Confident in the pliability of their wildly successful businessmodel that has transformed the energy industry, Enron needed nodog-and-pony show as executives trotted out forecasts during aninvestor’s conference last week. In the space of a few hours, theHouston-based giant’s executives stressed one point again andagain: they fully expect to remain the leader in every field theyenter into the foreseeable future.
Chairman (and still CEO) Ken Lay opened the day-long conferenceThursday relaxed and ready to expound on how Enron will sustain itssuccess. He and COO (and soon to be CEO) Jeffrey Skilling said thecompany’s “increasingly strong business prospects” for this yearhave 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 earningsforecasts for Enron for the past several years, offered evidencefor future growth in each of its divisions, which include wholesaletrading and marketing, retail services, transportation andpipelines and its emerging broadband services market. Based onsteady, sustainable growth, which he said has come from Enron’sflexible business model,
Among other things, Enron executives evidenced their belief in aswelling forecast for this year because of the following reasons:
– Enron’s further strengthening of its long-standing lead in theNorth American wholesale energy market, significant expansion ofits European wholesale energy business, and an extension of Enron’sbusiness model into new, large markets.
– Significant growth prospects in Enron’s retail energybusiness, including increases in expected total contracting fromrecord 2000 levels of $16.1 billion to an estimated $30 billion in2001.
– Substantial completion of Enron’s low-cost, flexible andscaleable broadband network, expanded product offerings and anexpected eight-fold increase in 2001 deliveries of bandwidth fromstrong 2000 levels; and
— Continued steady performance by Enron’s interstate gaspipelines.
Skilling predicted that 2001 would see even stronger growth —no matter how the economy performs or whatever happens inCalifornia. When Enron released its fourth quarter earningsstatement early last week, Skilling told analysts then thatCalifornia’s power crisis had no effect on Enron’s latest earningsand would have little effect on the earnings impact for this year.Enron does not own generation assets in the state, but marketselectricity there, with its profits coming from merchant activitiesit chooses to conduct.
Skilling said “nothing can happen in California that wouldjeopardize” its earnings performance,” which analysts of FirstCall/Thomson Financial estimate to be between $1.65 to $1.70 in2001. “We do not expect the California situation to have anysignificant effect on Enron’s financial outlook, specifically ourability to hit 2001 targets,” Skilling said.
What did impact fourth quarter earnings was a 77% decline in netincome on charges related to Azurix Corp., its water companyspinoff. However, Enron’s operations profits still beat earningsestimates because commodity sales and services tripled during theperiod. Earnings from operations rose 34%, to $347 million, or 41cents a share, from $259 million or 31 cents a share a yearearlier. First Call/Thomson Financial had estimated earnings of 35cents a share.
Revenues rose 271% to $40.8 billion. Its net income, however,for the fourth quarter was $60 million, or five cents per dilutedshare, due to the Azurix charges, compared with earnings of $259million, 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 mostof the earnings’ spotlight, with revenue jumping to $40.8 billionfrom $11 billion a year earlier. Power trading in Europe alonequadruped during the quarter, and sales of electricity tripled to23 MM MWh, up from 6.6 MM MWh a year earlier.
Its retail energy business jumped nearly five times, with anincrease to $33 million, and Enron Energy Services saw a 73%increase in the fourth quarter, with total contracts of $4.5billion. Enron Broadband Services reported a $32 million loss onrevenue of $63 million, with losses resulting from building the newfiber optics business.
Already North America’s largest buyer and seller of electricityand natural gas, Skilling said emerging businesses also areexpected to swamp any competition. Its emerging broadband servicesshould see a huge growth in the next two years, he said. Along withthat, Enron’s energy management services sector is doing betterevery day, with strong growth predicted in that new market as well.
Referring to the phenomenal growth of EnronOnline, Skilling saidthe online trader had no actual competition because its daily salesare so much stronger and affect so many more markets than any otherenergy trader. As of Wednesday, EnronOnline had conducted 615,000transactions or about 3,000 a day.
Carolyn Davis, Houston
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