Dynegy Inc. (DYN:US), owner of power plants in 10 U.S. states, reported a fourth-quarter net loss of $58 million tied mostly to sale of two power plants to tighten its focus on profitable markets.
The loss was equivalent to 12 cents a share and compared with net income of $298 million or 74 cents a share a year earlier posted when Dynegy sold its natural-gas processing business for $2.45 billion, the Houston-based company said today. Sales fell 36 percent to $397 million as the company sold businesses.
Chief Executive Officer Bruce Williamson, 47, is buying and selling plants to focus on the U.S. West, Northeast and Midwest, regions where power-system planners forecast tighter supply within two years that may result in higher electricity prices. Dynegy expects to close on $2.3 billion of plants purchased from LS Power Group, after a March 29 shareholder vote, expanding capacity 69 percent to become the third-largest U.S. power producer without a regulated electric utility.
``They did a little better than I'd expected,'' said Daniele Seitz, an analyst in New York for Dahlman Rose & Co. who rates the stock ``buy'' and owns none. ``This was a transition year because they managed to get rid of a lot of debt and were still having a lot of write offs. The first year of normal operations will be this year.''
The net loss in 2006 was $333 million, Dynegy reported today. Dynegy affirmed a Dec. 13 forecast for net income this year of $190 million to $255 million. The expectation is $182.2 million, the average of two analysts surveyed (DYN:US) by Bloomberg News.
Costs to cut the value of plants being sold and a ruling that increased prior-year taxes lowered fourth-quarter results by $61 million, Dynegy said. Excluding those expenses and profit from businesses Dynegy is exiting, the per-share loss was about 4 cents a share. The company had been expected to lose 5 cents excluding one-time items and discontinued operations, the average of five analysts surveyed by Bloomberg News.
Seitz had expected a loss of 8 cents on that basis.
Earnings before interest, taxes depreciation and amortization from Dynegy's plants in the U.S. Midwest, its biggest fleet, rose 23 percent in the fourth quarter to $92 million as coal-fired units ran more efficiently and switched to cheaper fuel from western mines, Williamson said in an interview.
Earnings from Northeaster states were $5 million in the fourth quarter, compared with a year-earlier loss of $11 million, as Dynegy got higher prices for the output. Loss on plants in Southern states widened, even when write downs were excluded.
In New York Stock Exchange composite trading Dynegy shares fell 44 cents, or 5.2 percent, to $8.05. The shares (DYN:US) have risen 48 percent over the past year.
Dynegy recorded costs of $23 million for the previously announced sale of a Louisiana power plant to Entergy Corp., that state's largest utility owner. It had $9 million in costs to write down the value of Bluegrass, a Kentucky plant that's up for sale.
After the acquisition of the LS Power plants, 45 percent of Dynegy's generating capacity will be in the U.S. Midwest, 26 percent will be in the West and 22 percent will be in the Northeast. The rest will be in the South, Dynegy previously said.
Williamson is selling plants in regions where Dynegy lacks market clout. In addition to the Kentucky plant, Dynegy may sell its only generators in Texas and Georgia this year, Williamson said today on a conference call with analysts and investors. It intends to keep two Kentucky plants that sell power to Midwest markets, Williamson said today in an interview.
Acquisition of the LS Power operations adds plants and supply contracts in California, where the state energy commission has forecast a 20 percent chance of a power shortage this year. The purchases also bolster Dynegy's existing generating capacity in the Midwest and Mid-Atlantic states.
The acquisition of the LS Power plants will extend Dynegy's operations to 15 states and give it more than 20,000 megawatts of generation, enough to supply 16 million U.S. homes. The transaction is expected to close this quarter.
Dynegy will borrow $275 million from $750 million in bank credit it is arranging, using the money to pay off higher-priced debt at LS Power, Williamson said today.
``We'll be borrowing money at around 6 percent and paying off something that's 9.5 percent.''
(Dynegy's earnings conference call is available at http://www.dynegy.com.
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