Jan. 8–Duke Energy Corp.’s endeavor to be a hypergrowth company is over.<\/p>\n
The Charlotte company said Wednesday it’s closing or trying to sell power plants in the Southeast, its assets in Australia and Europe, and its U.S. energy trading unit.<\/p>\n
The company also will continue to pay its $1.10 annual per-share dividend, bucking expectations of a cut.<\/p>\n
The moves bring Duke closer to its nearly 100-year-old roots of slower but steadier growth, and reverse the course of former chief Rick Priory during the late ’90s.<\/p>\n
Duke jumped into the newly deregulated power market selling and trading electricity and gas in such a flurry that its profits soared and it vaulted to No. 14 on the Fortune 500 list in 2001.<\/p>\n
Duke and the industry’s fortunes plummeted after the collapse of Enron Corp. and a sour U.S. economy sapped demand.<\/p>\n
“Gone are the unrealistic growth rates of the past,” Duke’s new Chairman and Chief Executive Paul Anderson wrote in a letter to shareholders Wednesday.<\/p>\n
Anderson, a former Duke executive who recently turned around an Australian mining concern, unveiled the first parts of his plan to reinvigorate the company, nine and a half weeks after taking the helm.<\/p>\n
Duke officials said no layoffs are planned, but anything is possible. The company is one of the region’s top employers, with just under 10,000 in the Charlotte area.<\/p>\n
The decision to keep paying the dividend ran against the suggestions and predictions of many analysts. They had expected for months that Duke would cut the 27.5 cents per-quarter payout to shareholders to free up cash to pay down its $22.5 billion in long-term debt. The company’s debt-laden balance sheet has pushed many credit-rating agencies to downgrade Duke’s debt closer to junk status.<\/p>\n
“The only people that would have benefited from cutting the dividend would have been … the hedge funds and day traders,” Anderson said in an interview. “We’re running this company for long-term investors.”<\/p>\n
The company can still afford the dividend, while putting its finances on more solid footing, in part by selling off $1.5 billion worth of the foreign and Southeastern assets. It will also save on costs by ending those operations. Besides shutting down the Houston-based trading unit, it’s scrapping plans to finish three power plants in the West.<\/p>\n
After paying the dividend, Duke plans to have enough money to pay down as much as $4 billion of debt this year.<\/p>\n
The prices Duke will get for those plants and assets will likely be far less than what it paid. To reflect that, Duke wrote down their values by $3.3 billion on its books. That noncash, pretax charge means the company expects to report a loss per share of between $1.45 and $1.50 for last year. In 2002, the company had a net profit of $1.22 per share.<\/p>\n
Even as Duke suffered in the industry’s downturn, it still turned profits largely through its regulated Duke Power utility and by moving natural gas through its North American pipeline network. Duke Power is the Carolinas’ largest utility, with 2.1 million electricity customers.<\/p>\n
But the unprofitable units have been a drag on the company, which dropped to 118 on the Fortune 500 list in 2002. Last year, Duke sold off more than $1.8 billion in power plants, natural-gas pipelines and other assets around the globe.<\/p>\n
The Southeastern plants will likely be tough to sell, analysts say.<\/p>\n
An oversupply of power in the area means many of the wholesale-power plants that sell power to local utilities aren’t running.<\/p>\n
But Anderson said local utilities or investment firms may be willing to wait the necessary years before demand picks up to meet supply.<\/p>\n
Duke isn’t. Its new philosophy dictates less risk and more certainty in its businesses turning dependable profits.<\/p>\n
With the changes Anderson announced, Duke is looking to its power plants in Latin America, California and the Northeast for future growth.<\/p>\n
Anderson also put his own compensation on the line. He told investors none of Duke’s senior managers will receive bonuses this year if the company does not earn more than $1.10 per share.<\/p>\n
Investors cheered Anderson’s decision, pumping up Duke stock $1.17, or 5.8 percent, to $21.20 Wednesday.<\/p>\n
Retirees and former Duke employees were relieved that Anderson maintained the dividend.<\/p>\n
“The stock has been up and down, but I’ve always been able to depend on those dividends,” said Bill Love, a 73-year-old York resident who retired in 1991 after 33 years with the company.<\/p>\n
“The best thing I ever did was never sell. I had friends who sold theirs, and they’re regretting it now.”<\/p>\n
Analysts said Anderson’s plan is feasible, but he will have to wring further cost savings from the company.<\/p>\n
“They really have to execute on the plan and pay down debt,” said Robert Hornick, an analyst with Fitch Ratings.<\/p>\n
Because it may be difficult to find buyers in such a tough market, Fitch is still closer to downgrading Duke’s credit rating than upgrading it.<\/p>\n
And Duke may have to further shrink its deregulated assets, perhaps some of its natural-gas processing unit, said John Olson, chief market strategist of Houston Energy Partners, an energy hedge fund.<\/p>\n
Olson, a Duke shareholder, said many of the deregulated businesses still aren’t earning their keep.<\/p>\n
“I think this is going to become by necessity a much smaller company,” he said.<\/p>\n
Dan Huntley contributed.<\/p>\n
—–<\/p>\n
To see more of The Charlotte Observer, or to subscribe to the newspaper, go to http:\/\/www.charlotte.com.<\/p>\n
(c) 2004, The Charlotte Observer, N.C. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n
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