Aquila Inc., whose initial public offering opened with a flourish on Wall Street last spring, is essentially one year ahead in its earnings per share (EPS) forecast, and is on track to continue to deliver 25% growth into 2002, according to executives presenting third quarter earnings on Monday. The Kansas City, MO-based company, a subsidiary of UtiliCorp United Inc., reported net income of $37.2 million, or $.37 per share, an increase of 37% over the third quarter a year ago, when earnings posted were $.27 per share, or $23 million of net income. UtiliCorp offered Aquila as an IPO last April (see Daily GPI, April 25).
Earnings before interest and taxes (EBIT) were $51.7 million, up 27% from $40.8 million a year earlier. Third quarter sales increased 10% to $8.8 billion, up from $8.0 billion a year ago. EBIT from Client Services business increased 60% while the number of product sales increased by 48% — and 18% of its weather transactions were conducted outside of the United States.
“We manage risk on behalf of our clients, and we were built to capitalize on volatility,” said Robert K. Green, COO of UtiliCorp, which owns about 80% of Aquila’s outstanding common shares.
Before going into detail on Aquila’s successful quarter, Green said he wanted to clear up some “issues” that had come to the forefront in the past “three weeks.” Although he never mentioned Enron Corp. by name until taking calls from investment analysts, Green said he wanted to make clear that Aquila did “not participate in any related-party structures, partnerships or structures. None of our off-balance sheet transactions are related-party structures; they are all structured party and truly off-balance sheet transactions.” Green said UtiliCorp had used these off-balance sheet transactions for more than 20 years as an asset acquisition technique, and nothing more.
When asked during the question and answer portion of the conference whether Aquila’s trading arm had benefited from Enron’s problems (see related story), Green said it was difficult to tell because overall, Aquila’s business was so good. He said that the global trading company InterContinental Exchange (ICE) handles Aquila’s trades through a neutral exchange, so it was difficult to immediately determine where any new business is coming from. However, because Aquila also does business with Enron, Green was asked about the extent of Aquila’s exposure.
“I don’t want to get into the exact exposure, but we are watching it very closely, as any prudent energy marketer would do in this day and age,” said Green. “I assure you that top management is right on top of this particular issue.”
Aquila CEO Keith Stamm said that Aquila had only received “anecdotal” information from ICE on whether some of Enron’s business had moved to Aquila’s trading arm. However, he said that in the past three weeks, Aquila had seen some “transaction flow increase on ICE and in terms of overall market.” Stamm said there had been “a lot of chatter out there from a credit perspective,” but said he was unsure if there was actually a volumetric increase over the past few weeks.
Stamm said Aquila’s business model “continues to be validated through strong demand for our products, and he noted that Aquila’s Wholesale Services segment, consisting of the Commodity Services and Client Services businesses, had EBIT of $30.7 million, up $1.2 million from $29.5 million in last year’s third quarter. Commodity Services third quarter EBIT declined $7.5 million to $7.4 million compared to $14.9 million in the 2000 third quarter. This decline, noted Aquila, was offset by the increased growth in Client Services, which saw EBIT increase 60% to $23.3 from $14.6 million in last year’s period.
Third quarter EBIT from the Capacity Services segment was $21.0 million in 2001 compared to $11.3 million in 2000. Aquila acquired interests in six power plants in December 2000, when it purchased the assets of GPU International. Operating results from those projects have continued to be “stronger than expected.” Also, its operating portfolio of generation is approximately two-thirds hedged for the next two years and 50 % hedged through 2008.
In the third quarter, Aquila acquired a high-performance, quick-cycle storage facility in Lodi, CA, expected to be completed by the end of this year. When ready, the facility will be able to store up to about 12 Bcf. With a planned injection rate of 400 MMcf/d, the facility will be able to cycle its inventory up to six times a year. Lodi storage is expected to contribute to Capacity Services results in 2002.
Stamm, who also talked about possible acquisition growth by Aquila in the future, said that for now, the company was “still focused on maintaining liquidity. We will start to grow at the right time, but it’s not built into the growth plan for the next couple of years.”
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