Enron Eyes Winner's Circle Well Into Future
Confident in the pliability of their wildly successful business
model that has transformed the energy industry, Enron needed no
dog-and-pony show as executives trotted out forecasts during an
investor's conference last week. In the space of a few hours, the
Houston-based giant's executives stressed one point again and
again: they fully expect to remain the leader in every field they
enter into the foreseeable future.
Chairman (and still CEO) Ken Lay opened the day-long conference
Thursday relaxed and ready to expound on how Enron will sustain its
success. He and COO (and soon to be CEO) Jeffrey Skilling said the
company's "increasingly strong business prospects" for this year
have propelled estimates for 2001 recurring earrings to $1.70 to
$1.75 per diluted share.
Skilling, who jokingly boasted that he's been close on earnings
forecasts for Enron for the past several years, offered evidence
for future growth in each of its divisions, which include wholesale
trading and marketing, retail services, transportation and
pipelines and its emerging broadband services market. Based on
steady, sustainable growth, which he said has come from Enron's
flexible business model,
Among other things, Enron executives evidenced their belief in a
swelling forecast for this year because of the following reasons:
- Enron's further strengthening of its long-standing lead in the
North American wholesale energy market, significant expansion of
its European wholesale energy business, and an extension of Enron's
business model into new, large markets.
- Significant growth prospects in Enron's retail energy
business, including increases in expected total contracting from
record 2000 levels of $16.1 billion to an estimated $30 billion in
- Substantial completion of Enron's low-cost, flexible and
scaleable broadband network, expanded product offerings and an
expected eight-fold increase in 2001 deliveries of bandwidth from
strong 2000 levels; and
--- Continued steady performance by Enron's interstate gas
Skilling predicted that 2001 would see even stronger growth ---
no matter how the economy performs or whatever happens in
California. When Enron released its fourth quarter earnings
statement early last week, Skilling told analysts then that
California's power crisis had no effect on Enron's latest earnings
and would have little effect on the earnings impact for this year.
Enron does not own generation assets in the state, but markets
electricity there, with its profits coming from merchant activities
it chooses to conduct.
Skilling said "nothing can happen in California that would
jeopardize" its earnings performance," which analysts of First
Call/Thomson Financial estimate to be between $1.65 to $1.70 in
2001. "We do not expect the California situation to have any
significant effect on Enron's financial outlook, specifically our
ability to hit 2001 targets," Skilling said.
What did impact fourth quarter earnings was a 77% decline in net
income on charges related to Azurix Corp., its water company
spinoff. However, Enron's operations profits still beat earnings
estimates because commodity sales and services tripled during the
period. Earnings from operations rose 34%, to $347 million, or 41
cents a share, from $259 million or 31 cents a share a year
earlier. First Call/Thomson Financial had estimated earnings of 35
cents a share.
Revenues rose 271% to $40.8 billion. Its net income, however,
for the fourth quarter was $60 million, or five cents per diluted
share, due to the Azurix charges, compared with earnings of $259
million, or 31 cents a share in 1999.
EnronOnline capped its first full year of operation in 2000,
executing 548,000 transactions with a gross value of $336 billion.
Natural gas sales and related business on EnronOnline grabbed most
of the earnings' spotlight, with revenue jumping to $40.8 billion
from $11 billion a year earlier. Power trading in Europe alone
quadruped during the quarter, and sales of electricity tripled to
23 MM MWh, up from 6.6 MM MWh a year earlier.
Its retail energy business jumped nearly five times, with an
increase to $33 million, and Enron Energy Services saw a 73%
increase in the fourth quarter, with total contracts of $4.5
billion. Enron Broadband Services reported a $32 million loss on
revenue of $63 million, with losses resulting from building the new
fiber optics business.
Already North America's largest buyer and seller of electricity
and natural gas, Skilling said emerging businesses also are
expected to swamp any competition. Its emerging broadband services
should see a huge growth in the next two years, he said. Along with
that, Enron's energy management services sector is doing better
every day, with strong growth predicted in that new market as well.
Referring to the phenomenal growth of EnronOnline, Skilling said
the online trader had no actual competition because its daily sales
are so much stronger and affect so many more markets than any other
energy trader. As of Wednesday, EnronOnline had conducted 615,000
transactions or about 3,000 a day.
Carolyn Davis, Houston