Annual Meeting of Shareholders and First Quarter Earnings

Last week was busy for AEP leaders and Investor Relations. On April 23, AEP hosted its 2019 Annual Meeting of Shareholders in Corpus Christi, Texas. Two days later, AEP reported first quarter 2019 operating earnings of $1.19 per share and reaffirmed 2019 earnings guidance.

Proxy Statement, Appendix A and the Annual Meeting

In March 2019, AEP published its Notice of 2019 Annual Meeting, Proxy Statement, and Appendix A to shareholders. Only shareholders of record at the close of business on Feb. 25, 2019 were eligible to receive notice this year and vote on relevant issues at AEP’s annual meeting.

Are you an AEP shareholder? AEP stock can be held through direct ownership, a broker, or the employee 401K program. As of Feb. 25, there were 493.3 million shares of AEP common stock outstanding, held by approximately 60,000 registered shareholders and approximately 783,000 shareholders holding stock through a bank or broker. During last year’s proxy season, AEP had 492.3 million shares of common stock outstanding.

What is a Proxy Statement? A Proxy Statement is a document sent to shareholders prior to the annual shareholder meeting. It contains information required by the Securities and Exchange Commission (SEC). The Proxy must disclose a company’s voting procedures and material matters relevant for seeking shareholder votes. Biographical information on nominated directors of the board is also included.

Since it’s important that shares are represented and voted at the meeting, AEP shareholders of record vote one of three ways:  via the internet, telephone, or by completing and mailing a proxy card. A shareholder has the right to cast one vote per share owned. This year AEP shareholder votes were requested to: (a) elect directors to hold office until the next annual meeting while also increasing the board size from 12 to 13, (b) ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2019, (c) amend AEP’s certificate of incorporation to eliminate preemptive rights, and (d) hold an advisory vote on executive compensation.

What is Appendix A to the Proxy Statement? Appendix A accompanies the Proxy Statement and is used by shareholders to assess the financial welfare of the company. The appendix this year contained AEP’s 2018 audited financial statements as well as management’s analysis of the company’s financial condition and performance. In summary, Appendix A is a condensed version of AEP’s 2018 Form 10-K annual report filed with the SEC on Feb. 21, 2019.

First Quarter 2019 Earnings and the Street’s Reaction

On April 25, AEP reported first quarter 2019 operating earnings of $1.19 per share, above the corresponding analyst consensus estimate of $1.11 per share. Comparatively, operating earnings during the first quarter of 2018 were $0.96 per share. Brian Tierney, executive vice president and chief financial officer, kicked off the call, “The company is off to an excellent start for 2019. AEP continues to excel and our employees continue to deliver on the execution of our strategy of being the premium regulated utility. Our performance in the first quarter and the stability of our regulated business model gives us the confidence to reaffirm our operating earnings guidance range of $4.00 to $4.20 per share.” Other hot topics covered during the call included contracted and regulated renewables, rate case updates, AEP’s long-term growth rate, as well as Ohio legislation.

AEP’s stock price continued to perform well following the release of first quarter 2019 earnings, closing the day at $84.83 or up 0.96% and surpassing both the S&P Electric Utilities Index (up 0.43%) and the S&P 500 (down 0.04%).

Analyst reports started coming in soon after the earnings call ended. Jonathan Arnold of Deutsche Bank Research said, “AEP had a strong start to the year, with help not only from an expected Ohio regulatory charge reversal, but also from lower expenses. Chief Financial Officer Tierney sounded confident reiterating prior comments about delivering earnings in the ‘upper range’ of their long-term 5% to 7% growth target and noting recent successes, such as an improved Oklahoma rate case outcome and the recently closed Sempra Renewables acquisition.”

Steve Fleishman of Wolfe Research noted, “AEP’s first quarter 2019 results of $1.19 beat consensus of $1.11, possibly on a one-time item and timing of tax benefit. AEP reaffirmed 2019 guidance of $4.00 to $4.20 and their long-term earnings per share (EPS) growth rate. We like AEP’s transmission growth story, absence of major project overhang and solid EPS/dividend growth. Regulated renewables opportunities at AEP Ohio, PSO, and SWEPCO would be upside to our estimates.”

Julien Dumoulin-Smith of Bank of America Merrill Lynch summarized Ohio’s legislation on nukes and need, “AEP noted on the call it would only be supportive of the current House Bill 6 (intended to support First Energy Solutions’ Perry Nuke Plant) if the bill is amended to provide benefits for AEP and its ratepayers. We also highlight that the 900 megawatt renewable opportunity in Ohio still needs to prove ‘need’ and has faced some scrutiny in its filing; we probability weigh opportunity at 25%. However, we see the probability increasing if AEP is able to add amendments to proposed House Bill 6, specifically around phasing out electricity efficiency rather than an immediate cut, grandfathering renewable portfolio standards, and stating that utilities are allowed to provide renewables to ratepayers to counteract the ‘need’ debate. We expect AEP to receive amendments or else First Energy Solutions could risk AEP as an opponent to the bill.”

Upcoming Events

Within the next couple weeks, Investor Relations will join PSO’s management team and Corporate Finance in Tulsa for investor due diligence meetings. Lisa Barton, executive vice president of Utilities, along with Tierney, will hold meetings with Australian investors in Columbus. Additional meetings will be held in Columbus with buy-side investors from JP Morgan and Jennison.

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Watch for future Street Wise editions discussing earnings, renewables, and regulatory updates related to AEP and the electric utility industry.

The material contained within Street Wise is for informational purposes only. It is not, and should not be regarded as, investment advice or as a recommendation regarding any particular security or course of action, including actions in relation to equity or debt securities of AEP or its subsidiaries. You should consult financial advisors with respect to investments.

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AEP closed at $84.71 April 26, posting a total return of .67% since April 12. During the same period, the S&P Electric Utilities Index total return was -.11%, and the S&P 500 Index total return was 1.14%.