Reflecting what is fast becoming an industry trend, Reliant Resources Inc. late last week reported a slight drop in its third quarter 2001 earnings after seeing lower margins in wholesale energy trading and operating losses in retail and European energy operations. However, the company raised its earnings guidance for the year based on expanded wholesale activity and improvements in retail operations.

The company posted adjusted earnings of $161 million ($0.54 per share) for the quarter, compared to earnings of $163 million for the year-earlier period. Despite the quarter’s fall-off, Reliant said earnings during the nine-month period ending Sept. 30 increased 83% to $447 million ($1.64 per share), compared to adjusted earnings of $244 million for the same period of 2000. Including special items, the company reported earnings for the quarter of $133 million ($0.44 per share), which included an after-tax charge of $28 million ($0.09 per share) related to the company’s communications businesses.

Reliant said the year-to-date increase in earnings was primarily due to strong performance from the wholesale energy segment and reduced interest expenses. “We’ve had a tremendous year and solid third-quarter performance, even when compared to the third quarter of 2000 when unique market conditions and favorable hedging produced exceptional results,” said Steve Letbetter, CEO. “We’re confident this strong performance will continue in the fourth quarter and beyond.”

Its wholesale energy segment was affected negatively as a result of lower natural gas and power unit margins during the quarter. The segment produced third quarter operating income of $266 million, compared to $320 million for the third quarter of 2000. The company added that increased plant operation and maintenance expenses related to western operations, higher legal and regulatory expenses related to western markets, and higher administrative costs to support the company’s growing wholesale commercial activities and operations also contributed to the overall quarter’s decline.

Reliant’s retail energy segment reported an operating loss of $7 million for the quarter, compared to an operating loss of $18 million for the same period in 2000. Increased sales of energy and energy services to commercial and industrial customers from the company’s Reliant Energy Solutions unit were cited as reasons for the improvement. However, the rebound was partially offset by increased staffing, advertising and system costs in preparation for full retail competition in Texas beginning in 2002.

The company’s European energy segment reported an operating loss of $5 million for the quarter, comparing to operating income of $8 million for the same period last year. Reliant attributed the decline primarily to a decrease in gross margins resulting from the start of wholesale competition in the Netherlands on Jan. 1. As announced previously, Reliant said it is still considering strategic alternatives for its European businesses, including a sale.

Looking forward, Letbetter said the company was raising its full-year 2001 forecast. “With expanding commercial activity in our wholesale energy segment plus improved performance from our retail energy segment, we’re raising our 2001 earnings guidance to $1.65 to $1.75 per share,” said Letbetter. “Looking to 2002, we’re confident we will achieve our $2.05 to $2.15 earnings target through continued growth of our wholesale business, accretion from the Orion Power acquisition and contributions from our retail energy segment as the Texas electric market opens to competition.”

©Copyright 2001 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.