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AES Reports Second Quarter Results and Increases Full Year Earnings Guidance
Posted by: gurufocus (IP Logged)
Date: August 7, 2009 06:19AM

Press Release: AES Reports Second Quarter Results and Increases Full Year Earnings Guidance

ARLINGTON, Va.--(BUSINESS WIRE)--The AES Corporation (NYSE: AES) today reported its second quarter results, with Adjusted Earnings Per Share increased by $0.03 to $0.28 and Diluted Earnings Per Share from Continuing Operations decreased by $0.86 to $0.45. Proportional Free Cash Flow increased by $313 million to $190 million and Consolidated Free Cash Flow increased by $237 million to $366 million. Consolidated Cash Flow from Operating Activities increased by $181 million to $495 million.

During the quarter, the Company benefited from its geographic and fuel diversity, with strong performance in Chile offsetting reduced demand and lower wholesale prices in North America. The Company’s focus on improved operations, with increased production in Chile and the Philippines, reduced operating expenses and improved working capital also contributed to the quarterly results. In addition, the Company also benefited from a favorable settlement of a legal claim at a European affiliate and a lower effective tax rate, primarily related to a U.S. subsidiary tax restructuring.

“We are pleased with our performance during the first six months of the year, and we continue to make progress with our new businesses. Operational improvements at our Masinloc facility in the Philippines helped generate its first quarterly profit since last year’s acquisition. We also completed construction on 374 MW, including Guacolda 3, the first coal-fired facility to be brought on-line in Chile in 12 years, as well as three other facilities in Chile, Northern Ireland and France,” said Paul Hanrahan, President and Chief Executive Officer. “On the development front, the financial closings of the Armenia Mountain and St. Patrick wind projects demonstrate the strength of our renewables pipeline, an area that continues to present attractive investment opportunities.”

In the U.S., the Company closed a $221 million long-term non-recourse financing of the 101 MW Armenia Mountain wind project in July. In France, the Company closed a €44 million financing for the 35 MW St. Patrick wind project in the second quarter.

“Based on our results for the first six months of 2009, we are increasing 2009 Adjusted Earnings Per Share guidance from a range of $0.97-$1.07 to a range of $1.05-$1.10. We are also raising the lower end of our Proportional Free Cash Flow guidance from $650 million to $750 million, resulting in a revised guidance range of $750 million to $850 million for 2009,” said Victoria D. Harker, Executive Vice President and Chief Financial Officer.

Results for the quarter ended June 30, 2009 include the following:

  Second Quarter

2009

  Second Quarter

2008

  YTD

6/30/09

  Full Year
2009 Guidance as of 5/27/09
 

Full Year

2009 Guidance as of 8/7/09

Consolidated Revenue $3.5 billion   $4.1 billion   $6.9 billion   not provided   not provided
 
Consolidated Gross Margin $0.8 billion $1.0 billion $1.7 billion $3.2 - $3.4 billion $3.5 - $3.6 billion
 
Proportional Gross Margin (a non-GAAP financial measure) $499 million $647 million $1.04 billion $2.05 - 2.15 billion $2.1 - 2.15 billion
 
Consolidated Cash Flow from Operating Activities $495 million $314 million $871 million $2.0 - $2.2 billion $2.1 - $2.2 billion
 
Proportional Cash Flow from Operating Activities (a non-GAAP financial measure) $284 million $8 million $608 million $1.2 - $1.35 billion $1.25 - $1.35 billion
 
Consolidated Free Cash Flow

(a non-GAAP financial measure)

$366 million $129 million $586 million $1.3 - $1.5 billion $1.4 - $1.5 billion
 
Proportional Free Cash Flow (a non-GAAP financial measure) $190 million ($123) million $394 million $650 - $850 million $750 - $850 million
 
Subsidiary Distributions to the Parent Company (see definitions) $527 million $269 million $757 million $1.1 - $1.3 billion $1.2 - $1.3 billion
 
Diluted Earnings Per Share from Continuing Operations $ 0.45 $ 1.31 $ 0.78 $ 1.03 - $1.13 $ 1.15 - $1.20
 
Diluted Earnings Per Share $ 0.45 $ 1.31 $ 0.78 not provided not provided
 
Adjusted Earnings Per Share

(a non-GAAP financial measure)

  $ 0.28   $ 0.25   $ 0.65   $ 0.97 - $1.07   $ 1.05 - $1.10

Second Quarter 2009 Financial Highlights (comparison of Q2 2009 vs. Q2 2008):

Key drivers of the second quarter results described above include:

  • Consolidated Revenues decreased by $631 million to $3.5 billion, primarily due to unfavorable movements in foreign currency exchange rates of $520 million, of which approximately $344 million, or 66 percent, relates to the Brazilian Real which depreciated by 26 percent. The results also reflect lower revenue at the Company’s generation businesses in Chile due to lower fuel prices.
  • Consolidated Gross Margin decreased by $182 million to $847 million, primarily due to unfavorable foreign currency exchange rates of approximately $101 million and a reduction in non-cash mark-to-market derivative gains of approximately $84 million, primarily related to North America subsidiaries. The 2009 quarterly results do not include the contribution from the Northern Kazakhstan businesses sold in May 2008. These decreases were offset in part by improved operations at our Latin America and Asia generation businesses.
  • Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) declined by $148 million to $499 million, primarily due to a reduction in non-cash mark-to-market derivative gains of approximately $84 million. This reduction was primarily attributable to North America subsidiaries, unfavorable foreign currency exchange rates of approximately $43 million, and the lack of contribution from the Northern Kazakhstan businesses sold in 2008, offset in part by improved production at Gener in Chile and Masinloc in the Philippines.
  • Consolidated Cash Flow from Operating Activities increased by $181 million to $495 million, primarily due to improved working capital at our Latin America generation businesses, lower corporate overhead and development costs and receipt in April of the $80 million fee related to the management of Northern Kazakhstan assets.
  • Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $276 million to $284 million, primarily due to an improvement in working capital at Latin America generation businesses, lower corporate expenses and receipt in April of the $80 million fee related to the management of Northern Kazakhstan assets. Proportional Cash Flow from Operating Activities reflects the economic interest of AES in the consolidated results.
  • Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $237 million to $366 million. The 2009 results reflect both higher Consolidated Cash Flow from Operating Activities and lower maintenance capital expenditures.
  • Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $313 million to $190 million. The 2009 results reflect both higher Consolidated Operating Cash Flow and lower maintenance capital expenditures. Proportional Free Cash Flow reflects the economic interest of AES in the consolidated results.
  • Diluted Earnings from Continuing Operations of $0.45 per share, compared to $1.31 per share in 2008. The 2009 result includes a $98 million or $0.14 gain related to the final settlement of the Northern Kazakhstan assets sold in 2008. The 2008 result primarily includes a net gain from sale of Northern Kazakhstan assets of $1.05 per share.
  • Adjusted Earnings Per Share (a non-GAAP financial measure, see Appendix for definition and reconciliation) of $0.28, compared to $0.25 in 2008. The 2009 results include $0.05 gain related to the settlement of a claim at a European subsidiary. Second quarter 2009 results also benefited from lower tax rates related to a tax restructuring involving a U.S. subsidiary. The 2009 quarterly results were adversely affected by $0.06 due to unfavorable exchange rates. The 2008 Adjusted Earnings Per Share include an $0.08 gain resulting from a settlement of a liability at one of our Latin America subsidiaries.
  Q2 2009   Q2 2008
Diluted Earnings Per Share from Continuing Operations $ 0.45   $ 1.31
FAS 133 Mark-to-Market (Gains)/Losses $ 0.01 ($0.08 )
Currency Transaction (Gains)/Losses ($0.04 ) $ 0.07
Disposition/Acquisition (Gains)/Losses ($0.14 ) ($1.31 )
Impairment Losses - $ 0.01
Debt Retirement (Gains)/Losses   -     $ 0.25  
Adjusted Earnings Per Share   $ 0.28     $ 0.25  

See Appendix for more detail

Year-to-Date 2009 Financial Highlights (comparison of Q2 YTD 2009 vs. Q2 YTD 2008):

Key drivers of the year-to-date results described above include:

  • Consolidated Revenues decreased by $1.3 billion to $6.9 billion, primarily due to unfavorable movements in foreign currency exchange rates of $1.1 billion. Approximately $751 million, or 68 percent, of the unfavorable movements relate to the Brazilian Real, which depreciated by 30 percent. The results also reflect lower revenue at the Company’s generation businesses in Chile due to the impact of lower fuel prices.
  • Consolidated Gross Margin decreased by $341 million to $1.7 billion, primarily due to unfavorable foreign currency exchange rates of approximately $238 million and unfavorable, non-cash, mark-to-market, derivative adjustments of approximately $91 million, primarily attributable to North America subsidiaries. The 2009 year-to-date results do not include the contribution from the Northern Kazakhstan businesses sold in May 2008. These decreases were offset in part by improved operations at the Company’s Latin America and Asia generation businesses.
  • Proportional Gross Margin (a non-GAAP financial measure, see Appendix for definition and reconciliation) declined by $300 million to $1.0 billion, primarily due to (i) lower electricity prices and volumes at the Company’s generation businesses in Argentina and New York, (ii) unfavorable mark-to-market derivative adjustments at North America subsidiaries, (iii) unfavorable foreign currency exchange rates, and (iv) loss of the contribution from the Northern Kazakhstan businesses sold in 2008. These were offset in part by improved operations in Chile and the Philippines.
  • Consolidated Cash Flow from Operating Activities increased by $87 million to $871 million, primarily due to improved working capital at our Latin America and Asia generation businesses, reduced corporate expenses and receipt in April of the $80 million fee related to management of Northern Kazakhstan assets. The increase was offset in part by lower cash flow from operating activities at Latin America utilities.
  • Proportional Cash Flow from Operating Activities (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $312 million to $608 million, primarily due to improved working capital at the Company’s Latin America and Asia generation businesses, reduced corporate expenses and receipt in April of the $80 million fee related to management of Northern Kazakhstan assets. Proportional Cash Flow from Operating Activities reflects the economic interest of AES in the consolidated results.
  • Consolidated Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $166 million to $586 million. The 2009 results reflect both higher Consolidated Operating Cash Flow and lower maintenance capital expenditures.
  • Proportional Free Cash Flow (a non-GAAP financial measure, see Appendix for definition and reconciliation) increased by $354 million to $394 million. Proportional Free Cash Flow reflects the economic interest of AES in the consolidated results.
  • Diluted Earnings from Continuing Operations of $0.78 per share, compared to $1.65 per share in 2008. The 2009 result includes a $98 million or $0.15 gain related to the final settlement of the Northern Kazakhstan assets sold in 2008. The 2008 result includes a net gain from sale of Northern Kazakhstan assets of $1.05.
  • Adjusted Earnings Per Share (a non-GAAP financial measure, see Appendix for definition and reconciliation) of $0.65, compared to $0.60 per share in 2008. The 2009 result excludes a $98 million or $0.15 gain related to the final settlement of the Northern Kazakhstan assets sold in 2008, $0.01 of non-cash, unrealized foreign currency transaction gains and $0.03 of non-cash mark-to-market derivative losses.

Other Key Highlights:

  • Since the first quarter of 2009, commenced commercial operation of 374 MW of generation capacity, including the 130 MW Santa Lidia diesel facility and 152 MW coal facility Guacolda 3 in Chile, the 80 MW Kilroot peaker expansion in Northern Ireland and 12 MW of Innovent wind projects in France.
  • In May, Kazakhmys PLC, which purchased the Northern Kazakhstan businesses in 2008, provided an irrevocable standby letter of credit to AES of $102 million to secure the final payment to be received from Kazakhmys in January 2010.
  • In June, completed €44 million project financing for the 35 MW St. Patrick wind project in France and in July, secured $221 million project financing and began construction of the 101 MW Armenia Mountain wind project in Pennsylvania.
  • In June, the Supreme Court of Chile invalidated an environmental permit granted by the Chilean regulatory authorities for the 270 MW Campiche coal-fired power plant. The Company indirectly owns a 71 percent interest in Campiche through its subsidiary Gener. As a result of the Supreme Court’s ruling against the local permitting authority, Gener has stopped work on Campiche, which was previously expected to commence commercial operations in the second quarter of 2011. Construction on the project would resume when a solution has been implemented which complies with all applicable laws. Based on the cash investment through June 30, 2009 and potential termination costs, Gener’s total exposure to the project is approximately $186 million.

2009 Guidance

Based on the Company’s performance through the first half of 2009 and the current outlook for the remainder of the year, the Company is increasing its full year earnings guidance and the midpoint of its cash flow guidance. The revised guidance is based on currency and commodity movements which have had a net $0.05 favorable impact on Adjusted Earnings Per Share guidance, a lower effective tax rate which has a $0.03 favorable impact, and a $0.05 gain related to settlement of a claim recorded at one of its European affiliates during the second quarter of 2009. These favorable impacts are projected to be offset by unfavorable impacts of $0.05-$0.10 related to outages and lower wholesale prices in North America, lower volume and realized foreign currency transaction losses projected to be incurred in remainder of the year.

Summary of some of the key 2009 guidance elements include:

  • Increased Adjusted Earnings Per Share (a non-GAAP financial measure) guidance from $0.97-$1.07 to $1.05-$1.10.
  • Increased Diluted Earnings per Share from Continuing Operations from $1.03-$1.13 to $1.15-$1.20.
  • Increased the lower end of its full year 2009 Proportional Free Cash Flow (a non-GAAP financial measure) guidance by $100 million and updated its full year guidance from $650-$850 million to $750-$850 million.
  • Increased the lower end of its full year 2009 Subsidiary Distributions guidance by $100 million and updated its full year guidance from $1,100-$1,300 million to $1,200-$1,300 million.

Non-GAAP Financial Measures

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

Attachments

Consolidated Statements of Operations, Segment Information, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, Non-GAAP Financial Measures, Parent Financial Information and 2009 Financial Guidance.

Conference Call Information

AES will host a conference call on Friday, August 7, 2009 at 10:00 a.m. Eastern Daylight Time (EDT). Interested parties may listen to the teleconference by dialing 1-866-229-5768 at least ten minutes before the start of the call. International callers should dial +1-973-200-3007. The reservation number for this call is 23935807. Internet access to the conference call and presentation materials will be available on the AES website at www.aes.com by selecting “Investor Information” and then “Quarterly Financial Reports.”

A telephonic replay of the call will be available from approximately 1:00 p.m. EDT on Friday, August 7, 2009 through Friday, August 28, 2009. Callers in the U.S. please dial 1-800-642-1687. International callers should dial +1-706-645-9291. The system will ask for a reservation number; please enter 23935807 followed by the pound key (#). A webcast replay, as well as a replay in downloadable MP3 format, will be accessible at www.aes.com beginning shortly after the completion of the call.

About AES

The AES Corporation (NYSE: AES) is a Fortune 500 global power company with generation and distribution businesses. Through our diverse portfolio of thermal and renewable fuel sources, we provide affordable and sustainable energy to 29 countries. Our workforce of 25,000 people is committed to operational excellence and meeting the world\'s changing power needs. Our 2008 revenues were $16 billion and we own and manage $35 billion in total assets. BusinessWeek named AES to its 2009 “BW 50 Best Performers” list. To learn more, please visit www.aes.com.

Safe Harbor Disclosure

This news release contains forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to, our accurate projections of future interest rates, commodity price and foreign currency pricing, continued normal levels of operating performance and electricity volume at our distribution companies and operational performance at our generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth investments at normalized investment levels and rates of return consistent with prior experience.

Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES’s filings with the Securities and Exchange Commission, including, but not limited to, the risks discussed under Item 1A “Risk Factors” in AES’s 2008 Annual Report on Form 10-K. Readers are encouraged to read AES’s filings to learn more about the risk factors associated with AES’s business. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

THE AES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
     
Three Months Ended Six Months Ended
June 30, June 30,
($ in millions, except per share amounts)   2009       2008     2009       2008  
 
 
Revenues $ 3,495 $ 4,126 $ 6,873 $ 8,207
Cost of sales   (2,648 )   (3,097 )   (5,143 )   (6,136 )
GROSS MARGIN 847 1,029 1,730 2,071
 
General and administrative expenses (88 ) (99 ) (173 ) (197 )
Interest expense (383 ) (469 ) (774 ) (904 )
Interest income 90 133 188 249
Other expense (30 ) (85 ) (52 ) (110 )
Other income 22 150 244 195
Gain on sale of investments 102 908 115 912
Impairment expense (1 ) (25 ) (1 ) (72 )
Foreign currency transaction gains (losses) on net monetary position 27 (85 ) (12 ) (63 )
Other non-operating expense   -     -     (10 )   -  
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF AFFILIATES 586 1,457 1,255 2,081
 
Income tax expense (105 ) (318 ) (280 ) (557 )
Net equity in earnings of affiliates   50     20     57     42  
 
INCOME FROM CONTINUING OPERATIONS 531 1,159 1,032 1,566
 
Income from operations of discontinued businesses, net of tax - 1 - 3
Loss from disposal of discontinued businesses, net of tax   -     -     -     (1 )

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