In a maelstrom of bullish news, Sempra Energy Thursday not only reported sharply increased third quarter and nine-month earnings results, but also increased its overall profit projections for the year, predicting bigger growth in all three main business units and a reorganization effective next year that will split up its lagging energy services business.
Trading, and merchant energy operations drove up third quarter results almost 10% to $231 million, or 98 cents/diluted share, compared with $211 million, or $1/diluted share in last year’s third quarter. Quarterly revenues topped $2.2 billion, compared to $2.1 billion for the same quarter in 2003.
For the nine months ended Sept. 30, profits shot up 19% with Sempra reporting earnings of $549 million, or $2.36/diluted share, compared with $415 million, or $1.98/diluted share, for the first nine months of 2003. The company noted that earnings per share this year have been impacted by a greater number of shares outstanding.
“These results show that Sempra’s business model is very much on track and should help mitigate some of the recent negative news on the California litigation front,” said Sam Brothwell, a Merrill Lynch analyst, referring to allegations that El Paso and Sempra drove up gas prices at the California border. “We continue to like Sempra’s business model and growth potential.”
The increased results in the non-utility areas compensated for a drop in utility profits for the quarter to $128 million, compared with $173 million for the third quarter last year when one-time profits skewed results. The drop was in San Diego Gas and Electric Co. where earnings fell to $60 million for the quarter, compared with $120 million in last year’s third quarter.
Southern California Gas Co. improved to $68 million from $53 million for the same period last year. SDG&E’s third quarter results last year included a one-time credit of $65 million from the settlement of litigation with the California Public Utilities Commission related to some intermediate-term power-purchase contracts.
Sempra CEO Steve Baum said the strong third-quarter growth reflects the power-generation and energy trading growth, and the year-to-date results put the company “on pace for record results” overall this year. Further, the company’s senior executives have now updated their outlook to project earnings for the full year in the $3.15-$3.25/share range from the previous estimated range of $2.90-$3.10/share.
Trading profits doubled during the third quarter to $44 million, compared to $22 million for the same quarter a year earlier, and Sempra Resources’ merchant operations hit $64 million in third-quarter profits, compared with $33 million for the same quarter in 2003.
Beginning next year, Baum said the company will be reorganized into three basic unit: Utilities, Finance and Global. The latter will encompass all of the company’s non-utility businesses aside from finance. As part of this reorganization, sub-units will change names and the energy services unit, Sempra Energy Solutions, will be dissolved with its units spread between the newly named trading and merchant generation businesses.
Under Sempra Global, there will be four major business units: Commodities (former trading and commodity sales part of Solutions); Generation (including the facility management and energy efficiency parts of Solutions); Pipelines/Storage; and LNG.
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