RWE Profit Surges on Power Prices, Lack of Tax Burden

By Nicholas Comfort

Nov. 11 (Bloomberg) -- RWE AG, Germany's second-biggest utility, said third-quarter profit rose fivefold after electricity prices doubled and last year's earnings were depressed by a tax charge.

Net income climbed to 1.06 billion euros ($1.35 billion), or 1.97 euros a share, from 202 million euros, or 36 cents, a year earlier, the Essen-based company said today in a statement. That beat the 840 million-euro median estimate of six analysts surveyed by Bloomberg.

Market prices for German electricity in the three months through September averaged twice their year-earlier value as fuel costs increased. The restart of an RWE atomic reactor also cut payments for carbon dioxide emissions and the company added customers, reversing earlier losses. A 256 million-euro tax charge depleted earnings a year earlier.

``It was definitely better than consensus and our estimates,'' said Nicola Porcari, an analyst at Exane BNP Paribas in Paris. ``What was surprising was their guidance.''

RWE expects full-year revenue to advance by more than 10 percent. The company had previously forecast that sales would rise from last year, without specifying by how much, spokeswoman Julia Scharlemann said today by telephone.

Profit Guidance

The utility reiterated that full-year net income will fall ``marginally'' from 2007, after it booked a charge on the sale of American Water Works Co. Recurrent net income, used to calculate the dividend, should gain by more than 10 percent, it said.

Porcari, who rates the stock ``underperform,'' said he needs more information on the outlook for the power division and on the trading unit's performance in the fourth quarter before changing his recommendation. RWE will hold a conference call at 10 a.m. central European time today.

RWE has fallen 29 percent this year in Frankfurt trading, compared with a 36 percent drop for Dusseldorf-based E.ON AG, Germany's biggest utility, which publishes earnings tomorrow.

Third-quarter sales rose 16 percent to 9.47 billion euros, missing the 9.68 billion-euro analyst estimate.

German electricity for next-day delivery sold for an average of 77.28 euros a megawatt-hour in the quarter, more than double the year-earlier price, according to GFI Group Inc. Germany accounts for 58 percent of RWE's sales, according to data compiled by Bloomberg.

Prices Gain

The price of power for German households rose an average 5 percent in the nine months through September, compared with a 13 percent increase for industrial clients, RWE said. Tariffs in the U.K., RWE's second-biggest national market, climbed by about 12 percent in both segments, according to today's statement.

Power generation in the first three quarters gained 8 percent to 168.2 terawatt-hours, led by an increase in atomic and natural-gas generation, the company said. Both of the Biblis nuclear reactors operated in the period, having been off line a year earlier.

German power production from hard coal fell 15 percent to 33.1 terawatt-hours, while U.K. use of the fuel gained 19 percent to 11.9 terawatt-hours, RWE said. Generation from lignite, a soft brown coal, slid 2.3 percent to 55.1 terawatt-hours. When burnt, these fossil fuels give off carbon dioxide, a gas blamed for global warming.

The utility added 6,000 clients across all units and countries in August, compared with a loss of 200,000 in the first half, board member Ulrich Jobs told reporters in September. The company supplied electricity to 6.9 million households and small businesses in Germany as of Sept. 30; that's 190,000 fewer than at the end of last year, RWE said today.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net