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TECO earnings beating industry

Analysts and investors are pleased earnings are forecast to grow at twice the utility industry's average this year.

By KYLE PARKS

© St. Petersburg Times, published July 21, 2000


TAMPA -- Continuing to outpace the nation's utility industry, TECO Energy Inc. posted sharply higher second-quarter earnings Thursday.

The Tampa-based company had net income of $57.5-million, or 46 cents a share, in the quarter. That was 11 percent higher than the year-ago figures of $51.9-million, or 39 cents a share.

And it was a pleasant surprise to Wall Street: Analysts had forecast 43 cents a share.

"The Street has been waiting for a return to good growth for TECO, and it's looking like this is the year," said Dave Parker, an analyst with Robert W. Baird & Co. in Tampa.

TECO officials expect to grow earnings by 10 percent this year, twice the utility industry's average. And the customer base of its Tampa Electric Co. subsidiary is growing at 3 percent a year, also twice the industry's average.

Investors have noticed. TECO's stock closed at $22.25 a share Thursday, up 56 cents. The stock has gone up 29 percent since mid-March.

TECO is blessed with running a utility in west-central Florida, one of the nation's fastest-growing areas. But analysts say there's more to it.

Chief executive Robert Fagan was hired in May 1999 to pump up earnings growth, and he has made that a focus. "He turned up the heat," said analyst Parker. In the process, Fagan has narrowed the company's business to focus on three goals:

Keep getting new customers for the Tampa Electric and Peoples Gas System subsidiaries. Build power plants in other states to help supply those areas' power needs. And keep growing its transportation business, which ships everything from phosphate to coal to grain.

"We are in a good position to keep growing," Fagan told analysts in a conference call Thursday. "My background is in independent power, and that is a priority."

TECO recently opened a power plant near Masagua, Guatemala, and it's preparing to open new facilities on the island of Hawaii and in Accomack County on Virginia's Eastern Shore. The company had previously talked of more overseas growth for that business, but now it plans to focus on domestic opportunities, figuring it knows U.S. markets the best.

Its shipping business was the only subsidiary to post lower earnings in the second quarter: $6.4-million compared with $6.9-million a year ago. It suffered some fallout from the struggles of the phosphate industry. With that in mind, it wants to increase shipments of other commodities, such as grain.

Overall, TECO had revenues of $559.5-million in the second quarter, 14 percent higher than the year-ago figure of $491.4-million.

TECO officials say they are confident they can deal with eventual deregulation of Florida's utility industry. They figure deregulation would allow them to expand statewide and compete for customers with the state's two biggest utilities: Florida Power, soon to be part of Carolina Power & Light, and Florida Power & Light.

Unlike Florida Power and FP&L, TECO has been a vocal supporter of deregulation. Fagan predicted Thursday that the Florida Legislature will pass deregulation in 2002, with changes being phased in over several years after that.

"It could take as long as two or three years for deregulation to happen after it's passed, and judging from other states, it may be a big yawn," said analyst Parker. "The only customers really able to take advantage of better prices are big business users."

For TECO, the challenge now is to keep its promises to Wall Street. Fagan has told analysts to expect 10 percent earnings growth in 2001, too.

"They have had good strategies before, but now they seem to be executing them well," Parker said.

-- Times researcher Caryn Baird contributed to this report.

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