Dynegy Inc. (DYN) reported a first quarter adjusted loss of 40 cents per share, a penny more than the Zacks Consensus Estimate. Results also came below the year-ago quarterly earnings of 13 cents per share.
Dynegy’s first quarter 2011 results marked its fourth consecutive quarter of loss. The company’s net adjusted loss in the quarter was $47.8 million, which excluded an after-tax mark-to-market gain of $1.8 million and an increase in depreciation and amortization expense of $31 million. Including these one-time items, Dynegy’s first quarter net loss was $77 million or 64 cents per share.
Operational Results
In the first quarter, Dynegy on the revenue front witnessed a dip of 41% year over year to $505 million, and also fell short of the Zacks Consensus Estimate of $536 million.
Adjusted earnings before interest, tax and depreciation and amortization (EBITDA) for the first quarter was $87 million, compared to $152 million for the year-ago comparable period. The decline in EBITDA is attributable to the lower EBITDA earned at the company’s Power Generation segment together with loss before interest, tax and depreciation and amortization posted at the Other segment.
Adjusted EBITDA from Dynegy’s Power Generation segment, which comprises three sub-segments, was $114 million for the first quarter 2011, compared to $185 million for the first quarter 2010. This stemmed from a 25% decrease in Midwest EBITDA, 92% decline in West EBITDA and a 17% decrease in Northeast EBITDA.
The decline in EBITDA at the sub-segments was driven by decreased contributions from financial transactions due to lower value received from hedging activity, which more than offset the increased contributions from physical transactions due to improved spark spreads and fewer planned outages.
In the Other segment, Dynegy reported a $27 million adjusted loss before interest, taxes and depreciation and amortization during the first quarter 2011, compared to an adjusted loss before interest, taxes and depreciation and amortization of $33 million during the first quarter 2010.
As a result of lower EBITDA in the quarter and increased depreciation and amortization and general and administrative expenses, Dynegy posted an operating loss of $49 million compared to an operating income of $331 million in the year-ago quarter.
Dynegy’s interest expense totaled $89 million for both the first quarter 2011 and the first quarter 2010. The income tax benefit was $60 million for the first quarter 2011, compared to an income tax expense of $65 million for the first quarter 2010. The income tax benefit in the first quarter 2011 primarily resulted from the net loss during the period.
Financial Condition
As of March 31, 2011, Dynegy had a total liquidity of $1.4 billion, comprising about $400 million in cash on hand and short-term investments and $1 billion of unused funds under the company's credit facility.
As of May 2, 2011, Dynegy’s liquidity declined to $1.2 billion, with about $250 million in cash on hand and short-term investments and $930 million available under its credit facility, primarily due to an increase in the posting of letters of credit and the payment of scheduled debt obligations.
During the quarter, Dynegy generated $100 million of adjusted cash flow from operations, with about $34 million of adjusted free cash flow at quarter-end.
Outlook
Dynegy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock. The near-term cautious stance is shared by its peers like Edison International (EIX) and Duke Energy Corp. (DUK).
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