Allegheny's shares tumble to 8-year low

Trading business off

profit estimates reduced

July 10, 2002|By BLOOMBERG NEWS

NEW YORK -Shares of Allegheny Energy Inc. fell 12 percent yesterday to an eight-year low after analysts cut their profit estimates for this year to reflect the U.S. utility owner's shrinking trading business.

The analysts acted a day after Hagerstown-based Allegheny said it was eliminating 600 jobs, about 10 percent of its work force, and canceling $700 million in power-plant projects. The company supplies electricity and natural gas to about 3 million customers in Maryland, Ohio, Pennsylvania, Virginia and West Virginia.

Allegheny paid $490 million for Merrill Lynch & Co.'s energy trading unit in March last year, expecting to boost sales to other utilities and large power users.

Legg Mason Wood Walker Inc., CIBC World Markets and Wachovia Securities cut earnings estimates, and Deutsche Bank Securities downgraded the owner of five Eastern utilities to market perform from buy.

The company said yesterday that its profit will be as low as $2.50 a share this year, down from a previous projection of $3.60 to $3.70.

"No one really believes their earnings numbers for the short term, meaning this year," said Credit Lyonnais analyst Samir Nangia. The forecast doesn't reflect interest expenses or $400 million to $600 million in shares or convertible securities the company might sell, he said. He rates Allegheny buy and doesn't own the stock.

Allegheny shares dropped $2.90 yesterday to close at $21.05 on the New York Stock Exchange. The shares are down 57 percent in the past year.

Companies such as Williams Cos., Dynegy Inc. and Aquila Inc. have reduced profit forecasts and cut jobs as trading activity has dwindled after the collapse of Enron Corp.

During a conference call yesterday afternoon, Allegheny executives failed to assure investors about business shifts, said Timothy O'Brien, who manages $265 million in the Evergreen Utility and Telecommunications Fund, which holds 200,000 Allegheny shares.

"With everybody else cutting forecasts, jobs and trading, it shouldn't have to take until July 9 to come to the realization" Allegheny would have to do the same, O'Brien said. "What I heard was no acknowledgement they got anything wrong. There was not really any change in strategy."

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