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Despite its new captain,

El Paso

( EP) remains stuck in awfully familiar waters.

The Houston-based energy giant has now missed Wall Street earnings estimates for more than a year straight. The company, currently led by former


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executive Doug Foshee, blamed asset impairments for a big third-quarter loss -- totaling $146 million -- that more than doubled the red ink spilled a year ago. But even excluding special items, the company failed to muster the 2-cent profit analysts had predicted and instead posted a third-quarter operating loss of a penny a share.

Asset sales and reduced production activity -- necessitated by the company's heavy debt load -- took a clear toll on third-quarter results.

"Exploration and production results, primarily on lower production of natural gas and higher expenses, were disappointing," Credit Suisse First Boston analyst Curt Launer noted early Monday. "The decline in production appears to have been caused primarily by asset sales."

Launer, known for his cheery views on El Paso -- a CSFB banking client -- nevertheless expressed overall satisfaction with the quarter and maintained his outperform rating on the stock.

But the market was not impressed. Following Monday's update, which included a reduction in full-year guidance, shares of El Paso tumbled 2.9% to $6.99 in heavy morning trading. The company is now expecting 2003 earnings to fall at the low end of its previous range of 15 cents to 45 cents a share, or about 12 cents shy of consensus estimates.

From there, however, Foshee took a definite look on the bright side.

"My first two months at El Paso confirm my belief that, while we have significant challenges still ahead, our people and our core assets will allow us to restore the long-term earnings power of the company and restore our balance sheet," Foshee stated.

For now, El Paso is clearly focused on the latter. The company celebrated balance sheet improvements -- particularly debt reduction and increased liquidity -- instead of earnings in the latest quarter. But then, profit gains were pretty tough to find.

Only the company's small field services unit showed improvement in the quarter. There, third-quarter earnings before interest and taxes came in at $33 million, reversing a year-ago loss triggered by a $47 million impairment charge.

"Third-quarter 2003 EBIT, after adjusting for significant items, was lower than 2002 levels, primarily due to the loss of earnings from divestitures," the company acknowledged.

Asset sales cut into production results as well. The big El Paso unit posted third-quarter EBIT of $103 million -- down 42% from a year ago -- due in part to a 32% decline in production that resulted from the sale of proved reserves. El Paso has also scaled back costly investments in the division as it attempts to preserve its cash.

"Unfortunately, a good quarter in the pipeline and midstream areas was offset by disappointing results in E&P, as we continue to rationalize this business," Foshee explained.

But even El Paso's pipeline division -- which ranks as the company's largest unit -- showed a fall-off from last year. Excluding special items, the pipeline group posted third-quarter EBIT of $278 million that was down 8% from a year ago. Mild weather, which lowered throughput during the period, was partly to blame.

Meanwhile, El Paso's merchant energy unit continues to drag down overall results. The division, hit by $91 million in impairment charges, posted a third-quarter EBIT loss of $37 million that was nevertheless an improvement over last year. Excluding special items, in fact, the unit managed to generate $135 million in EBIT during the period.

But the segment's trading division continued to weather losses. There, third-quarter EBIT fell $73 million into the red, eating away at merchant results despite a major year-over-year improvement. Still, the company stressed that it has made "significant progress" toward exiting this money-losing business.

In the meantime, another energy merchant posted surprisingly strong results.

Reliant Resources


reported ongoing earnings of 74 cents a share that topped Wall Street estimates by 72%. The company said both of its core businesses, but particularly its retail segment, showed strength in the latest quarter.

"Our retail business performed exceptionally well, and our wholesale business turned in a solid performance in spite of continued weak market conditions," Reliant CEO Joel Staff said.

Investors promptly celebrated, sending Reliant shares rocketing 7.5% to $5.62 in Monday morning trading.

Still, Reliant's overall results were far from impressive. A $985 million impairment charge pushed the company to a third-quarter loss of $791 million, or $2.69 a share, reversing a year-ago profit. And even without the big charge, third-quarter results were not necessarily as rosy as they first appeared.

Reliant's retail division posted third-quarter EBIT of $371 million that was 54% higher than a year ago. The company pointed first to increased margins from power sales when explaining the improvement, but a second item -- the absence of an $89 million charge taken last year -- actually changed the results more.

The scenario in Reliant's wholesale division was similar. Excluding two special charges, totaling more than $1 billion, the segment posted third-quarter EBIT of $146 million that was $55 million higher than a year earlier. But again, the absences of 2002 charges -- totaling $52 million -- accounted for most of that improvement.

Meanwhile, Reliant's interest expenses continued to climb. The company, which completed a huge refinancing package earlier this year, paid $154 million in third-quarter interest, or 66% more than it did a year ago. The company blamed "higher levels of borrowing

and higher interest rates" for part of the surge.

In the meantime, Reliant said it will maintain its 2003 profit forecast of 10 cents a share. Thomson First Call shows analysts expecting ongoing profits of 17 cents, or 7 cents more than the company has pledged.