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Why Analysts Are Expecting AES Earnings to Fall in 2Q16

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Nov. 20 2020, Updated 1:05 p.m. ET

AES earnings

Analysts expect AES (AES) to report earnings of $0.16 per share in 2Q16. In the same quarter last year, it reported earnings of $0.25 per share. In three of the last five quarters, AES has missed analysts’ earnings expectations.

AES management forecasts that an expected 18% EPS (earnings per share) fall in 2016 will be driven by currency depreciation, weaker energy prices around the globe, and lower energy commodity prices.

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Factors that could impact AES’s 2Q16 earnings

A strong rally in the US dollar pressured AES’s earnings in 2015. The earnings decline last year was driven mainly by fluctuating currencies in the Latin American regions. Brazil’s currency depreciation and recession dragged AES’s earnings significantly, even though they contribute only 6% to consolidated earnings.

Scenarios in the Latin American regions haven’t significantly improved yet in 2016 and may continue to hamper AES’s earnings in 2Q16.

AES generally gets a healthy adjusted return on equity due to its operations in 17 countries. In 2015, its adjusted return on equity (or ROE) was 21.5%. By comparison, US utilities generally have ROE near 10% levels. ROE is the portion of revenue requirements that utilities keep for themselves as profit. We’ll take a look at AES’s ROE in detail in later parts of this series.

Comparing AES’s business profile with its peers

AES’s earnings are far more exposed to currency and commodity prices than other internationally diversified US utilities such as Duke Energy (DUK), Sempra Energy (SRE), and PPL (PPL). More than 80% of AES’s total earnings come from unregulated power generation. In 2015, more than 75% of its total earnings came from outside the United States.

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