The AES (AES) Q1 2012 Earnings Call May 04, 2012 10:00 am ET Executives Ahmed Pasha - Vice President of Investor Relations Andres Ricardo Gluski - Chief Executive Officer, President, Director and Member of Finance & Investment Committee Victoria D. Harker - Chief Financial Officer, Executive Vice President and President of Global Business Services Andrew Martin Vesey - Chief Operating Officer of Utilities and Executive Vice President Edward C. Hall - Chief Operating Officer of Generation and Executive Vice President Analysts Julien Dumoulin-Smith - UBS Investment Bank, Research Division Gregg Orrill - Barclays Capital, Research Division Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division Charles J. Fishman - Morningstar Inc., Research Division Brian Chin - Citigroup Inc, Research Division Unknown Analyst Presentation Operator
With that, I will now turn the call over to Andres.Andres Ricardo Gluski Thanks, Ahmed, and good morning, everyone, and welcome to our first quarter 2012 earnings call. Since our last earnings call in February, we have continued to meet with many of our investors as we visited Baltimore, New York and London. We had some great meetings, and I appreciate the direct feedback on our plans and strategy. Today, I would like to highlight some of the progress that we've made since our fourth quarter call. First, we're off to a good start with our first quarter results. And despite some headwinds, we are reaffirming our adjusted EPS guidance for the full year. Second, we're encouraged with the progress we are making at DP&L, including their market rate option filing and the likelihood of reaching a constructive outcome in a timely manner. Third, we have closed 2 more asset sales, Red Oak and Ironwood, for a total of $227 million in proceeds to AES. We have also signed an agreement to sell our interest in 379 megawatts of hydro assets in China subject to customary approvals. This represents additional equity proceeds of approximately $48 million. And fourth, we remain committed to using a balanced approach to capital allocation in order to deliver on our 2013 to 2015 total return goals. To that end, we have increased our current share repurchase authorization to $180 million, so we now have authorization of $302 million. Now turning to our first quarter 2012 financial results. As you may have seen in our press release this morning, we reported $0.37 in adjusted earnings per share for the first quarter, a 54% increase over the first quarter of last year. Similarly, our proportional free cash flow grew 51% during the first quarter. Victoria will discuss the drivers of our performance in more detail, but I am pleased with our results, which puts us in a strong position for the year. We delivered this healthy performance despite having had an extremely mild winter in the U.S., one of the warmest in recent history, which affected us doubly through low natural gas and energy prices, as well as lower demand.
The second topic I'd like to address is DP&L. During the first quarter, we continued with our plans to integrate DP&L with the rest of AES' portfolio. We named the new President and CEO of DP&L, Phil Harrington. Phil has more than 20 years of industry experience, which includes managing a competitive power business. His experience and skills are well suited for today's dynamic Ohio marketplace.At DP&L, our focus is threefold: Obtaining a constructive outcome in the rate proceedings for 2013, executing on our retail strategy and achieving operating efficiencies as a business. As you may recall, DP&L's current generation rate expired in December of 2012. To establish the tariff for 2013 and beyond, DP&L filed a market rate option or MRO with the Public Utilities Commission of Ohio at the end of March. Under the proposed terms of the MRO, DP&L will transition customers to market prices for generation over the next 5 years. We are working closely with the Ohio commission, customers and other interested parties to arrive at a constructive outcome for all stakeholders in a timely manner. The staff's comments were issued last Friday, and they were very productive. We are where we expected to be at this stage of the process. The team at DP&L is also focused on enhancing their retail capabilities. Customer switching trends at DP&L for the first quarter of 2012 were in line with our guidance for the year as 3% of the load switch during the quarter. As of the end of March, 53% of the total retail load had switched to ultimate suppliers, but DP&L's retail arm was able to capture 78% of those switched load. The reduction in DP&L's gross margin in the quarter as a result of customer switching is approximately $27 million, up $18 million from the first quarter of 2011. DP&L's retail arm is now not only aggressively working to retain customers in its service territory but it is also branching out to attract new customers in Illinois and other areas of Ohio. DP&L's retail subsidiary, MC Squared, recently won a competitive bid auction to supply several North Shore, Illinois communities with electricity for up to 3 years. Read the rest of this transcript for free on seekingalpha.com