Kansas City, Mo. Westar Energy Inc. said Friday its first-quarter profits fell 28 percent and widely missed Wall Street expectations as higher expenses and lower sales volume offset rate increases.
The Topeka, Kan.-based utility also said that the struggling economy and poor equity markets were forcing it to cut planned spending for energy generation, environmental upgrades and other capital projects in 2010 and 2011 by $500 million.
"The weakness in the economy has not required us to change our strategy," Chief Financial Officer Mark Ruelle told analysts in a conference call. "It has, however, convinced us that we need to adjust our speed of execution."
Still, the company said it was sticking with a full-year expected earnings of between $1.65 and $1.90 per share, excluding one-time items. Analysts surveyed by Thomson Reuters predict $1.75 per share earnings during the year.
Shares gained 11 cents to close at $18.10 in trading Friday.
Westar reported earning $44 million, or 40 cents per share, during the three months ending March 31. By comparison, Westar earned $61 million, or 62 cents per share, during the same period a year ago.
Not including one-time tax benefits, the company said it would have earned 10 cents per share, far below the 21 cents expected by analysts.
Revenue rose 3.7 percent to $422 million, which was above analysts' expectations of $420 million.
The company said retail sales rose 8 percent, as higher prices offset a decline in volume. But wholesale energy sales fell 17 percent on lower prices and slightly higher sales.
Operating expenses were up 5 percent on higher costs for depreciation on new wind and natural gas-powered plants and additional pension expenses.
The capital expense cuts will reduce spending in 2010 by $367 million and $134 million in 2011.
Bruce Burns, director of Westar's investor relations, said some of the projects affected by the cuts, such as transmission lines between Hutchinson and Salina and pollution-cutting measures at some plants, eventually will be built.
Other projects, such as building a 200-megawatt wind farm, will be shelved. Instead, Burns said, Westar plans to buy energy capacity from a third-party wind farm operator to fulfill the company's state obligation to generate more of its electricity from renewable resources and be cheaper for shareholders.
"We still have some latitude in the schedule to move these projects going forward," he said.
While Westar plans to ask Kansas regulators in the next month for a rate increase of $15 million to $20 million to cover the company's investments in an Emporia power plant and existing wind farms, Burns said the reduction in future spending should make rate increases in the near future unnecessary.
Westar also said Friday that the Federal Energy Regulatory Commission told the company Thursday that it had preliminarily concluded that Westar had violated federal regulations and received $14.3 million in unjust profits between July 2006 and February 2008.
The company said it didn't agree with the commission's total and is evaluating the agency's findings.