariff reset; (ii) the unfavorable impact of an unrealized mark-to-market derivative loss at Sonel in Cameroon; and (iii) lower volumes at its businesses in Spain and Hungary.
  • Consolidated Gross Margin increased by $118 million to $3 billion, benefiting from: (i) favorable impacts of foreign currency of $148 million; (ii) contributions from new businesses; (iii) higher prices and volumes in Chile; and (iv) increased volume at its Brazilian utilities. These gains were partially offset by: (i) an increase in fixed costs, primarily in Latin America Generation; (ii) a generation outage in Panama related to tunnel repairs; (iii) lower prices at its utility businesses in Brazil; (iv) the unfavorable impact of an unrealized mark-to-market derivative loss at Sonel; (v) lower spot prices and volume at Masinloc; and (vi) lower prices at Kilroot.
  • Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $13 million to $1.8 billion.
  • Consolidated Cash Flow from Operating Activities decreased by $108 million to $2.3 billion. This decrease was primarily due to lower operating income and higher working capital requirements in Asia and in North America. This increase was partially offset by higher operating income in Latin America.
  • Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $72 million to $1.2 billion.
  • Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $322 million to $1.6 billion due to lower operating cash flow, as well as higher maintenance capital expenditures of $214 million, net of reinsurance proceeds, primarily driven by North America Utilities and Latin America.
  • Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $205 million to $763 million.
  • Diluted EPS from Continuing Operations decreased $0.08 per share to $0.38 per share driven primarily by higher impairment expenses net of tax, higher unrealized foreign currency transaction losses and costs associated with the pending acquisition of DPL. This was partially offset by contributions from new businesses, higher volume in Latin America and a lower effective tax rate.
  • Adjusted EPS (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased $0.06 to $0.76 per share. This increase is due to the contributions from new businesses, higher volume in Latin America and a lower effective tax rate offset partially by costs associated with the pending acquisition of DPL. Table 3 provides a reconciliation of Diluted EPS to Adjusted EPS for year-to-date 2011 as compared to year-to-date 2010.
 

Table 3: Reconciliation of Diluted EPS to Adjusted EPS for Q3 YTD 2011 as compared to Q3 YTD 2010

      Q3 YTD 2011     Q3 YTD 2010
Diluted Earnings Per Share from Continuing Operations   $ 0.38       $ 0.46
Derivative Mark-to-Market (Gains)/Losses $ 0.01 $ 0.01
Currency Transaction (Gains)/Losses $ 0.02 $ (0.04)
Impairment Losses $ 0.31 $ 0.26
Debt Retirement (Gains)/Losses   $ 0.04         $ 0.01  
Adjusted Earnings Per Share         $ 0.76         $ 0.70  
See Appendix for more detail and additional reconciliations for non-GAAP measures. Diluted weighted-average shares outstanding: 767 million (2010) and 787 million (2011).
 

Non-GAAP Financial Measures

See Non-GAAP Financial Measures for definitions of Adjusted Earnings Per Share, Proportional Gross Margin, Adjusted Gross Margin, Proportional Adjusted Gross Margin, Proportional Cash Flow From Operating Activities, Consolidated Free Cash Flow, Proportional Free Cash Flow as well as reconciliations to the most comparable GAAP financial measure.

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