Columbia Plans Share Repurchase; Earnings Rise
Columbia Energy Group beat analysts expectations with a 15% jump
($3.3 million or five cents per share) in net income during the
second quarter to $26.1 million, or 32 cents per share. It also
upped the ante yesterday in its effort to fend off NiSource's $5.7
billion hostile takeover offer by adding $400 million to its stock
repurchase program, which now totals $420 million.
"The board has taken this action because it believes Columbia's
true value is not fully reflected in its current stock price, which
was impacted in 1999 by much warmer than usual weather and by
significant investments and costs in the marketing segment, and
does not reflect Columbia's long-term business prospects," said CEO
Oliver G. (Rick) Richard III. "This repurchase program, announced
on the same day as we reported our fourth consecutive quarter of
increased net income, demonstrates our clear commitment to enhance
shareholder value in both the near and long term."
Sanders Morris and Mundy energy analyst John Olson said he
expects the stock buy-back to "encourage some of the discontented
stockholders to cash in." Olson said with its current price offer
of $68/share, or only about $4.30/share more than Columbia's
current share price, NiSource faces an uphill battle. Without
Columbia's help, it will be extremely difficult for NiSource to win
over shareholders and get a combination though the regulatory
process, given Columbia's holding company status and some sticky
issues involving the Public Utility Holding Company Act.
In the meantime, Columbia continues to show improvements. The
highlights of the second quarter included a positive impact from a
lower property taxes on its distribution assets, an Appalachian
reserve discovery and a large E&P property acquisition, three
propane purchases, strong performance in gas distribution and the
start of construction on a new fiber network for telecommunications
between New York and Washington, D.C.
However, retail marketing operations continued to struggle, and
Columbia had to dish out $4.1 million for its failed bid for
Consolidated Natural Gas - which will cost the company an
additional $8 million in the third quarter. It also reported lower
operating income from its transmission and E&P segments and an
operating loss in its propane, power generation and LNG segment.
The distribution segment recorded a $3.2 million gain in
operating income to $16.6 million. But operating income from
transmission and storage fell $2.9 million to $55.9 million. And
the E&P segment showed a $1.6 million decrease in operating
income to $6.9 because of lower gas prices and flat production.
Higher operating expenses led to an operating loss for the
propane, power generation and LNG segment of $500,000 versus an
operating loss of $200,000 last year.
Columbia's marketing segment is inundated with additional
customer acquisition costs and higher expenses for increased
staffing levels on the retail side. The wholesale marketing
division posted a $1.2 million gain in operating income. But the
entire marketing segment showed an operating loss of $10.5 million.
That compared with an operating loss of $7.6 million in 2Q98.
Gas sales customers totaled over 320,000, compared to 53,300 in
1998's second quarter. Total gas sales were 391.4 Bcf for the
second quarter, an increase of 44 Bcf over last year, and power
sales more than tripled to 9,910 GWh.
Nevertheless, under new management, the marketing segment is
expected to undergo some changes in the quarters ahead. Columbia
brought in Brian Watt, an MIT graduate and industry consultant, to
help turn things around at Columbia Energy Services. "Due to
[Watt's] early participation in this project, he has an excellent
knowledge of these businesses and I am confident he will provide
the necessary direction, immediately," said Richard. "Although
showing improvement, we continue to be dissatisfied with Columbia
Energy Services' operations and results."
Columbia's second quarter revenues totaled $1.7 billion, up
$373.4 million over the 1998 period, while operating income was
$64.3 million, a decrease of $6.6 million from last year's second
quarter. However, Richard said he expects total operating income
for the full year to be about $625 million, or 15% higher than
1998, with much of the increase coming from our nonregulated
segments. Columbia's net income for the 1999 first half was $176.5
million, or $2.13 per share, an increase of $6.2 million, or 9
cents per share, over the 1998 first half.