PNM Resources swings to loss in 1Q on charges, outages
ALBUQUERQUE, N.M.—Shares of PNM Resources Inc. tumbled Wednesday, after the utility said it swung to a first-quarter loss on numerous speculative trading charges as well as facility outages.
Results widely missed Wall Street expectations, and shares fell $1.18, or 8.1 percent, to $13.45 in midday trading.
For the three months ended March 31 the company lost $48.6 million, or 63 cents per share, compared with a profit in the year-earlier period of $29.7 million, or 38 cents per share.
Excluding one-time changes in the value of certain financial instruments to reflect current market conditions, the effect of "speculative trading" and impairments, the company said it earned an adjusted 5 cents per share.
Analysts polled by Thomson Financial expected, on average, much higher earnings per share of 16 cents. Such estimates typically exclude one-time charges and gains.
Revenue fell to $364.5 million from $437 million, widely missing analysts' estimate of $599.7 million. PNM said planned and forced outages contributed to lower revenue.
Lehman Brothers analyst Daniel Ford said in a client note that the earnings decline stemmed largely from outages at PNM Electric, the company's New Mexico utility, but also from higher operating costs without rate relief and higher generation and purchased-power costs.
Ford also said lower usage, milder weather and shifts in customer mix challenged the utility's First Choice Power unit, a competitive retail electric provider in Texas.
Meanwhile, Standard & Poor's downgraded the company's debt rating to "BB-" from "BB+" with a "Stable" outlook just ahead of PNM's announced plans to remarket $350 million worth of senior notes. Both designations are non-investment grade.
And Wachovia analyst Samuel Brothwell lowered his rating on PNM share to "Underperform" from "Market Perform," noting that PNM indicated that it has exited all speculative trading activities, and is in the process of liquidating remaining positions.
"The fact that PNM -- given all of its other troubles -- was still engaged in speculative activity in Q1 comes as a surprise, and brings up whether further losses may yet hit an already weak balance sheet," he wrote in a note to investors.
Brothwell said PNM may be forced to move or close down FirstChoice, either action would eat away at earnings. And with further credit pressure and a likely lower earnings profile, he thinks PNM will have to seriously consider a cut to its dividend.
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