Reliant 1Q EPS Handily Beats Estimates

With its wholesale energy and natural gas distribution segments leading the charge, Reliant Energy Inc.'s first-quarter earnings easily beat analysts' consensus estimates and the company now feels confident that it can grow its bottom line for all of 2001 above and beyond previous projections of 10% to 12%.

Reliant last Monday reported first-quarter 2001 adjusted earnings of $274 million, or $0.94 per diluted share, compared with $134 million, or $0.47 per share, for the first quarter of 2000. The company's first-quarter 2001 earnings results easily surpassed the Thomson Financial/First Call consensus analysts' earnings estimate that Reliant Energy would earn 70 cents per share before items.

On a non-adjusted basis, Reliant had earnings for the first quarter of 2001 of $262 million, or $0.90 per diluted share, reflecting several items, including an after-tax, non-cash gain, an after-tax, non-cash charge and an after-tax loss.

The company's wholesale energy segment produced first-quarter operating income of $216 million, which compares to an operating loss of $22 million for the first quarter of 2000. Also, gross margins in this segment rose by $343 million from the same quarter last year. Reliant Energy said the increase was primarily due to higher revenues from energy and ancillary services, the addition of its Mid-Atlantic assets and solid commercial and operational performance in its other regions.

Meanwhile, on the gas side of the ledger, Reliant said that operating income for its natural gas distribution segment jumped 29% to $135 million for the first quarter of 2001, compared with $105 million for the first quarter of 2000. Reliant Energy said the substantial increase was largely due to improved margins from cooler weather, partially offset by increased operating expenses.

Turning to the company's pipelines and gathering segment, Reliant said this area of business produced first-quarter operating income of $39 million, up from $32 million for the same period last year.

Reliant executives, in a conference call with analysts last week, played their cards close to the vest in matters related to the company's outlook. They cited the fact that the company's Reliant Resources Inc. unit has an initial public offering in registration with the Securities and Exchange Commission.

Steve Naeve, the company's chief financial officer, pointed out that Reliant Energy had previously indicated that it expected to be able to grow earnings 10 to 12% for this year over the year 2000. "I think at this point in time, we feel comfortable that we're likely to exceed that 10 to 12% range, but I think that's about all the guidance I can provide you," he went on to note.

Meanwhile, executives with Reliant Energy also said that Pacific Gas & Electric Co.'s recent bankruptcy filing has not affected the level of financial reserves that Reliant Energy has been incurring.

"Essentially, the PG&E bankruptcy filing has not affected the level of reserves that we've been taking," said Naeve. "Our methodology is based significantly upon the probability of bankruptcy, and has been, and so we're comfortable with our level of reserves," the Reliant Energy executive noted.

The subject of financial reserves also came up during the question-and-answer portion of the call. Reliant Energy management was asked whether it would continue to reserve approximately $38 million to $39 million per quarter.

"If facts change, I guess, we might [reexamine] the amount that we've reserved against historical receivables, but given our assessment of the situation today, I don't anticipate any change," Naeve said. Steve Letbetter, the company's chairman, president, and CEO, also pointed out that the company's reserves are based upon the current receivable balances. "So, to the extent there's changes in those receivable balances, it will affect the reserve," Letbetter stated.

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