American Electric Power Company, Inc. Q1 2010 Earnings Call Transcript

American Electric Power Company, Inc. Q1 2010 Earnings Call Transcript
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American Electric Power Company, Inc. (AEP)

Q1 2010 Earnings Call Transcript

April 29, 2010 9:00 am ET

Executives

Chuck Zebula – SVP and Treasurer

Mike Morris – Chairman, President and CEO

Brian Tierney – EVP and CFO

Analysts

David Frank – Catapult Capital

Hugh Wynne – Sanford Bernstein

Lucas Leiva [ph] – Deutsche bank

Leslie Rich – Columbia Management

Paul Patterson – Glenrock Associates

Paul Ridzon – Keybanc

Michael Lapides – Goldman Sachs

Anthony Crowdell – Jefferies

Phyllis Gray – Dwight Asset Management

Ali Agha – SunTrust Robinson Humphrey

Daniele Seitz – Dudack Research

Jeff Kersanty [ph] – Millennium

Presentation

Operator

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Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode, and later, we will conduct a question-and-answer session with instructions being given at that time. (Operator instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, Mr. Chuck Zebula. Please go ahead sir.

Chuck Zebula

Thank you, Kele. Good morning and welcome to the 2010 first quarter earnings web cast of American Electric Power. Our earnings release and related financial information are available on our website aep.com. The presentation slides are also available on our website.

Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of the factors that may cause results to differ from management's forecasts.

Joining me this morning are Mike Morris, our Chairman, President, and CEO; and Brian Tierney, our CFO. We will take your questions following their remarks.

I will now turn the call over to Mike.

Mike Morris

Thanks, Chuck and hello everybody, and thank you for being with us. We appreciate the opportunity to update you on the first quarter performance, and a very interesting year in 2010.

As I know you've already seen from our press release, we did accomplish our ongoing earnings of $0.76 a share, and we had to make a GAAP adjustment thanks to our friends who passed the Patient Protection and Affordable Care Act, which of course is anything but that to reflect the change in the tax treatment for retiree medical benefits under Subpart D.

Having said that, we continue to feel comfortable about reaffirming our guidance of $2.80 to $3.20 a share. We like so many other utilities were treated reasonably well by weather throughout the first quarter. We actually saw some encouraging sales results in our Western footprint, but sales results that were of concern in our Eastern footprint. Revenues were up, earnings were up and our earnings per share, as I said, was $0.76.

We are concerned, however, about activities here in the Eastern footprint and I will address that a little bit later. The overall performance was surely helped by successful rate proceedings through 2009 and early here in 2010, and we did have some very strong sales volumes in the off-system market here in the first quarter. However, we had some concern about that again as we go forward and will address that in a minute.

Moody's finally saw the light and moved us from a negative outlook to a stable outlook and we really appreciate the deep diligence that they went through to come to that conclusion, and we obviously agree with them 100%.

On the corporate actions activity, let me just diverge for a moment because Tuesday of this week at our annual meeting, we did in fact announced to our shareholders the 400th consecutive quarterly dividend. In fact, the board voted to raise that dividend by 2.4%. And that may not seem like a lot to many of you, but when you reflect back on a company that has paid dividends through all of the gyrations that this great country has gone through since 1910, it really is something. In fact Chuck put together some unique factoids for me.

Our first dividend was paid to 35 shareholders, who

owned 50,000 shares, and William Howard Taft, a great resident of Cincinnati, Ohio, was in the White House. And when we pay our dividend on the 10th of June this year, of course, Barrack Obama, our 44th president to be in the White House, and we will pay dividends to 350,000 shareholders who hold 478 million shares. Really quite an amazing story when you think about that and something that we are very, very proud of.

We also did something unique this year. We are the first company to combine our sustainability and annual report in a single integrated accountability report, and we hope that you will take full advantage of looking at that. It surely is worth the read. We have as I know most of you know two weeks ago announced an effort here at American Electric Power to take a very serious look at some pretty significant reductions in our overall cost structures here in 2010.

This surely is driven by the comments that I said just a few moments ago. The sales volumes in the Eastern footprint continue to be of some concern, although residential sales were relatively sturdy. The aluminum manufacturers are yet to come back in business in Ohio and West Virginia, and that is obviously a volume metric and a revenue stream issue for us.

And we are seeing, as we had seen before in the 1980s and in some of the other shorter recessions, a real lag in recovery of commercial sales. So with an eye towards that and a commitment to make certain that we stay within our previously announced guidance range and deliver it to our shareholders, we are going through a very significant voluntary and involuntary headcount reduction as well as realignments of O&M expenses, and taking a real hard look at that.

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