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has blown another fuse.

Unlike others in the sector -- notably


(CMS) - Get CMS Energy Corporation Report



( TXU) -- Calpine failed to meet Wall Street expectations on Thursday. Instead, the giant power provider zapped investors with news of a surprisingly dark first quarter due to difficult market conditions.


(WMB) - Get Williams Companies, Inc. Report

disappointed as well.

Still, Calpine -- which fell well shy of both revenue and profit estimates -- delivered the biggest miss.

"It's not a good thing to have ugly-looking earnings," conceded Williams Capital analyst Chris Ellinghaus, a Calpine bull who owns the stock himself. "It's hard to say this is a good quarter by any stretch of the imagination."

Ellinghaus seriously doubts that Calpine can now meet the full-year break-even guidance that it, nevertheless, reiterated on Thursday. To be sure, the company is off to a shaky start.

During the first quarter, Calpine's revenue slid 6% to $2.04 billion instead of showing the expansion analysts had expected. The company's quarterly loss jumped 37% to $71.2 million, or 17 cents a share. On an operational basis, the company posted a 20-cent loss that was nearly twice the consensus estimate.

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Warm weather and higher costs cut into Calpine's margins. The company continues to wait for an elusive power market recovery that can bring back its profitability.

"Calpine is trapped in an unusual nightmare where their costs are going up and the demand for their product is not," said Jon Cartwright, director of institutional research at BOSC. "A lot of what has happened to Calpine in the post-


environment has been completely out of their control."

Namely, fuel prices -- particularly the natural gas that powers the company's plants -- have soared. And power demand has, so far, failed to materially improve along with the economy.

Even so, Calpine continues to remain upbeat.

"Calpine turned in another quarter of solid plant performance," stated CEO Peter Cartwright. And the company "remains committed to the competitive power market and to creating long-term value for our customers and investors."

Ellinghaus did note one bright spot in Thursday's results. He pointed out that earnings before interest, taxes, depreciation and amortization grew meaningfully from a year ago. But he also expressed concern about the company's negative cash flow -- totaling $173 million -- and the results overall.

Still, Calpine is in far better shape than it was just one year ago. Back then, investors were fretting so much over the company's liquidity that they paid little mind to quarterly results.

Since then, Cartwright said, Calpine has done a "wonderful job" of reducing debt, controlling costs and cutting back on growth.

"They do not appear to have any reasonable bankruptcy risk," he said. "The market is now waiting for signs that this company can return to being the kind of growth engine it had been" in the past.

But on Thursday, the market was impatient. Disappointed investors pushed shares of Calpine down 8.7% to $3.79 -- just 13 cents shy of a yearly low -- in very heavy trading.

Another Miss

Williams also lost ground after missing Wall Street estimates.

The Tulsa energy company -- once a bankruptcy risk itself -- grew "segment profit" by 10% to $276 million but still mustered an operating profit of just a penny a share. Analysts were looking for an 8-cent operating profit instead.

Still, the company improved on last year's losses. In addition to higher segment profits, lower interest expense -- and "significantly lower" power losses -- helped the bottom line.

"Earnings of 1 cent per share from continuing operations is an improvement," said Fredric E. Russell, a Tulsa money manager with no position in Williams' stock. "But it does suggest that the company still has a long, long way to go."

The market apparently felt the same. Shares of Williams slipped 3.3% to $10.58 halfway through Thursday's session.

But Williams directed investors to focus on the future instead.

"There's a larger financial story for Williams beyond the modest profit we reported for the first quarter," CEO Steve Malcolm said. "The disciplined investments we're making in our natural gas businesses are creating value in the near term and setting the stage for opportunities to deliver substantial shareholder value over the long term."

But asset sales, made to pay down debt, continue to whack away at results. Profits from the company's core natural gas businesses slid 17% to $318 million in the latest quarter. Earnings from gas pipelines dropped slightly to $149 million.

Meanwhile, exploration and production profits fell by nearly two-thirds, tumbling from $113.8 million to $51.5 million. Midstream earnings did inch up slightly to $117.7 million. And power segment losses narrowed dramatically, shrinking from $136 million to $33 million in the recent period.

"Things are much better at Williams than they were a year ago," Russell conceded. "But I don't know if they're good enough to warrant a call home to Mother."

Russell does, however, expect Williams to meet its reiterated 2004 guidance of 17 cents to 40 cents a share.

"I think it's positive that Williams has admitted that the guidance game is dependant on natural gas prices, which can be so unpredictable," he said. "No one is going to make a mistake by issuing that wide a range."

Narrow Target

CMS instead reiterated very specific full-year guidance of 85 cents a share -- 3 cents better than the consensus estimate -- when beating first-quarter profit expectations on Thursday.

The company actually swung to a first-quarter net loss of $11 million due to a big impairment charge on assets it recently sold in Australia. Operating profits also fell from a year ago but, at 44 cents per share, still managed to pass the consensus estimate by 3 cents.

Like others in the sector, CMS highlighted its recent progress and the opportunities that lie ahead.

"Our goal is to become a smaller, stronger company with more predictable earnings," CEO Ken Whipple explained, "and we're making progress toward that goal."

Investors shrugged off Thursday's news, however. Shares of CMS barely budged, slipping 2 cents to $8.52 around noon.

In contrast, TXU rallied after matching earnings estimates and issuing full-year guidance that left room for the company to beat expectations. TXU saw first-quarter operating profits surge 68% to 57 cents a share. And it expects to deliver profits of $2.45 to $2.55 -- compared to the $2.48 consensus -- for the full year.

In the meantime, the company's big TXU Energy division posted strong first-quarter results despite the loss of retail customers in the competitive Texas market. The company, which is currently requesting a hike in its "price to beat," expects to better compete for and retain customers going forward. It also said it is "reviewing all of its hedging strategies and is adjusting its positions and methods" after watching its quarterly hedging revenue decline.

Looking ahead, TXU promised additional progress.

"Over the next year, we will continue to strive to improve our competitiveness and deliver on this potential," CEO John Wilder said. "The

latest results provide a glimpse of the potential of this business."