Date posted online: Thursday, May 31, 2007
Sale fails, NiSource flails
Stock drops nearly 8 percent for day
MERRILLVILLE || NiSource Inc. may continue a string of weak earnings through the end of the decade, with the company on Wednesday forecasting 2007 net operating earnings of $1.35 per share.
Company CEO Robert Skaggs Jr. warned analysts on Wednesday that NiSource has "few near-term catalysts for growth" until new projects become fully operational and a wave of rate cases is over.
Annual earnings growth should be in the 2 percent to 5 percent range after that, Skaggs said.The earnings guidance came on the same day NiSource reported on results of its more than one year strategic review, in which it revealed the failure to sell its NIPSCO electric business.
"It's much ado about nothing so far," said Morningstar equities analyst Paul Justice in commenting about the strategic review.
NiSource faces challenges in virtually all its operating units, with little hope of significant improvement any time soon, Justice said.
NiSource stock lost nearly 8 percent of its value on Wednesday's news, to close at $22.07, on heavy trading volume of 7.5 million shares. In the past five days of trading, NiSource's stock price has dropped 11.7 percent. Those losses have wiped out gains made during the past six months on speculation the company would be making big moves in the months ahead.
The company now will rely on its "four point plan" for growth, Skaggs said. That plan includes pursuing growth in the pipeline business, regulatory initiatives, strengthening the balance sheet and finding ways to manage costs and free up capital.
"That plan, while not sexy, is basic blocking and tackling," Skaggs said.
The general consensus of analysts for 2007 earnings was in the $1.50 per share range. There were hopes earnings would improve if NiSource made the right moves after its strategic review.
"It's a little frustrating to have no action and a reduction in earnings outlook on the same day," said Phillip Adams, a senior bond analyst with Gimme Credit, a provider of independent credit research.
Bond holders will be looking to see what arrangements NiSource makes when it goes to borrow $200 million and refinance up to another $400 million in debt later this year, Adams said.
They also will be watching for any changes in NiSource's credit rating, which is just a notch or two above investment grade.
Skaggs sought to assure analysts Wednesday that NiSource will keep its investment grade credit rating, a subject the company had talked with rating agencies about already this week.
The financial health of NiSource is important to customers and its employees in Northern Indiana, because it can influence events at its NIPSCO subsidiary. Critics in the past charged the large debt incurred with NiSource's purchase of Columbia Energy Group seven years ago led to personnel and service cuts at NIPSCO.
On Wednesday, NIPSCO president Mark Maassel told employees in a letter that the company remains committed to the communities it serves. A question-and-answer sheet distributed to employees said company staffing was in line with what was needed and that there were no plans for overall cost costing.
Some analysts on an 8 a.m. conference call aggressively questioned Skaggs, with one reminding him NiSource stock basically "hasn't moved a dime" in the last two years, while some other utility companies have seen strong gains.
Two years ago, NiSource stock regularly trading above $25, a level it only recently regained before slipping badly on the news of the nonsale of NIPSCO and the weak earnings projection.
Skaggs responded that the company realizes it lags in many market indicators. He said that a methodical, disciplined approach to investment and regulatory initiatives should help the company grow.
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