NRG Energy Tumbles on Dividend Cut, Texas-Driven Charge

  • CEO Gutierrez sees a `very difficult' commodity cycle
  • Dividend cut is a concern for some investors: analyst

NRG Energy Inc. posted the biggest decline in more than two weeks after the independent power producer cut its dividend and took a $5.1 billion non-cash charge because of low prices in Texas.

Shares of the Princeton, New Jersey-based company fell as much as 8.8 percent, the biggest intraday drop since Feb. 11. NRG was down 3.6 percent at $10.69 at 12:31 p.m.

Mauricio Gutierrez, who took over as chief executive officer in December, said on a conference call Monday his priority is to cut debt and strengthen the balance sheet in “a very difficult commodity cycle.” NRG slashed the annual dividend to 12 cents per share from 58 cents. A revised outlook on power prices in Texas, which pressured NRG’s coal fleet in the state, led to the $5.1 billion one-time non-cash impairment charge.

“The cut in dividend may be a concern for yield investors,” Stacy Nemeroff, a Bloomberg Intelligence analyst, said in an e-mail. “There may also be some concern over their action to take a $5.1 billion impairment, namely on the Texas coal assets. They gave a very negative assessment of the outlook for the Texas power market.”

Many reasons for a higher dividend payout “are not valid anymore,” Gutierrez said in his first conference call as NRG’s top executive. A lower payout reflects the capital-intensive, and cyclical nature of the business, he said.

“I ask that you don’t take our focus on deleveraging in 2016 as an indication that NRG has turned away from returning capital to shareholders.”

Worst Performer

”The current market in Texas has been very disappointing,” Gutierrez said. “If the market continues to be at these levels, it will not be possible to sustain the operation of some of these assets. There’s going to be a supply rationalization in the immediate term, and we should see a recalibration of the market.”

NRG, the worst performer in the Standard & Poor’s 500 utilities index in the past year, dismissed long-time CEO David Crane after the company’s shares tumbled 56 percent last year and investors grew impatient with its money-losing home solar business. Crane announced a turnaround plan in September to spin off the green energy businesses and sell fossil-fuel plants.

The renewable business will be integrated back into the company and will no longer be referred to as the GreenCo unit.

NRG affirmed that it expects to generate $3 billion to $3.2 billion in earnings before interest, taxes, depreciation and amortization this year, up from $3.34 billion in 2015. In the fourth quarter, adjusted earnings came in at $625 million, exceeding the $602.8 million average of eight analysts’ estimates compiled by Bloomberg.

The company will also make its capital structure simpler after shareholders said it’s spending too much on non-core businesses, Gutierrez said.

“We plan to be transparent in our capital allocation, and there should be no head-scratching when it comes to how we deploy capital,” he said.

(An earlier version of this story corrected the spelling of the CEO in a deck headline.)

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