Reliant Resources Inc. reported last Tuesday a net loss of nearly $6 million for the second quarter, blaming a weak wholesale power market, high natural gas prices and an increase in interest expense associated with a major refinancing package. The loss came as the Houston company announced plans to eliminate about 650 employee positions as part of a cost-cutting move. Reliant Resources stock plunged by $1.10 following the release of the company’s gloomy earnings report.
The company also announced that Joel V. Staff was named chairman and CEO. He had held both posts on an interim basis since the resignation of Steve Letbetter in April. Prior to Reliant Resources, Staff had been chairman, president and CEO of National Oilwell Inc.
For the second quarter ended June 30, the Houston power wholesaler and energy service company reported a consolidated net income loss of $5.9 million, or two cents a share, compared to $175.7 million, or 61 cents a share, for the year-earlier period. Year-to-date consolidated losses were $458.3 million, or $1.57 cents a share, compared to a gain of $38.3 million, or 13 cents a share, for the six-month period in 2002. Consolidated results include assets that were either sold or discontinued. Reliant Resources posted income of $21 million from discontinued operations during the quarter.
Consolidated revenues for the second quarter were $2.82 billion, up from $2.18 billion for the same period in 2002.
Reliant recorded an even deeper loss from continuing operations for the second quarter. It saw a loss of $28 million, or nine cents a share, compared to a earnings of $122 million, or 42 cents a share, for the same period in 2002.
The energy company’s earnings-per-share (EPS) performance was considerably below the consensus EPS of 19 cents projected by Wall Street analysts for the quarter, as reported by Thomson First Call. The company’s stock fell 22% to close at $3.88 a share last Tuesday, but it rebounded to $4.10 late in the week.
The Houston energy company revised downward its annual EPS outlook from continuing operations to 10 cents per share due to poor wholesale market conditions and increased interest expense and accelerated amortization of bank fees. An average EPS of 58 cents had been projected for Reliant for 2003.
Reliant announced it will implement a plan during the second half of the year to cut its annual operating expenses by approximately $140 million, with the elimination of employee positions expected to account for more than half of the savings. Of the 650 positions due to be cut, 250 will involve active employees, 300 will include temporary and contract positions, and 100 positions already are vacant and won’t be refilled, said a Reliant spokeswoman.
Reliant pinned its poor quarterly performance on the reduced earnings from its retail segment, weak wholesale earnings and an increase in interest expense and amortization of financing costs associated with its $5.9 billion financing on March 31 of this year. It also said results were “negatively impacted by rising natural gas prices,” but the company noted “we expect to see an offset in the second half of the year from the recently approved increase in our price-to-beat and the hedges we have put in place.”
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