) in the first quarter of 2012 reported an adjusted loss of 71
cents per share beating the Zacks Consensus Estimate of a loss of
91 cents. The upside came from high capacity generation which
offset a sharp decline in revenues. Earlier, the company had
incurred a loss of 59 cents in the prior-year period. Including
one-time items, Dynegy's first quarter net loss was 47 cents per
share compared with a net loss of 64 cents in first quarter
In the reported quarter, Dynegy generated revenue of $177
million that missed both the Zacks Consensus Estimate of $426
million and the year-ago figure of $505 million.
Dynegy digested an operating loss of $21 million compared with
an operating loss of $49 million for the same period in 2011. These
results included pre-tax, unrealized, net mark-to-market gains of
$30 million and $3 million during the quarters ending March 31,
2012 and 2011, respectively.
In the reported quarter adjusted earnings were $24 million
compared with $87 million for the same period in 2011. The steep
year-over-year decline was due to lower energy margin and capacity
revenues, influenced by lower market prices and gas and power basis
premium differentials. This was partially offset by lower operating
and general and administrative expenses.
Overall, in the reported period, net loss totaled $58 million
compared with a net loss of $77 million for the first quarter
Operating loss was $7 million compared with a loss of $32
million in the year-ago quarter. In the reported quarter, adjusted
earnings came in at $13 million compared with $65 million during
the same period in 2011. A 22% decline in average realized prices
reflecting declining natural gas prices, coupled with an 8%
weather-driven decrease in generation volumes, perpetrated the
decrease in adjusted earnings.
Operating income was $19 million compared with first quarter
2011 operating income of $13 million. Adjusted earnings totaled $25
million during the first quarter 2012 compared with $27 million
during the same period in 2011. In the reported period generation
volumes more than doubled compared to the year-ago period. The
increase in adjusted earnings was due to favorable spark spreads.
This was partially offset by lower gas and power basis premium
differentials associated with weak demand in the Northeast. In the
reported quarter, operating expenses fell by $7 million compared to
last year as expenses associated with a two-month outage at Casco
Bay during 2011 did not recur in 2012.
DynegyNortheast Generation, LLC (DNE)
Operating loss of $15 million was in line with the loss incurred
in the year-ago quarter. Adjusted loss totaled $15 million during
the first quarter 2012 compared with loss of $5 million during the
same period in 2011. A 42% decline in average New York Zone power
prices resulted in DNE plants to be uneconomical for a significant
portion of the quarter, leading to an 82% decline in generation
volumes and a 95% decrease in gross margin. An additional $3
million of the quarter-over-quarter decrease in adjusted earnings
is attributable to lower capacity revenues.
As of May 4, 2012, Dynegy had total liquidity of $983 million,
comprising $726 million in unrestricted cash and cash equivalents,
$17 million in letter of credit availability and $240 million in
restricted cash available for collateral posting purposes.
In the reported quarter cash used in operations was $20 million,
as compared to cash flow from operations for the first quarter of
2011 of $83 million. The decrease is primarily due to
deconsolidation, lower margins at the Coal segment due to an
approximate 22% decrease in realized prices, and higher cash
outflows related to restructuring efforts.
During the first quarter of 2012, capital expenditures totaled
$23 million, including $3 million in maintenance capital
expenditures and $20 million in environmental capital expenditures.
During the first quarter of 2011, capital expenditures totaled $66
million, with $25 million in maintenance capital expenditures and
$41 million in environmental capital expenditures.
Houston-based Dynegy Inc., through its subsidiaries, provides
wholesale power, capacity and ancillary services to various groups
of customers in six states in the Midwest, the Northeast and the
West Coast. Its diversified nature provides arbitrage opportunities
in terms of regional differences in power prices and weather-driven
Dynegy Inc. has a geographically disparate customer base and
diversified power generation portfolio which would lead to an
upside in margins. Going forward, the performance of the company
will improve only through increases in power prices, drops in
reserve-capacity margins and improvement in wholesale electricity
demand. However, the tepid pace of the U.S. economic recovery keeps
us on the sidelines about whether the company will be able to
generate the requisite cash flow for its needs.
Earlier, in November 2011, Dynegy filed for bankruptcy
protection. In December, the company filed a proposed Plan of
restructuring for the unit with the U.S. Bankruptcy Court for the
Southern District of New York. Later, on May 1, 2012, the company
and certain creditors of the company entered into a Settlement
Agreement and a Plan Support Agreement. The Settlement Agreement
was filed with and is subject to bankruptcy court approval. The
Plan Support Agreement envisions a significantly stronger balance
sheet for the company upon completion of the restructuring. The
company will have reduced debt and lease obligations by over $4
billion and expects net debt at completion of the restructuring to
be approximately $600 million. A hearing on the Settlement
Agreement has been scheduled for June 1, 2012. The Plan Support
Agreement contemplates the filing of a revised Plan and Disclosure
Statement by May 30, 2012 and the completion of the restructuring
by September 28, 2012.
Separately Dynegy also initiated a cost and performance
improvement initiative known as PRIDE (Producing Results through
Innovation by Dynegy Employees) during 2011. During the first
quarter 2012, Dynegy recovered $8 million in incremental operating
margin and cost improvements and $64 million in incremental
liquidity from balance sheet improvements due to PRIDE initiatives.
Total PRIDE related contributions for 2012 are expected to include
margin and cost improvements of $39 million and balance sheet
improvements of $100 million which will result in a total of $109
million in margin and cost improvements and $476 million in balance
sheet improvements since the PRIDE program inception. Dynegy will
continue to use the PRIDE initiative to improve operating
performance, cost structure and balance sheet and to drive
recurring cash flow benefits.
Currently, we retain a short-term Zacks #3 Rank (Hold) on the
company. Presently we have a long-term Neutral recommendation on
the stock. In the near term we would advise investors to focus on
its Zacks #2 Rank (Buy) peers like
National Grid Plc
OGE Energy Corporation
DYNEGY INC (DYN): Free Stock Analysis Report
NATL GRID -ADR (NGG): Free Stock Analysis
OGE ENERGY CORP (OGE): Free Stock Analysis
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