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AES Reports Adjusted Earnings Per Share Of $0.36 For Third Quarter 2012 And $0.91 For Year-To-Date 2012; Reaffirms 2012 Guidance Ranges For All Metrics; Increases Cost Savings Target By $45 Million

Stocks in this article: AES

The AES Corporation (NYSE: AES) today reported Adjusted Earnings Per Share (Adjusted EPS, a non-GAAP financial measure) of $0.36 for the third quarter of 2012 and $0.91 for the first nine months of 2012, in line with the Company’s expectations. Third Quarter 2012 results were driven by the contributions of new businesses in the United States and Latin America, reduced SG&A expenses and a lower share count. These positive drivers were partially offset by unfavorable movements in foreign exchange rates.

“We continue to take important steps to better align the organization with our strategic goals. We recently announced a reorganization of the Company that will streamline how we work and decrease our company-wide overhead. As a result, we have increased our overhead cost savings target by $45 million to $145 million annually by 2014 from our starting point in 2011,” said Andrés Gluski, AES President and Chief Executive Officer. “Regarding capital allocation, we have executed on what we laid out as our first year plan last November by repurchasing $390 million of our stock and paying down or authorizing pre-payment of a total of $717 million in debt, largely with the proceeds from our focused asset sales. Next week, we will be paying our first quarterly dividend of $0.04 per share, the Company’s first cash dividend since 1993.”

“Our third quarter results exceeded last year’s results, driven by our new businesses in the United States and Latin America, cost cutting initiatives and the results of our capital allocation strategy,” said Tom O’Flynn, AES Executive Vice President and Chief Financial Officer. “We are positioned to deliver on our 2012 commitments and we are reaffirming all of our 2012 guidance metrics.”

Additional Highlights

  • Since August 2012, the Company repurchased 4.3 million shares for a total investment of $49 million. Since September 2011, the Company repurchased 34 million shares for $390 million, at an average price of $11.55 per share. Total shares outstanding as of September 30, 2012 is 744 million.
  • In late 2011, the Company announced a cost cutting target of $100 million by 2014. This year, the Company is ahead of this original goal and now expects to achieve $65 million, net of one-time restructuring expenses in 2012, and expects to reach the full $100 million of savings in 2013. The recently announced reorganization will result in an additional $45 million in sustainable cost savings by 2014, totaling $145 million less in overhead costs than in 2011.
  • During the quarter, the Company completed the sale of its interests in the 2,100 MW coal-fired Yangcheng plant in China and its 49 percent equity interest in the 248 MW China Wind joint venture for a total of $86 million. The Company expects to close the sale of the remaining 379 MW hydro capacity for $49 million before the end of 2012.
  • During the quarter, the Company completed construction of two wind and solar projects, totaling 52 MW.
  • The quarterly cash dividend of $0.04 per share is payable on November 15, 2012 to common shareholders of record as of October 30, 2012, with an ex-dividend date of October 26, 2012. On an annual basis the total dividend payment will be approximately $120 million, or $0.16 per share.

2012 Guidance

  • The Company reaffirmed its full year 2012 Adjusted EPS guidance 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. As previously disclosed in August 2012, the Company expects its Adjusted EPS to come in at the low end of the guidance range.
  • The Company reaffirmed its Proportional Free Cash Flow guidance range of $1,050-$1,250 million. As previously disclosed in May 2012, the Company expects Proportional Free Cash Flow to come in at the low end of the guidance range. The Company reaffirmed its Subsidiary Distributions guidance range of $1,325-$1,525 million. As previously disclosed in August 2012, the Company expects Subsidiary Distributions to come in at the low end of the range.In providing its full year 2012 Adjusted EPS guidance, the Company notes that there could be differences between expected reported earnings and estimated operating earnings for matters such as, but not limited to: (a) unrealized gains or losses related to derivative transactions; (b) unrealized foreign currency gains or losses; (c) gains or losses due to dispositions and acquisitions of business interests; (d) losses due to impairments; and (e) costs due to the early retirement of debt. At this time, management is not able to estimate the aggregate impact, if any, of these items on reported earnings. Accordingly, the Company is not able to provide a corresponding GAAP equivalent for its Adjusted EPS guidance.

Table 1: Results for Third Quarter & Year-to-Date 2012

       

Year-to-Date 2011

 

Year-to-Date 2012

 

Full Year 2012 Guidance

Third Third
Quarter Quarter
  2011   2012      
Consolidated Revenue   $ 4,307   M   $ 4,587   M   $ 12,898   M   $ 13,519   M     NA    
Consolidated Gross Margin   $ 1,010   M   $ 1,004   M   $ 2,995   M   $ 2,774   M   $ 3,600-3,800   M
Proportional Gross Margin 1   $ 570   M   $ 738   M   $ 1,779   M   $ 2,063   M   $ 2,650-2,850   M
Consolidated Cash Flow from Operating Activities   $ 1,136   M   $ 1,015   M   $ 2,313   M   $ 2,129   M   $ 2,900-3,100   M
Proportional Cash Flow from Operating Activities 1   $ 625   M   $ 656   M   $ 1,238   M   $ 1,444   M   $ 1,925-2,125   M
Consolidated Free Cash Flow 1   $ 895   M   $ 785   M   $ 1,615   M   $ 1,423   M   $ 1,700-1,900   M
Proportional Free Cash Flow 1   $ 460   M   $ 501   M   $ 764   M   $ 949   M   $ 1,050-1,250   M
Subsidiary Distributions to the Parent Company 2   $ 394   M   $ 343   M   $ 1,104   M   $ 1,010   M   $ 1,325-1,525   M
Diluted EPS from Continuing Operations   $ (0.09 )     $ (2.10 )     $ 0.46       $ (1.52 )       NA    
Adjusted EPS 1   $ 0.28       $ 0.36       $ 0.81       $ 0.91       $ 1.22-1.30    

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.

Key drivers of Third Quarter results include (comparison of Q3 2012 vs. Q3 2011):

  • Consolidated Revenue increased by $280 million to $4.6 billion, due to: (i) the contributions of the Company’s new businesses, primarily DPL; and (ii) recovery of pass through costs of energy at Eletropaulo in Brazil. These increases were partially offset by the unfavorable impact of foreign currency.
  • Consolidated Gross Margin decreased by $6 million to $1.0 billion, due to: (i) the unfavorable impact of foreign currency; (ii) lower tariffs at Eletropaulo as a result of the worse than expected outcome related to the 2011 tariff reset passed by the Brazilian regulator in July of 2012; and (iii) an increase in fixed costs in Latin America. These declines were mostly offset by: (i) the contribution of the Company’s new businesses, as discussed above; and (ii) the favorable impact of unrealized mark-to-market derivative adjustments at Sonel in Cameroon.
  • Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $168 million to $738 million, due to the contribution of the Company’s new businesses, partially offset by lower tariffs and higher fixed costs at Eletropaulo.
  • Consolidated Cash Flow from Operating Activities decreased by $121 million to $1.0 billion driven by a decrease at its utility businesses in Latin America. This decline was partially offset by: (i) an increase due to the acquisition of DP&L in the United States, which closed in November 2011; and (ii) an increase at the Company’s generation businesses in Latin America.
  • Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $31 million to $656 million, due to: (i) an increase due to the acquisition of DP&L and (ii) an increase at the Company’s generation businesses in Latin America. These increases were partially offset by a decrease at its utility businesses in Latin America.
  • Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) decreased by $110 million to $785 million due to the same factors driving Consolidated Cash Flow from Operating Activities.
  • Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $41 million to $501 million due to the same factors driving Proportional Cash Flow from Operating Activities.
  • Diluted EPS from Continuing Operations decreased by $2.01 per share to a loss of $2.10 per share due primarily to goodwill impairment expense at DPL in the United States of $1,850 million or $2.46 per share. This decline was partially offset by: (i) the contribution of the Company’s new businesses, as discussed above; (ii) lower foreign currency transaction losses compared to the third quarter of 2011; and (iii) lower SG&A expenses.
  • Adjusted EPS (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $0.08 to $0.36 per share due to: (i) the contribution of the Company’s new businesses, as discussed above; (ii) lower SG&A expenses; and (iii) a lower share count. These gains were partially offset by unfavorable foreign currency. Table 2 provides a reconciliation of Diluted EPS to Adjusted EPS for the third quarter of 2012 as compared to the third quarter of 2011.

Table 2: Reconciliation of Diluted EPS to Adjusted EPS for Q3 2012 as compared to Q3 2011

         
  Q3 2012   Q3 2011
Diluted Earnings Per Share from Continuing Operations $ (2.09 )   $ (0.09 )
Unrealized derivative losses - 0.01
Unrealized foreign currency transaction (gains)/losses (0.01 ) 0.08
Disposition/Acquisition (gains) (0.04 ) -
Impairment losses 2.50 0.25
Debt retirement losses   -       0.03  
Adjusted Earnings Per Share   $ 0.36     $ 0.28  

See Appendix for more detail and additional reconciliations for non-GAAP measures. Diluted weighted-average shares outstanding for non-GAAP measures: 751 million (2012) and 782 million (2011).

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