EON Falls Most in 20 Years After Utility Scraps Forecasts

EON AG (EOAN) plunged the most in 20 years after Germany’s largest utility scrapped profit forecasts and said the shift to renewable energy presents “huge challenges.”

The Dusseldorf-based company said today it may have to cut dividends and close power stations because lower electricity prices in Germany are making it difficult for gas-fired plants to make money. EON is reviewing forecasts for the next three years because existing targets are no longer achievable.

“We face huge challenges, particularly in our generation business,” Chief Executive Officer Johannes Teyssen said today in an earnings statement. “We’re further optimizing our conventional generation portfolio and also exploring whether to close some assets.”

Not since “World War II have power sales dropped so far in so short a time span,” Teyssen said on a conference call.

Germany’s shift to renewables has helped cut wholesale power prices 15 percent this year as wind turbines contribute more electricity to the grid. EON has already seen earnings trimmed by Chancellor Angela Merkel’s decision to close all nuclear power plants after last year’s Fukushima disaster.

The shares dropped 12 percent by the close in Frankfurt trading, the most since August 1992. They fell 1.905 euros to 14.64, raising the stock’s loss this year to 12 percent.

EON today reported underlying net income, the profit measure the company uses to calculate its dividend, advanced to 4.04 billion euros ($5.1 billion) in the first nine months from 1.59 billion euros a year earlier. That beat the 3.53 billion- euro average estimate of four analysts compiled by Bloomberg. Sales climbed 21 percent to 93.6 billion euros from a year earlier.

Economic Uncertainty

Underlying net income rose 11 percent to 722 million euros in the third quarter. Sales were up 15 percent to 28.23 billion euros. Both numbers were calculated by subtracting half-year earnings from nine-month results published today.

EON applied impairments of 1.2 billion euros in the third quarter, for example on coal-fired power plants in the Netherlands, wind farms in Spain and for halting the work on its German Staudinger 6 hard coal-fired power plant, Chief Financial Officer Marcus Schenck said on the call.

EON said yesterday its 2013 forecast of 3.2 billion euros to 3.7 billion euros of underlying net income is no longer achievable. The company is considering cutting dividend payments because of the “substantial economic uncertainties and structural changes in the energy industry.”

Its disposal program may exceed the originally targeted 15 billion euros, Teyssen said today on the call.

The company confirmed its outlook for 2012 profit of 4.1 billion to 4.5 billion euros this year.

‘Disastrous Communication’

“I consider the communication as disastrous,” said Thomas Deser, a portfolio manager at Union Investment GmbH responsible for the fund’s 0.71 percent stake in EON, according to data compiled by Bloomberg. “Even for the dividend there is no reliable lower limit. Shareholders don’t play the same important role for EON as bond holders and rating agencies do.”

RWE AG (RWE), Germany’s second-largest utility, reports earnings tomorrow and dropped 1.2 percent in Frankfurt.

“The question is by how much EON will reduce the profit forecast and the dividend for 2013,” Sven Diermeier, an analyst at Independent Research GmbH, said by phone from Frankfurt. Ratings agencies may have to look at the company’s credit profile if EON isn’t able to reduce debt as planned, he said.

Price Decline

German power prices for next year have declined 15 percent this year to 47.10 euros a megawatt-hour, according to data compiled by Bloomberg. “That causes difficulty” for EON, while power from offshore wind farms will continue to increase the offer, Deser said. The increase of wind and solar power “pushes RWE and EON out of the business.”

As Germany takes reactors off line, it’s pledged to meet power demand with more fossil-fuel-fired plants and alternative energy. EON is raising investments in renewable-power generation and wants to expand in Brazil and Turkey.

EON expects to sign a deal “shortly” with grid operator TenneT TSO GmbH to keep gas-fired power plants Staudinger 4 in Hesse and Irsching 3 in Bavaria running, spokesman Guido Knott said on the call with journalists.

To contact the reporter on this story: Tino Andresen in Dusseldorf Offc at tandresen1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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