Aquila, UtiliCorp Earnings Up 300%

The news was just too good to keep to themselves. UtiliCorp United bragged last Thursday that its infant spin-off, Aquila Inc. would show second quarter results up 300%, and since the proud parent holds 80% of Aquila, UtiliCorp's earnings are expected to be up 300% as well.

"The record results in our merchant business segment were driven by our successful IPO of Aquila and increased client interest in risk management solutions. Results from Aquila more than offset other factors related to UtiliCorp's other businesses," said Robert K. Green, UtiliCorp's president and Aquila's chairman.

Aquila CEO Keith G. Stamm pointed to three main factors behind Aquila's results: "an increased interest from our clients in risk management solutions, an additional 1,070 megawatts of generation brought on line this year, and the performance of our commodity marketing franchise."

Building on its weather derivatives business, the company has signed up a number of industrials in recent months to manage their energy supply and guarantee power availability. Aquila signed a pact recently to manage the electricity produced at Alcoa's North Carolina hydro-power plant, providing power from other sources if there isn't enough rainfall, and selling off any excess. "This business started last year. It's a convergence of weather, energy, insurance and capital," said spokesman Al Butkus. "Companies are paying a lot more attention to their energy costs. It's getting to be a big item and the CFOs are getting involved. We're in an extremely good position to help industrials manage their earnings better."

UtiliCorp Chairman Richard C. Green said the boost "was not dependent on the high energy prices previously seen in the western power market."

The company started pulling out of California last April "when we started seeing companies buying power for more than they could afford to pay. We began unraveling our business in the state then, and by the end of the year we only had about a $6 million exposure," Butkus said. "We're still dealing out there, but through third parties with people who have good credit."

The advance on Aquila's earnings, which will be fully revealed Aug. 8, shows the company's second-quarter net income to be approximately $100 million, or $1.05 per share. This compares to the $22 million, or $.25 per share, earned in the 2Q 2000. Aquila's estimated earnings are more than double the current First Call analyst consensus of $.36 per share.

Aquila expects net income from $215 to $225 million for the full year, or $2.25-2.36 per share. Current analysts' full-year forecast of earnings per share is $1.55-1.62, with a consensus of $1.58, according to First Call.

Buoyed by Aquila's results UtiliCorp said it expects second- quarter earnings per share of $1.20 to $1.25 on net income of approximately $142-148 million. This compares to $.31 cents per share or $29.3 million in net income in the 2000 second quarter. Weighted average diluted shares were 118.5 million for the quarter, compared to 93.0 million shares a year earlier. The estimate exceeds analyst First Call second-quarter earnings forecasts of $.37 per share. The second quarter estimate includes an after-tax gain of $59 million, or $.50 per share, from the April 2001 partial initial public offering of Aquila, Inc. UtiliCorp now owns 80 percent of Aquila.

UtiliCorp will announce its actual earnings Aug. 9.

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