AES Second Quarter Earnings Call

Market Update Analysis:

Author: 123jump.com Staff
123jump.com
Last Update: 1:13 AM EDT August 14 2006

AES, the generator and distributor of electric power, had EPS of 25 cents over 13 cents in Q2 2005. Earnings benefited from good operating price and volume trends, reflecting in cash flow growth. AES is growing its business in wind generation in the U.S. and Europe, and through AES AgriVerde, a venture in the greenhouse gas offset production sector, expecting to capitalize on the market for greenhouse gas emissions reductions. Revenue growth for fiscal 2006 is expected to be 7% to 8% over 2005.

This summary is based on the second quarter fiscal 2006 earnings call conducted by The AES Corp. (AES: chart) on August 7, 2006.

Key Investors Issues

- Net income rose 99% to $169 million from $85 million in the prior year quarter.
- Revenue rose 15% to $3 billion from $2.6 billion in the year ago quarter.
- Fiscal 2006 EPS from continuing operations is anticipated at $1.05.

Second Quarter Fiscal 2006 Financial Highlights

Net income increased 99% to $169 million compared to $85 million in the prior year quarter.

Net income for the second quarter included a $63 million loss associated with discontinued operations and a $21 million extraordinary gain from the purchase of an additional 25% interest in Itabo, a contract generation business in the Dominican Republic, at a price which was less than the fair value of the assets acquired.

- Earnings per share were 25 cents compared to 13 cents for the same quarter last year.
- Earnings per share from continuing operations were 31 cents compared to 13 cents in the prior year period.
- Adjusted earnings per share were 29 cents compared to 12 cents in the prior year period.
- Income from continuing operations rose 143% to $211 million from $87 million in the second quarter of 2005.

Revenues increased 15% to $3 billion compared to $2.6 billion in the second quarter of 2005.

Revenues rose approximately 10%, excluding estimated foreign currency translation impacts, a result of higher prices in all segments and higher volume principally in the contract generation segment.

Gross margin for the second quarter was $919 million, up 75% from $526 million in the year ago period.

This higher than usual increase was partially attributable to comparisons with an uncharacteristically low second quarter in 2005, which was impacted by a $192 million receivables reserve expense recorded in Brazil. The increase over the same period in 2005 also reflects higher prices and volume. Gross margin as a percent of revenues improved to 30.3% from 19.9% in the prior year.

- Net cash from operating activities increased 32% to $434 million in the second quarter, compared to $328 million in the previous year quarter.
- Free cash flow increased 34% to $243 million compared to $182 million in the year ago period.

Property additions totaled $361 million in the quarter, including $191 million in maintenance capital and $170 million in growth capital expenditures.

For the 2005 quarter, property additions were $260 million, including $146 million in maintenance capital and $114 million in growth capital expenditures.

Results for the second quarter reflect the company''s plans to sell its 140 MW Indian Queens power generation plant in the UK and Eden, a regulated utility in Argentina.

These operations have been recorded as discontinued operations in the second quarter 2006 results. Comparisons with prior periods have been adjusted to include the results from those businesses in discontinued operations.

General and administrative expenses rose 31% to $59 million.

This was primarily due to increased corporate staffing and a higher level of business development activities.

Interest expense decreased 7% to $442 million.

This was primarily due to debt reduction and mark to market gains on interest rate derivatives, partially offset by unfavorable foreign currency translation effects.

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