Enron first quarter results continue earnings growth

Enron Corporation has announced first quarter results marginally better than analysts௿½ expectations, continuing its recent growth trend. The Houston-based company, which is ranked seven on the Fortune 500, is one of the world௿½s leading suppliers of electricity, natural gas and communications services.

The results announced on 17 April showed an increase of 18 per cent in diluted earnings per share to $0.47 for the first quarter 2001 compared with $0.40 a year ago. Enron also announced that it expected recurring annual earnings for 2001 to be in the range of $1.75 to $1.80 per share. This compares with the $1.47 achieved for 2000 which itself was a 25 per cent increase on the preceding year.

Such meteoric growth has made the stock a Wall Street favourite and a refuge for many looking for an ௿½old-economy௿½ alternative to the volatility of the high tech sector. Enron௿½s shares were trading at $61.62 yesterday, a multiple of 42 times trailing earnings. At an analysts briefing held in January the company expressed the view that the stock should be valued at more than twice its current level.

In commenting on this week௿½s figures, Jeff Skilling, Enron௿½s President and CEO stated, “Enron௿½s wholesale business continues to generate outstanding results. Transaction and volume growth are translating into increased profitability.” Commenting on Enron௿½s other two main business sectors Mr. Skilling said, “In addition, our retail energy services and broadband intermediation activities are rapidly accelerating.”

Enron is owed $580m by Pacific Gas and Electric, the Californian utility which declared bankruptcy this month and the figures announced include a provision for this exposure.

Despite Enron௿½s performance, it is subject to criticism from some analysts who find the complexity of the company௿½s activities and lack of information on its operations frustrating. Jeff Skilling is not always sympathetic to these views and during the course of this week௿½s conference call with analysts to discuss the first quarter results he lost his cool with Richard Grubman, Managing Director of Highfields Capital Management in Boston who he unguardedly referred to as an “asshole”.

Enron is reported to be seeking to sell its interest in the Dabhol power project in India. The company has been in dispute with the Maharashtra State Electricity Board (MSEB) over failure to meet contracted payments for power. Criticism has arisen within India of the tariff that has more than doubled since 1993 and is now three times the rate charged by other independent power producers.

The rise is largely attributable to the depreciation of the rupee against the dollar and the high price of naphtha fuel. There is an additional fixed charge of Rs970m ($20.7m) per month payable by the state which now faces a bill of Rs1.6bn for December 2000.

Since the start of 2001, the MSEB has not purchased a single megawatt of power from the Dabhol plant claiming that it was a loss-making and uneconomical proposition. Enron has offered its equity in the Dabhol Power Company along with $500m of non-guaranteed foreign debt to be taken over by the government.

The first quarter results exclude a nonrecurring after-tax gain of $19m, or $0.02 per diluted share, related to the required adoption of new accounting standards. Reported earnings for the first quarter of 2001 were $0.49 per diluted share.

Enron௿½s businesses are reported as Wholesale Services, Retail Energy Services, Transportation and Distribution, and Broadband Services.

Wholesale Services: Income before interest, minority interests and taxes (IBIT) increased 76 per cent to $755m in the recent quarter, marking Wholesale Services௿½ 21st consecutive period of year-over-year quarterly earnings growth.

Retail Energy Services: Enron௿½s Retail Energy Services offers comprehensive energy management products to business customers in North America and Europe. IBIT for the retail business increased to $40m in the first quarter.

Transportation and Distribution: Enron௿½s Transportation Services and Portland General Electric are included in this group. Transportation Services reported $133m of IBIT in the first quarter compared to $128m last year. The business continues to experience strong demand for natural gas pipeline services.

Broadband Services: Enron௿½s Broadband Services reported a $35m IBIT loss for the first quarter.

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