Shrinking Feeling Spreads at Dynegy

Revenue drops 23% as new management focuses on a closely watched turnaround.
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Dynegy's

(DYN)

business is shrinking along with its losses.

The former trading powerhouse -- once a big rival of

Enron's

-- reported a slowdown across multiple segments as it narrowed its second-quarter loss. Total revenue spiraled 23% lower to $1.05 billion, as the company reported a $50 million loss from continuing operations. Counting special charges, Dynegy ended the period $290 million in the red. While that's an improvement over the staggering $643 million loss of a year ago, the company has been forced to furiously scale back its operations just to keep afloat.

Gone, of course, is the booming energy trading business that once stood out as Dynegy's flagship operation. That segment, which lost $360 million in the period a year ago, continues to bleed as the company winds it down. The division's second-quarter losses alone, totaling $298 million, exceeded the company's as a whole.

Even Dynegy's regulated business -- now central to the company's future -- showed some weakness. Regulated energy delivery saw profits tumble 38% to $35 million. Dynegy blamed the slump on lower demand and weather-related service interruptions. The company also said year-over-year comparisons are somewhat skewed by new reporting techniques adopted at the first of the year.

Power generation profits fell off even more sharply, plummeting 81% to $16 million. The segment was negatively impacted by an 8% drop in generation due to plant maintenance that has since been completed.

Dynegy's natural gas liquids business enjoyed a strong jump, however. There, profits soared 179% to $39 million -- making the once-minor division Dynegy's most lucrative. Turnaround CEO Bruce Williamson has embraced the company's three profitable divisions as the key components of a smaller -- but safer -- Dynegy.

In the meantime, Williamson said the company is taking steps to secure the financing it needs to fund its recovery.

"The quarter was marked by significant progress in our self-restructuring," he said. "We were also successful in maintaining our strong liquidity position and further reducing collateral -- two of the most significant indicators of our ongoing financial viability -- while announcing a long-term refinancing and restructuring plans."

Investors, warned of the massive losses in advance, seemed cheered. They pushed shares of Dynegy up 4.9%, or 18 cents, to $3.83 in late-morning trading. Although the stock has tumbled 29% from its May 22 high of $5.43, it's still up more than 600% from the record lows of last year.