Despite its effort to move past the restructuring period it started more than a year ago, Dynegy Inc. lost ground in the first quarter, with its power generation business down 35% and a huge loss in its energy risk management unit. The Houston-based company reported net income of $74 million (15 cents/share), down from $147 million (17 cents) in 1Q2003, and revenue fell to $1.66 billion from $1.88 billion.
Mild winter weather and lower electricity prices impacted Dynegy’s bottom line, with its generation business off 35% to $139 million from $214 million in 1Q2003. Power generation results in 1Q2003 also included a $47 million benefit associated with new accounting principles that did not correspond to 1Q2004 results. Dynegy’s energy risk management business, which it is discontinuing, also had a huge drop off, with earnings falling to $7 million from $104 million a year ago.
There were no excuses from CEO Bruce A. Williamson, who presided over a conference call with analysts on Wednesday morning. With lower prices and mild weather working against Dynegy in the first quarter, he declared the company had still managed to turn in a “solid” performance.
“We’ve made progress and the track record shows that we are continuing to achieve in our self-structuring initiative,” Williamson said. The quarter’s operating performance “shows that we are positioned to benefit from economic growth, the recovery of U.S. power prices and sustained high natural gas prices.”
Williamson said Dynegy had “substantially” completed agreements in the quarter to divest of most of its non-core assets, including three generation plants and two natural gas liquids (NGL) facilities. It also moved a few steps closer to consummating the sale of its regulated power business, Illinois Power (IP), which “remains on track” to close by the fourth quarter. And Dynegy settled California refund claims this week, which “resolves the issues of the past and allows us to focus on the future” (see Daily GPI, April 28).
The CEO also was upbeat about a bank financing facility, which is close to being launched. The new facility, to replace one that comes due in February 2005, is expected to lower Dynegy’s interest costs and extend the loan’s maturity.
“We are working with a core group of five banks that want to be part of Dynegy’s future,” Williamson said. The move will give the company “greater flexibility to move the company towards growth,” which he said would come from recovery in the U.S. economy and a “demand for power, which we are starting to see.”
Williamson also alluded to Dynegy’s “looking for opportunities” in the power generation market. Although he did not elaborate, he said during the conference call that there were beginning to be a lot of “industry consolidation opportunities” that Dynegy’s generation unit would be able to handle.
Dynegy affirmed its 2004 forecast,which is expected to show a net loss of 12-to-20 cents/share and for earnings before interest, taxes and depreciation and amortization of $825-$875 million. The company also still expects free cash flow of $430 million to $480 million for 2004. The estimates assume that the IP sale will close.
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