AEP Double Stumble: Stock Offering & Earnings Warning (AEP)

American Electric Power (NYSE: AEP) has done a dual dig on itself after the close, and it was on top of a bad market day.  The company has just lowered earnings guidance and its cap-ex guidance, while simultaneously announcing the pricing of a securities offering.

The utility has revised its 2009 ongoing earnings guidance to a new range of between $2.75 and $3.05 EPS, down from a prior range of $3.00 to $3.40.  Thomson Reuters (First Call) had estimates at $3.14 EPS.  The company is not providing guidance for 2010 or beyond.  The company said this recognizes current operating and economic factors and also reflects dilution from the company’s planned issuance of new equity.

The company further noted that it had committed to make a revision once it knew the impact of the regulatory decision on the Electricity Security Plan in Ohio and once it knew more about the impact the economic downturn on operations.  The order does significantly eliminate current rate uncertainty in a state that is home to approximately 20% of it 5 million-plus customers and contributes more than 30% of the retail revenues from utility operations.  It further noted continued and expected weakness in commercial electricity usage as the weak economy has cut power demand, but recent rate increases in Ohio, Indiana, Oklahoma and Virginia will help offset some of the economic impact on earnings.

To offset revenue weakness, AEP is reducing its capital budget for 2010 to $1.8 billion from its prior capital budget of $3.4 billion. Discretionary projects are being deferred until the economic climate warrants the additional investment.

As far as the secondary offering, AEP plans to offer approximately 50 million shares of common stock in a registered secondary public offering with an extra over-allotment option of up to 7.5 million additional shares.  This will raise in the vicinity of $1.25 billion as of current prices before fees and the net proceeds will be used to reduce the company’s debt.  Joint book-running managers are Credit Suisse, J.P.Morgan, Barclays, Citigroup, and Morgan Stanley & Co. Inc.

AEP closed down about 4.5% at $25.08 today, and shares are trading down around $24.10 in after-hours trading.  Its 52-week trading range is $24.07 to $45.95.

Jon C. Ogg
March 30, 2009