Enron Eyes Winner's Circle Well Into Future

Confident in the pliability of their wildly successful business model that has transformed the energy industry, Enron needed no dog-and-pony show as executives trotted out forecasts during an investor's conference last week. In the space of a few hours, the Houston-based giant's executives stressed one point again and again: they fully expect to remain the leader in every field they enter into the foreseeable future.

Chairman (and still CEO) Ken Lay opened the day-long conference Thursday relaxed and ready to expound on how Enron will sustain its success. He and COO (and soon to be CEO) Jeffrey Skilling said the company's "increasingly strong business prospects" for this year have propelled estimates for 2001 recurring earrings to $1.70 to $1.75 per diluted share.

Skilling, who jokingly boasted that he's been close on earnings forecasts for Enron for the past several years, offered evidence for future growth in each of its divisions, which include wholesale trading and marketing, retail services, transportation and pipelines and its emerging broadband services market. Based on steady, sustainable growth, which he said has come from Enron's flexible business model,

Among other things, Enron executives evidenced their belief in a swelling forecast for this year because of the following reasons:

- Enron's further strengthening of its long-standing lead in the North American wholesale energy market, significant expansion of its European wholesale energy business, and an extension of Enron's business model into new, large markets.

- Significant growth prospects in Enron's retail energy business, including increases in expected total contracting from record 2000 levels of $16.1 billion to an estimated $30 billion in 2001.

- Substantial completion of Enron's low-cost, flexible and scaleable broadband network, expanded product offerings and an expected eight-fold increase in 2001 deliveries of bandwidth from strong 2000 levels; and

--- Continued steady performance by Enron's interstate gas pipelines.

Skilling predicted that 2001 would see even stronger growth --- no matter how the economy performs or whatever happens in California. When Enron released its fourth quarter earnings statement early last week, Skilling told analysts then that California's power crisis had no effect on Enron's latest earnings and would have little effect on the earnings impact for this year. Enron does not own generation assets in the state, but markets electricity there, with its profits coming from merchant activities it chooses to conduct.

Skilling said "nothing can happen in California that would jeopardize" its earnings performance," which analysts of First Call/Thomson Financial estimate to be between $1.65 to $1.70 in 2001. "We do not expect the California situation to have any significant effect on Enron's financial outlook, specifically our ability to hit 2001 targets," Skilling said.

What did impact fourth quarter earnings was a 77% decline in net income on charges related to Azurix Corp., its water company spinoff. However, Enron's operations profits still beat earnings estimates because commodity sales and services tripled during the period. Earnings from operations rose 34%, to $347 million, or 41 cents a share, from $259 million or 31 cents a share a year earlier. First Call/Thomson Financial had estimated earnings of 35 cents a share.

Revenues rose 271% to $40.8 billion. Its net income, however, for the fourth quarter was $60 million, or five cents per diluted share, due to the Azurix charges, compared with earnings of $259 million, or 31 cents a share in 1999.

EnronOnline capped its first full year of operation in 2000, executing 548,000 transactions with a gross value of $336 billion. Natural gas sales and related business on EnronOnline grabbed most of the earnings' spotlight, with revenue jumping to $40.8 billion from $11 billion a year earlier. Power trading in Europe alone quadruped during the quarter, and sales of electricity tripled to 23 MM MWh, up from 6.6 MM MWh a year earlier.

Its retail energy business jumped nearly five times, with an increase to $33 million, and Enron Energy Services saw a 73% increase in the fourth quarter, with total contracts of $4.5 billion. Enron Broadband Services reported a $32 million loss on revenue of $63 million, with losses resulting from building the new fiber optics business.

Already North America's largest buyer and seller of electricity and natural gas, Skilling said emerging businesses also are expected to swamp any competition. Its emerging broadband services should see a huge growth in the next two years, he said. Along with that, Enron's energy management services sector is doing better every day, with strong growth predicted in that new market as well.

Referring to the phenomenal growth of EnronOnline, Skilling said the online trader had no actual competition because its daily sales are so much stronger and affect so many more markets than any other energy trader. As of Wednesday, EnronOnline had conducted 615,000 transactions or about 3,000 a day.

Carolyn Davis, Houston

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