FirstEnergy Looking Past Dark Days

FirstEnergy (FE Quote), the utility blamed for America's largest blackout, has offered a dim forecast for the coming year.

Even after factoring in positive developments -- some of them viewed as too sunny -- the company expects to fall short of Wall Street expectations in 2004. The company cited increased costs in its home state of Ohio, together with an unfavorable rate case and equity dilution, for the earnings shortfall. It now expects to deliver full-year profits of $2.70 to $2.85 a share, or at least a nickel shy of the $2.90 consensus estimate.

Yet the market ignored the bad tidings, pushing shares of FirstEnergy up 32 cents to $35.12 in late-morning trading. Buoyed by a surging stock market, the company's stock has now recovered all the ground it lost in the wake of Aug. 14's massive power outage.

At least one Wall Street analyst shrugged off the warning as well. Daniel Ford of Lehman Brothers determined that FirstEnergy's guidance was "roughly in-line with expectations," although he dropped his own earnings forecast by a dime to $2.80 a share to reflect "shortfalls in performance initiatives and cost savings." He also predicted that FirstEnergy's Davis-Besse nuclear plant -- long idled over serious health threats -- will not restart until January. The company itself assumed the plant would restart this month when calculating its 2004 forecast.

Asking Questions

But FirstEnergy last month fielded a federal subpoena that could complicate the situation. Following a long investigation by the Nuclear Regulatory Commission -- whose findings were apparently turned over to the Department of Justice -- federal prosecutors have begun asking FirstEnergy for additional information about a faulty reactor vessel head at the Davis-Besse plant. Reactor coolant, meant to protect against a devastating leak, had eaten nearly all the way through the vessel lid before FirstEnergy detected a problem. The plant has been shut down for nearly two years.

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