AES's shares clobbered by earnings warning

AES Corp., one of the world's largest independent power producers, lost about half of its market capitalization by noon Wednesday in heavy trading on the New York Stock Exchange. AES warned investors after the market closed Tuesday 2001 earnings would fall short of analysts' expectations.


by the OGJ Online Staff

HOUSTON, Sept. 26 -- AES Corp., one of the world's largest independent power producers, lost about half of its market capitalization by noon Wednesday in heavy trading on the New York Stock Exchange.

Shares of the Arlington, Va., company plunged to $13/share down 46.4% or $11.25/share from Tuesday's close of $24.25. Shares traded as high as $72 during the past 52 weeks.

AES warned investors after the market closed Tuesday 2001 earnings would fall short of analysts' expectations. AES reduced its 2001 earnings guidance to $1.25-$1.45/share, down from $1.75-$1.90/share.

The lower earnings projections are the result of reduced operating income in US dollars from overseas investments because of weakening local currencies and a sustained and continuing decline in electricity prices in the UK, the company said. Worsening the poor earnings outlook is the inability of the company to replace planned earnings from the partial acquisition of a large coal burning power plant in the southwestern US with earnings from other new businesses.

Acquisition of the Mojave power plant fell through because of regulatory changes in Nevada and California prohibiting the regulated utility owners of Mojave from executing the sale.

The revised earnings guidance doesn't include the impact of write-offs for businesses that aren't expected to recover from the poor global economic conditions and for restructuring associated with the acquisition of Indianapolis Power & Light Co., or IPALCO.

Wednesday analysts downgraded AES stock in droves, resulting in the sell-off of shares. In addition to the negative fundamentals facing the company, analysts said a lack of confidence in management was not helping.

"We believe AES management has lost a significant amount of credibility in the market as a result of the downward revision to its earnings guidance. This will weigh heavily on the company's shares in the future," said Ronald Barone, analyst with UBS Warburg in New York.

Barone said management overstated the impact on earnings of the terrorist attacks.

"It is clear that the impact of the attacks is being overstated in our view. Instead, we believe that AES management downplayed the negative impacts that the rationing program in Brazil, the decline of the real [Brazilian currency unit], and the lower power prices in the UK were having on earnings," he said.

AES has international and domestic interests in 160 generating facilities, a distribution network of 920,000 km, and sells power to 17 million wholesale end use customers. It's retail electricity supply business sells electricity to 154,000 end-use customers.

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