Enron’s Profit Surge Powers Energy Stocks
Electricity and natural-gas giant Enron Corp., largely unscathed by California’s power crisis so far, said Friday that its fourth-quarter profit--before one-time charges--surged 34% from a year earlier on the strength of soaring energy prices.
The results at Houston-based Enron further illustrated how many of the big power generators are managing to show handsome earnings growth, even though some are having to set aside millions of dollars in reserves to cover potential shortfalls in payments from California utilities.
Enron’s results helped the power producers’ stocks rally again Monday. Enron rose $4.19 a share, to $75.06, up from its 52-week low of $52.63 though still below its peak of $90.75 reached in the fall. Duke Energy Corp. gained $1.19 to $74; Reliant Energy Inc. was up $1.44 at $35.19; Southern Co. gained 50 cents to $28.69 and Calpine Corp. rose 63 cents to $38.31.
Spiking power prices, as well as energy trading and cost controls, so far are offsetting any potential losses for Enron in the California market. Even producers heavily concentrated in California, such as San Jose-based Calpine, are remaining bullish despite the problems besetting Edison International and PG&E; Corp. Early this month, Calpine raised its earnings expectations for 2000.
In fact, the volatility in the power market is working to the advantage of producers nimble enough to shift their distribution or trading strategies to focus on regions where prices are higher--even in California, where the crisis has raised the risk of nonpayment, analysts said.
These companies “have the flexibility and skill-set to take advantage” of current market conditions, said Michael Heim, an analyst at investment firm A.G. Edwards in St. Louis. He includes in that group Enron, Duke Energy, Calpine and Reliant.
“Volatility is what a trader like Enron thrives on,” said analyst Donato Eassey of Merrill Lynch & Co. “They made a lot of money because there was a lot of volatility in both power and gas [markets].”
Duke Energy last week reported a fourth-quarter charge of $68 million to write off payments it might not collect for California sales. Yet the Charlotte, N.C.-based concern said its fourth-quarter profit--excluding such one-time charges--rose 16% from a year earlier, and it also raised its expectations of annual sales growth.
Enron, too, said it established a credit reserve to cover its California operations, though it didn’t specify the amount. Regardless, “nothing that could happen in California” would affect this year’s profit outlook, Enron President Jeffrey Skilling said during a teleconference. “California did not significantly impact the fourth quarter, and we don’t expect to be significantly [affected] in the future.”
Enron said its profit before nonrecurring items rose to $347 million, or 41 cents per diluted share--well above analysts’ consensus estimates--from $259 million, or 31 cents a share, a year earlier. Fourth-quarter revenue more than tripled to $40.8 billion from $11 billion.
The company’s trading business--in which it acts as a market maker and trader in both electricity and gas--benefited as average U.S. natural gas prices more than doubled to record levels in the quarter and as average electricity prices rose as much as sevenfold.
Revenue at Enron’s wholesale-services division--which includes energy trading, commodity sales and energy-related investments--nearly quadrupled to $39.2 billion.
Enron also expects profit of $1.65 to $1.70 a share in 2001, in line with the average estimate by analysts surveyed by First Call/ Thomson Financial, Skilling said.
California officials “did the wrong thing when they set up that deregulation structure,” said Skilling, who is scheduled to become Enron’s chief executive next month. “It’s probably a more regulated market today than any other market in the U.S.”
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Shares of energy giant Enron got a lift Monday on news of strong fourth-quarter earnings, but the stock has struggled since late summer.
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Enron shares, weekly closes and latest on the New York Stock Exchange
Monday: $75.06, up $4.19
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Source: Bloomberg News
