AEP swings to big fourth-quarter loss Cuts 1,300 jobs, reduces dividend, lowers 2003 view

CBS MarketWatch ^ | Jan. 24, 2003 | Deborah Adamson,

[arete]

COLUMBUS, Ohio (CBS.MW) - American Electric Power, citing weakness in the energy wholesale market, swung to a big fourth-quarter loss and lowered its 2003 earnings outlook.

The energy company (AEP) also said it was cutting 1,300 jobs - or 5 percent of its workforce -- in an expense reduction plan that would save the company more than $200 million.

Shares of the company fell nearly 5 percent to $25.65.

For the fourth-quarter, AEP posted a net loss of $837 million, or $2.47 a share, after $1 billion in write-offs to reduce the value of under-performing assets. Last year, the company posted a net income of $52 million, or 16 cents a share.

Excluding special items, pro forma earnings were $177 million, or 52 cents -- 3 cents shy of the forecast of analysts polled by Thomson First Call. A year ago, profits were $114 million, or 35 cents.

Revenue came to $3.8 billion vs. $2.9 billion.

For 2003, AEP lowered its earnings outlook to $2.50 to $2.70 a share; Wall Street analysts were expecting $2.81 on average. AEP said the reduced forecast assumes flat earnings from utility operations year-over-year and further weakness in other investments.

"Last year was a difficult one for us," said E. Linn Draper Jr., AEP's chief executive, in a statement. "The collapse of wholesale markets hurt our earnings...an area that had been highly profitable."

AEP said it would go back to its business model of a traditional regulated utility and restructuring operations to shore up finances.

The company is selling non-core assets to raise cash; it also will reduce its quarterly dividend by 40 percent to 35 cents starting in the second quarter to save $340 million to pay down debt. In addition, management is considering issuing equity to boost capital reserves.

"We are not out of the woods yet, but AEP is still a strong company," Draper said.

A.G. Edwards upgraded the company to "hold" from "sell" on Friday, saying that the stock is trading at a discount to the median for traditional power companies.

[arete]

The company is selling non-core assets to raise cash; it also will reduce its quarterly dividend by 40 percent to 35 cents starting in the second quarter to save $340 million to pay down debt. In addition, management is considering issuing equity to boost capital reserves.

Wow -- they have lower earnings, are cutting jobs, diluting equity by issuing more shares, are selling off assets, and are reducing their dividend. Holy smoke, lucky I didn't follow the pundit's advice to buy utilities and energy to get the full impact of eliminating the dividend tax.

Richard W.

[Willie Green]

"The collapse of wholesale markets hurt our earnings...an area that had been highly profitable."
AEP said it would go back to its business model of a traditional regulated utility and restructuring operations to shore up finances.

Hmmmmm.... rather than lower prices to consumers (as promised) perhaps "deregulation" only served to inflate prices as traders churned the market and skimmed their commissions.