- Company will focus on reducing $20 billion debt load
- NRG Energy seeking to reverse 50% share slump this year
NRG Energy Inc., the worst performer in the S&P 500 Utilities Index since January, is working to pay down its $20 billion debt load to appease investors after years of expansion.
The company will allocate as much as $1.6 billion in capital to reduce debt this year and next, and step up cost cuts by an additional $100 million on top of a previous target of $150 million, Chief Executive Officer David Crane said Wednesday during a conference call.
The shift comes after Crane went on a more than $7.4 billion buying spree since 2012 that almost doubled NRG’s generation capacity. Crane is also backtracking on efforts to move the fossil-fuel generator into the clean energy business by splitting off the company’s residential solar and electric-car charging businesses.
Crane said during the call that "it is certainly our hope and expectation" that the spinoff of the renewable business, cost-cutting and use of capital to pay down debt would all "provide a continuous impetus to the recovery of our share price."
Investors agreed, sending shares of the Princeton, New Jersey-based power generator up as much as 7.9 percent, the most since April 24. They closed 4.5 percent higher at $14.08 in New York.
"NRG provided more clarity on how they plan to implement their strategy reset -- backing away from home solar and optimizing the wholesale portfolio, retail energy business, and capital allocation including paying down debt," said Stacy Nemeroff, a utilities analyst for Bloomberg Intelligence.
NRG Energy has lost about half of its market value this year as it faces increasing pressure from investors to develop a plan for investing in renewable energy projects while managing conventional resources such as coal-fired and gas-fired power plants. Crane said in September that the company would spin off its money-losing home solar business, sell fossil-fuel plants and cut costs as part of a reorganization.
At the same time, the biggest U.S. independent power generator has seen electricity prices dragged down by cheap natural gas, which touched a three-year low last month. Gas typically sets the prices in wholesale power markets.
In the third-quarter, NRG was able to weather the low-price environment through hedges that lock in commodity rates and a retail business that benefits from low wholesale electricity supplies. Hedging gains in the Texas competitive power market helped add $33 million to earnings, the company said Wednesday in a statement. NRG’s retail unit posted adjusted profit of $225 million, its best performance since 2010.
Overall, the company’s adjusted earnings before interest, taxes, depreciation and amortization were $1.15 billion. That exceeded the $1.05 billion average from seven analysts’ forecasts compiled by Bloomberg.