Energy and telecommunications wholesaler Enron rang up 30% growth in earnings per share from the same quarter last year. Even though the company's broadband initiatives gained the most media exposure, it was significant growth in natural gas transactions that provided the majority of Enron's revenues.
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Perhaps more impressive is Enron's increase in gross revenues, some 75% higher than last year's quarter, though a portion of this increase is due to Enron Broadband Services, which was not operational at this time last year. Still, from a continuing operations basis, Enron's sales grew by more than 70%. Enron is a NOW 50 component company and was identified earlier this month as the best performing NOW 50 company thus far in 2000.
Energy wholesaling business leads the way
So where did the growth come from? The majority of it came from Enron's core energy wholesaling business, which grew by 78% in one year. This represents enormous growth, with natural gas volumes expanding by 40% and electricity by more than 30%. This may be surprising, as the majority of media coverage on Enron seems to focus on its telecommunications and broadband initiatives. In fact, the success of Enron's current quarter does not have much to do with new initiatives at all. Rather, this is a story of staggering volume increases in a supposedly mature industry. Broadband and telecommunications will be central to Enron's future, but they're not yet a big portion of its current revenue base.
Including a one-time sale of dark fiber, Enron's broadband services only provided top- line revenues of $151 million (out of $16 billion). Broadband lost some $8 million for the quarter, but Enron projects it to remain unprofitable until 2003. Mark Palmer, an Enron spokesman, stated that the company is budgeting some $600 million per year in capital expenditures over the next three years to build out the broadband infrastructure. But deals such as the just-inked, 20-year exclusive agreement with Blockbuster (NYSE: BBI) to provide the bandwidth for entertainment-on-demand are potential routes for the division to be a net positive to the bottom line even sooner.
EnronOnline gaining traction
Large companies in the natural gas and electricity businesses just don't show the kind of growth evinced by Enron over the last 12 months. But these results show the traction gained by EnronOnline, the company's commodity trading and customization service. EnronOnline was conceived as part of the transition of Enron from a regulated natural gas provider to an information services company that provides a liquid marketplace for other companies to purchase gas assets that would otherwise be unavailable to them.
Investors in Enron have every reason to be pleased with its earnings report. Enron's stock has appreciated mightily over the last 12 months, more than 63%. This is almost double the speed of its earnings per share appreciation over the same time frame. Investors should know by now that they are buying quality and innovation with Enron. The question is whether they believe that its future potential will bear out paying so dear a price for it. Enron has a tremendous record for execution in the past.
Your Turn:
This is not your grandfather's utility company. Enron has made the transition from a regional gas provider into a "go anywhere" marketer and assembler of commodities. As states continue electricity deregulation initiatives, Enron could see further opportunity to serve. Post your thoughts about Enron's prospects on the Enron discussion board
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