Earnings reports failed to power energy stocks on Wednesday.

Halliburton ( HAL), the big energy services firm known for its controversial contracts in Iraq, saw its shares slide after the company swung to a first-quarter loss despite a huge surge in revenue. Supermajor ConocoPhillips ( COP) also fell, even though it toppled analyst expectations. And power company Teco Energy ( TE) plummeted after falling well short of consensus estimates because of mild weather and operational setbacks.

However, shrinking Dynegy ( DYN) -- the former trading powerhouse that once rivaled Enron -- provided a spark of excitement in the sector. The company's stock jumped on news of an unexpected quarterly profit instead of a slight loss.

During the latest quarter, Halliburton saw its revenue rocket 80% to $5.5 billion -- topping the consensus estimate by $350 million -- after sales more than doubled at the Kellogg Brown & Root division that's performing work in Iraq. However, a big asbestos charge pushed the company to a $65 million net loss for the quarter. Profits from continuing operations, excluding yet another charge tied to a KBR project in Brazil, topped the 30-cent consensus by a penny.

Yet KBR continues to operate in the red. The unit, hit by special charges on the troubled Brazilian contract, posted first-quarter losses both this year and last. And its most controversial projects continue to generate just razor-thin margins.

"Halliburton's Iraq-related work contributed approximately $2.1 billion in revenues in the first quarter 2004 -- and $32 million in operating income," the company reported on Wednesday.

In an earnings preview issued earlier this week, Merrill Lynch analyst Mark Urness had projected "improving profitability at KBR." He values the unit -- considered worthless by some -- at $4 a share and hopes to see it eventually sold off. Regardless, he recommends buying the parent's shares.

"We continue to see considerable upside for Halliburton's share price, given an improving fundamental environment for its strong energy services franchise," wrote Urness, who has a $35 price target on the company's shares. "Halliburton has consistently been our top pick among large-cap oil service stocks."

The market was less enthusiastic. Halliburton shares slipped 1.3% to $31.25 after Wednesday's quarterly update.

Tripping Up

ConocoPhillips lost its footing as well.

Its stock fell 1.3% to $72.92 despite the company's strong first-quarter performance. The domestic supermajor increased first-quarter revenue by 11% to $30.2 billion. And it posted operating profits of $2.31 a share -- up 25% for a year ago -- that beat the consensus estimate by 32 cents. The company reported profit growth across all of its major units, narrowed its loss in the small emerging business line and trimmed costs at the corporate level.

ConocoPhillips, at least, celebrated the achievements.

"Our first-quarter results have provided a good start to 2004," CEO Jim Mulva stated. "The entire company continues to operate well under favorable market conditions."

Still, ConocoPhillips warned that production would probably fall to lower levels over the next two quarters "due to planned downtime and seasonality." It also said it has no plans to increase its capital investments despite strong market conditions.

Citigroup Smith Barney analyst Doug Leggate warned this week that supermajors -- and ConocoPhillips in particular -- may be nearing a peak.

"As the most highly leveraged to the environment, we believe the first quarter of 2004 looks certain to be a bumper quarter for ConocoPhillips," wrote Leggate, who remains cautious on the supermajors overall. "However, we remain of the view that the shares are fully up with events, leaving the balance of risk on the downside."

Cool Blast

Analysts have taken a generally cool stand on Teco Energy as well.

The highly leveraged utility disappointed investors on Wednesday by posting first-quarter operating profits of $28.7 million, or 15 cents a share, that fell nearly 30% below the consensus estimate. The company saw profits spiral 39% to $23.9 million in its major Tampa Electric utility division. Its gas and transport units also weathered declines.

"We had some challenges this quarter, primarily due to mild weather which impacted our electric utility and some operating setbacks at Teco Transport," explained CEO Robert Fagan. But "we are seeing signs that the stronger U.S. economy will contribute to improved results over the remainder of the year at many of our businesses."

UBS analyst Ronald Barone was already cautious ahead of Teco's update. He did raise his 2004 and 2005 earnings projections for the company, because of the recent sale of some synfuel production assets. But he noted that Teco had slashed its cash-flow guidance for the year. He went on to say that capital expenditures have already been cut to "a bare minimum" and that the company is now relying even more on asset sales to fund the dividend. In general, he fretted over the challenges ahead.

"Our concerns include a weak balance sheet, tight liquidity situation and threat of several potential write-offs," he wrote. "We reiterate our Reduce 2 rating."

Teco's stock tumbled 4.6% to $12.79 -- still above Barone's $12 target -- halfway through Wednesday's session.

Thumbs Up

Dynegy impressed, however.

The former energy trader, which continues to reinvent itself as a much narrower company, posted first-quarter profits of 15 cents a share instead of the 2-cent loss that analysts were expecting. The company still plans to report an operating loss of between 12 cents and 20 cents a share -- below the 22-cent consensus -- for the entire year.

Investors saw reason to celebrate. They pushed shares of Dynegy up 6.1% to $4.18 after the latest quarterly report.

Meanwhile, Dynegy itself applauded both its recent performance and the potential opportunities ahead.

"Dynegy's first quarter was marked by strong operational performances from the company's power generation and natural gas liquids businesses," stated CEO Bruce Williamson. "We also continue to make progress in our self-restructuring initiatives and sharpened our focus on the company's unregulated businesses through the sales of non-strategic assets.

"We believe the company's first-quarter operating performance shows that we are positioned to benefit from economic growth, the anticipated recovery of U.S. power prices and high natural gas prices."

In the meantime, Dynegy this week put one of its old problems behind it. The company reached a settlement to end allegations that it overcharged customers during the California power crisis. It will pay $9.75 million -- its portion of a $22.5 million settlement with West Coast Power -- to wrap up the case.

Credit Lyonnais analyst Gordon Howald this week praised the arrangement -- and the accomplishments by Williamson in general.

"We view this as a key event for Dynegy, as it brings resolution to what many consider the most significant overhang remaining from the California energy crisis," Howald wrote. "We believe that Dynegy CEO Bruce Williamson has effectively scratched off another item from his 'to do' list with the settlement, moving one step closer towards creating shareholder value."

Howald has a buy recommendation and a $6 target price on Dynegy's shares.

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