Progress Energy (PGN) held an analyst meeting on Wednesday, June 15th, and used the lure of attendance at the 1st round of the US Open to draw a captive audience. Unfortunately, PGN missed a terrific opportunity to really show the captive analysts it had a firm handle on its business.
While no one was expecting too much from the company, as it was widely understood the meeting was mainly an excuse to go to the US Open, still, the company did have a chance to impress a large number of analysts present (and many more through the webcasted presentation ... on PGN's website for the next 30 days I think at the following link: PGN Investor Page).
Also, nothing new should have been expected, as the company has had quite a few opportunities in the last few months to talk about its earnings prospects and the risks and opportunities facing it over the next 12-18 months. Fortunately, at least, there were no new negative developments.
So why the disappointment? Because EVERY time a company speaks to analysts it is an opportunity to hammer in the company's message, and to make a good impression. And in this meeting, the company actually gave fewer specifics than in some prior meetings, and were unable to answer some relatively basic questions about some material parts of their businesses.
Still, from a near-term investment perspective, there was no harm done by management ... the stock is still a one-issue stock for the near-term. The only issue that matters in the near-term is the result of the IRS audit of PGN's synfuel facility that is under scrutiny. If the IRS audit is resolved in the company's favor, the stock price will get a significant boost. If the audit is resolved AGAINST the company, the stock price will get hit hard. If a settlement is reached that allows some, but not all, of the tax credit benefits to be retained (even if future benefits are no longer accrued), the stock price is likely to rise at least a little merely from the removal of a key uncertainty.
So, I am sure you want to know how this little drama will play out, eh? No one knows, hence the uncertainty. The IRS field offices in charge of these tax credits have long tried to kill them, but the National office (much more affected by political pressure) has always upheld the legality of the tax credits. This may be the last of these battles, as the credits will no longer be allowed to be booked after 2007 by any company ... though there are billions fo dollars of tax-loss carry-forwards that will be used by many such entitites post 2007 (PGN alone has over $1 billion of these carry-forwards).
What PGN Did Well:
PGN did do several things well, including hosting, and willingly discussing follow-up questions and issues during discussions after the presentation. Also, the company's discussion of its recently executed cost savings initiative was full, detailed, and informative. PGN also did a fine job going through the complexities of the Synfuel structure, and how it effects earnings and cash flow. Also, the CEO made it clear that M&A (especially buying another utility) was not in PGN's near-term future ... that continuing to improve the balance sheet is more important at this stage, and continuing to digest the merger of 4 years ago is still the priority.
What PGN Did Poorly:
PGN did not do a great job sharing any real details about how regulatory issues might have an effect on earnings. Nor did PGN explain how the financial profile of the company (earnings, cash flow or balance sheet) would be affected by its unregulated businesses, the regulatory issues in the prior statement, or its hedging activities (for either the regulated wholesale business, or its unregulated gas business). And in what was undoubtedly an oversight, PGN, though it specifically mentioned 3 times that it was reiterating its 2005 earnings guidance, never actually mentioned what that guidance was.
PGN mainly missed a great opportunity to make its case to investors, regardless of the one great uncertainty of the synfuel audit issues. But it caused no real damage, nor any loss of credibility. The company is still a solid, generally well-managed utility in a reasonably decent growth service area. And the company, barring a total repudiation on its practices at the single synfuel facility under review, is definitely on a path for continued improvement in what has been a weaker than desired balance sheet. It was just a little disappointing not hearing the management show a better handle on its numbers since I KNOW the company's management actually knows them (some companies you cannot be sure they actually know the numbers -- this is not the case with PGN, in my opinion).
I will come back with more on this meeting next week, including a better summary of takeways from the meeting amongst other comments.