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The AES Corporation (AES) Earnings Report: Can 27 Countries Kick-Start Your Portfolio?

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The AES Corporation (NYSE:AES) reported earnings this week, beating revenue estimates and squeaking in above analysts’ earnings expectations. Its stock shot up 6% on the news, but does this utility have what it takes to pull in long-term profits for your portfolio? Let’s look at this quarter’s earnings and some long-term trends and decide for ourselves whether AES makes the A-list.

Number-crunching
For Q4 2012, AES managed to grow its top line to $4.64 billion. The company beat analyst estimates by 20% and improved on 2011’s Q4 by 11%.

On the bottom line, the utility slid past Mr. Market’s expectations by $0.01, with non-GAAP EPS clocking in at $0.32. Compared with Q4 2011, earnings for this quarter represent an almost 40% increase.

For a peck of long-term perspective, The AES Corporation (NYSE:AES) has grown sales 19% over the last years. In the same period, net income dropped 173% and dipped into the red for 2012.

AES Revenue Annual Chart

AES Revenue Annual data by YCharts.

Looking ahead, AES expects to grow revenue to $5.23 billion and EPS to $0.35 in Q1 2013 .

AES around the world
When it comes to diversification, it’s hard to argue with The AES Corporation (NYSE:AES). Not only does the company offer the stalwart opportunity of a utility, but its 27-country spread gives it a level of international diversity that is unmatched in its sector. Here’s a quick breakdown of AES’s $2.1 billion worth of 2012 pre-tax contributions:

Source: AES Earnings Presentation.

That said, broader is not always better, and AES is working hard to cut costs across the board. In addition to skimming the fat off corporate spending (to the tune of $90 million in 2012), the utility sold 14 assets in nine countries over the past year. Of the $946 million in shed assets, the largest chunk came from $284 million Brazil telecom Atimus, a non-core asset stinking of “diworsification.” AES looks to be focusing its geographic plans, following the likes of international utility National Grid plc (ADR) (NYSE:NGG), which offers global diversification through its United Kingdom and United States divisions, but without the high-risk worries of emerging markets.

Even with the clunkers off its sheets, AES still has an upward battle to keep costs competitive. The company expects to spend around $500 million over the next three years in the U.S. to replace and/or upgrade its older-generation facilities. According to CFO Thomas Flynn, environmental costs will account for about two-thirds of the company’s $300 million proportional cash flow decline for 2013.

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