Constellation expects 435 more layoffs

Cutbacks are part of effort to regain investor confidence

Dividend is doubled

Utility also reports it lost $1.59 a share in fourth quarter

January 31, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Seeking to regain its footing after abandoning its ambitious plan to split into two companies, Constellation Energy Group Inc. said yesterday it expects to lay off about 435 employees, sell its senior living centers and other real estate holdings and terminate several power plant projects in development.

The anticipated layoffs are part of a plan to trim 900 workers - 10 percent of its work force - through a combination of buyouts and terminations. Just how many will be laid off will not be determined until a second round of voluntary early retirement offers closes in mid-February.

Constellation also announced that it would double its annual dividend to 96 cents a share. The company had cut its payout by 71 percent last year in preparation for its planned separation.

The moves are part of a back-to-basics strategy outlined yesterday by Mayo A. Shuttuck III, Constellation's new chief executive, to a conference of analysts in New York.

Constellation's new management team is trying to regain Wall Street's confidence after a tumultuous year marked by its abrupt about-face on splitting up the company, a plunging stock price and its first quarterly loss in two years.

Shattuck said the new focus on building and maintaining a regulated utility, Baltimore Gas and Electric Co., and a wholesale energy generation and trading business reflected the recent upheaval in the power industry.

"We are experiencing the collapse of a speculative bubble," Shattuck said in his debut performance since taking over the reins three months ago.

"It isn't difficult to find evidence of this ... with the collapse of Enron and subsequent ratings agency actions, the expected oversupply in generation capacity, efforts across the industry to cut spending, and finally, a retrenchment in expectations for earnings growth."

"We have made some smart decisions. ... I think Constellation is well positioned to emerge from this period of uncertainty with strong core building blocks for growth.

"We are going to focus on crisp execution and delivering on our commitments. This is our main mantra for 2002."

Shattuck was named chief executive after the company's Oct. 26 surprise announcement that it would not split into two companies and would pay the investment firm Goldman Sachs Group Inc. $355 million to end an advisory relationship.

Coupled with delivering on its fourth-quarter earnings expectations, Shattuck's message scored well with analysts who just two months ago sharply criticized the company for earnings miscalculations, flawed hedging tactics and murky plans for the future.

Analysts said the new management team delivered.

"They did a good job," said Michael Worms, an energy analyst with Gerard Klauer Mattison. "They didn't change their strategy a whole lot from their original strategy. ... They're just going to do it a lot better. They're providing shareholders with a decent return on their investment. Throw in a 3-percent yield on the dividend and you generate a total return of about 13 percent.

"This has expectations of being a better run company with more accountability and just improved operations."

Constellation said its operating earnings of $74.7 million, or 46 cents per share, in the three months that ended Dec. 31 were consistent with forecasts it made in October. That compared with $52.2 million, or 57 cents per share for the corresponding period in 2000.

After special costs of $532.6 million, Constellation posted a net loss of $260.1 million, or $1.59 a share. Those included $224.8 million related to the termination of the Goldman Sachs agreement and a $43.3 million loss on the sale of a Guatemalan power plant.

Another $264.5 million was attributed to costs related to work force reductions, plans to sell real estate holdings and the termination of planned power projects in Texas, California, Florida and Massachusetts.

Revenue for the three months was $901.9 million, down from $1 billion in the 2000 quarter.

For the year, including special costs, net income was $90.9 million, or 57 cents a share. Revenue was flat at $3.9 billion.

Constellation also projected 2002 earnings of $2.65 to $2.75 per share, in line with analysts' expectations.

Chief Financial Officer E. Follin Smith said the projection does not include losses or gains the company is expecting this year.

These include the sale of Orion Power Holdings Inc. stock, accounting costs associated with work-force reductions and a planned 90-day outage for Unit 1 at Calvert Cliffs Nuclear Power Plant to replace steam generators. A similar outage is planned for Unit 2 in 2003.

The company said it expected growth of 10 percent over the next three to five years.

"It looks to me like they are really trying to put out some fires ... and using this quarter to clean up a lot of messes here," said Andre Meade, an energy analyst with Commerzbank Securities. "They were growing in a number of different directions, but this looks like they're cutting their ambitions a bit on power plant construction, rationalizing the businesses they have and giving back more earnings to their investors.

Constellation shares gained 74 cents to close at $27.13 on the New York Stock Exchange - one of the few companies that performed well within the electric group sector yesterday.

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