Sempra Profit Falls on Accounting Change

Sempra Energy, parent of Southern California Gas Co. and San Diego Gas & Electric Co., on Thursday reported a 40% decline in first-quarter net income because of an accounting change and lower earnings from energy trading.

Despite the profit dip, Sempra’s businesses remain on track to reach the San Diego company’s earnings target of $2.60 to $2.80 a share for 2003, Sempra Chairman and Chief Executive Stephen L. Baum told analysts and investors.

For the three months ended March 31, Sempra posted net income of $88 million, or 42 cents a share, down from $146 million, or 71 cents, in the first quarter of last year. Revenue rose 31% to $1.92 billion from $1.47 billion in the year-ago quarter.

First-quarter income reflected a charge of $38 million, or 18 cents a share, because Sempra changed the way it accounts for commodity trading assets so that it recognizes revenue as it accrues, instead of counting it all at the beginning of a contract.

First-quarter income without the accounting charge would have been $126 million, or 60 cents a share. That measurement of operating profit fell short of analysts’ expectations of an average of 68 cents a share, according to Thomson First Call.

Sempra’s stock fell $1.70, or 6.3%, to $25.14 on the New York Stock Exchange.

Baum, in a conference call with analysts and investors, stressed that much of the income decline came from changes that were unrelated to how well the company is operating.

“These accounting changes are not an economic change. The business is just as it ever was,” he said.

Sempra’s energy and metals trading business reported a net loss of $18 million for the quarter, contrasted with net income of $42 million in the year-ago quarter. Without the accounting change, trading earnings would have totaled $19 million.

Trading results slipped because of natural gas price spikes in the first quarter, Sempra said.

Lasan Johong, a utility analyst with investment firm Blaylock & Partners, said he expects trading profit to improve later in the year.

Although several companies have reduced or abandoned energy trading, thereby reducing liquidity, the situation is expected to improve, Johong said.

Sempra’s trading performance “in this environment is not bad,” said Johong, who owns no Sempra shares and maintains a “buy” recommendation on the stock.

Southern California Gas reported net income of $58 million, down from $60 million. San Diego Gas & Electric saw net earnings slip to $45 million from $53 million.