Bloomberg News

Dynegy Profit Falls 63% After Sale of Illinois Power

November 08, 2005

Dynegy Inc., owner of power plants in 12 U.S. states, said third-quarter profit fell 63 percent from a year earlier, when results included earnings from a utility business that has since been sold. Sales rose 15 percent as warmer weather increased demand for power for air conditioning.

Net income fell to $29 million, or 6 cents a share after payment of preferred dividends, from $78 million, or 16 cents, a year earlier, when the Illinois Power unit accounted for more than one-fourth of profit, the Houston-based company said today in a statement. Sales rose to $770 million from $668 million.

Dynegy, whose energy-trading business brought the company close to bankruptcy after Enron's collapse in 2001, sold assets to reduce debt. The shedding of Illinois Power last year and the sale of Dynegy's natural-gas-processing business, completed last week, leaves the company primarily as a power generator. Profit from power generation fell from a year earlier, when Dynegy had a $56 million gain from plant sales.

``Strength was definitely based on generation output,'' Lasan Johong, an analyst at RBC Capital Markets in New York, said in an e-mailed statement.

The company raised its forecast for 2005 net income after payment of preferred dividends to $435 million to $455 million from an Aug. 8 forecast of $400 million to $410 million.

``We were able to raise our forecast because of higher prices and higher sales volumes,'' Chief Executive Bruce Williamson, 46, said in an interview.

Debt is expected to fall to $5.6 billion at year-end, down from $6.4 billion on Sept. 30 and $7.4 billion at the end of 2003, according to a company presentation to analysts and investors during a conference call today.

Shares Rise

Shares of Dynegy rose for a fourth-straight session, gaining 25 cents, or 5.6 percent, to $4.74 in New York Stock Exchange composite trading. The stock, which has risen 14 percent since Nov. 2, has two buy recommendations from analysts, five holds and three sells.

Results in the third quarter of 2004 included $85 million in earnings before interest, taxes, depreciation and amortization, or EBITDA, from Illinois Power, which Dynegy sold to Ameren Corp. on Sept. 30 last year for $475 million in cash and the assumption of $1.8 billion in debt.

On Oct. 31, Dynegy completed the sale of its natural-gas- processing business for $2.445 billion to Targa Resources Inc., a company formed in 2003 by buyout firm Warburg Pincus LLC. Third- quarter earnings EBITDA from that business fell 4.3 percent to $88 million, the company said.

Analyst Estimate

Excluding that income, Dynegy reported a per-share loss from continuing operations of 5 cents. On that basis, Johong said he expected a loss of 4 cents. The analyst rates Dynegy's stock ``sector perform'' and doesn't own any.

Profit in the third quarter of this year included $15 million in legal costs for a settlement by the company's trading business.

Dynegy said it generated 21 percent more power than a year earlier to meet increased demand. EBITDA from power generation fell 20 percent to $177 million from $220 million in the third quarter of 2004, when the company reported a $56 million gain from the sale of stakes in two power plants.

Demand for cooling in Illinois in the third quarter was 91 percent higher than a year earlier, according to the National Oceanic and Atmospheric Administration. Dynegy has its highest concentration of generation in that state.

Higher Prices

Power prices in the Cinergy Corp. region, the most widely traded hub in the U.S. Midwest, almost doubled from a year earlier to an average of $81.24 a megawatt-hour from $43.01 on the Intercontinental Exchange, an electronic energy market.

Dynegy's plants have a generating capacity of about 13,000 megawatts, enough power for 10.4 million average U.S. homes, based on U.S. Energy department estimates.

The company was expected to report a loss of 5 cents a share, based on the average estimate from eight analysts surveyed by Thomson Financial, which declined to provide the parameters used in the survey.

(A replay of Dynegy's conference call on earnings today can be accessed on the company's Web site at http://www.dynegy.com.)

To contact the reporter on this story: Richard Schwartz in New York at rschwartz11@bloomberg.net.

To contact the editor responsible for this story: Robert Dieterich at rdieterich@bloomberg.net.


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