Consolidated Water shares drop after 1Q tumbles

Shares of Consolidated Water Co. sank in Tuesday trading after the company said its first-quarter income dropped more than 50 percent due in part to a large loss from an investment in the British Virgin Islands.

The stock fell $3.43, or 16 percent, to $18.05 in the morning session.

For the period ended March 31, the Cayman Islands-based company posted profit of $1.7 million, or 12 cents per share, compared with earnings of $3.6 million, or 25 cents per share, in the year-ago period.

Revenue was flat at $12.7 million. Analysts polled by Thomson Financial expected, on average, higher earnings of 25 cents per share on revenue of $14 million.

The drop in income was due in part to a $439,000 loss related to a contract dispute between the government of the British Virgin Islands and an affiliate located there, the company said.

Consolidated Water runs desalination plants and builds water distribution systems in the British Virgin Islands, the Cayman Islands, Belize, Bermuda and the Bahamas.

"Overall, we do not believe our first quarter operating results reflect the outlook for all of 2008," Chief Executive Officer Rick McTaggart said in a release. "The company is currently pursuing prospective seawater desalination projects in a number of countries, and we remain confident in the role Consolidated Water will play as potable water becomes an increasingly scarce resource in the future."

Janney Montgomery Scott analyst Debra G. Coy cut her rating to "Sell" from "Buy," bypassing the "Neutral" rating, after the results.

Coy said she has "gotten dizzy trying to keep track of Consolidated Water's ongoing contract disputes" with the British Virgin Islands.

"Along with management, we have swung between optimism and pessimism about the outcome of the dispute and its potential impact on earnings," Coy said in a note to clients.

Coy cut her 2008 earnings outlook to 57 cents per share from 86 cents per share, well below analysts' 90-cent-per-share expectation.

She slashed her price target to $18 from $25, implying she expects the stock to fall about 16 percent from Monday's $21.48 close.

"A favorable resolution in the British Virgin Islands and success on potential growth ventures could provide significant upside, but we lack visibility on these items for now," Coy said.

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AP Business Writer Ernest Scheyder