UtiliCorp Follows Aquila to the Bank, Quadruples Earnings
Kansas City, MO-based Aquila Inc. reported Wednesday that it posted a staggering second-quarter net income of $101.3 million ($1.05 per share), an increase of 367% over the prior year's second-quarter net income of $21.7 million ($0.25 per share). The sizeable increase was led by the company's wholesale services segment, which boasted an earnings before interest and taxes (EBIT) of $148.5 million, compared to the segment's $25.3 million posted during the second quarter of 2000. Aquila said that first-half EPS and net income exceed full-year 2000 results.
Coming as no surprise a day after Aquila's announcement, UtiliCorp United, which owns 80% of Aquila, reported strong earnings of $143 million ($1.21 per share), as opposed to the $29.3 million ($0.31 per share) that it posted last year for the same time period. The company attributed the astronomical increase to Aquila's strong results and the gain on the sale of some of Aquila's common stock.
In North America, Aquila reported during the second quarter it sold approximately 66.3 MWh, compared to 39.6 MWh during the same quarter of 2000. Likewise, the company said it transacted an average of 10.3 Bcf/d, a slight increase over the 10 Bcf/d level reported a year ago.
"Aquila's record earnings and 56% return on equity further demonstrate our ability to grow the company and provide shareholders with outstanding returns,'' said Robert K. Green, chairman of Aquila and president of UtiliCorp United.
On the whole, EBIT increased 366% compared to the equivalent time period a year ago. Aquila's first-half earnings per share in 2001 were $1.65 compared to $0.38 in last year's first half and $1.14 for all of 2000. The company reported that second-quarter sales nearly doubled from $5.3 billion last year to $9.9 billion in 2001.
"Our strategy and client-centric business model continue to be validated through strong demand for our products in the marketplace," said Keith Stamm, Aquila's CEO. "The strength of our franchise is demonstrated through higher financial results across all business segments. Outstanding execution, robust client demand and excellent asset management were common themes during this first half. We believe they provide a very strong, positive statement about our earnings diversity."
Aquila's strong results from its wholesale services segment were led by the segment's commodity services and client services businesses. The company cited outstanding execution combined with favorable market conditions as key factors in the higher earnings from commodity services, which posted EBIT during the second quarter of $116.2 million compared to $8.4 million in last year's second quarter. Client services, which is Aquila's structured products and services business, also continued to post excellent growth. Its second-quarter EBIT increased 91% over the same period a year earlier, primarily driven by a 21% increase in deal flow.
The company's capacity services segment contributed second-quarter EBIT of $41.1 million in 2001 compared to $15.4 million in 2000. Aquila said it successfully optimized asset positions for new generation assets by securing prices at above current market rates during the second quarter. This action "significantly improved" its margins for the quarter, the company said. Aquila said its December 2000 acquisition of interests in six power plants through its purchase of GPU International continues to provide stronger than expected operating results.
The company reported that it also continues to be on track with its development of new generation capacity, namely the addition of 1,360 MW in the past 12 months. Aquila said construction has already started on two more power plants with combined capacity of 680 MW, scheduled to begin operations by the summer of 2002.
UtiliCorp's sales for the quarter were $10.4 billion, up 79% from $5.8 billion a year earlier. Sales were also strong for the 12 months ended June 30, 2001. They were $41.2 billion, up 94% from $21.2 billion in the prior 12 months.
UtiliCorp also reported that earnings before interest and taxes (EBIT) rose 221%, from $103.9 million a year ago to $334 million for the second quarter 2001. Of UtiliCorp's segments, Aquila contributed the lion's share with a second quarter EBIT of $283.9 million, up from $40.7 million posted last year during the same time frame.
"We completed the initial public offering of our energy merchant and risk management business, Aquila, Inc., in April 2001," said Richard C. Green, Jr., UtiliCorp CEO. "That business is continuing the very strong performance it demonstrated in the first quarter."
From the sale of some of Aquila's stock in April, UtiliCorp received a pre-tax gain of approximately $110 million ($0.50 per share).
Robert Green added, "Aquila's financial results for this year's first half already exceed its 2000 full-year earnings. We are especially pleased that Aquila's growth is coming from all of its businesses, not just a single segment."
The company's International Networks segment was the second largest contributor, increasing from $34.4 million in 2Q 2000 to $40.4 million for the quarter ended June 30, 2001. U.S. Networks also posted a $500,000 increase.
"UtiliCorp's domestic networks business continues on track for our targeted 3-5% growth," Robert Green said, "and our international networks continued to help fuel our growth in earnings before interest and taxes (EBIT), contributing a $17.3 million increase to second quarter EBIT, after adjustment for the deconsolidation of our New Zealand investments in June 2000."
The only blemish among the UtiliCorp's businesses was its services arm, which went from a $7.7 million gain in the second quarter 2000 to a $7.8 million loss for the quarter just ended. UtiliCorp said the loss was due in part to poor results from Quanta Services Inc. and the fact that there is a continuing slowdown in telecom-related business. UtiliCorp owns a 35% stake in Quanta. The company said it expects that results will improve going forward.
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