Posted on: Tuesday, February 8, 2005

Oil costs weaken HEI Q4 earnings

By Deborah Adamson
Advertiser Staff Writer

After a two-week delay, Hawaiian Electric Industries released its fourth-quarter earnings report yesterday, showing a 33 percent drop in profits as higher oil prices took their toll.

The parent of Hawaiian Electric Co. and American Savings Bank earned $24.8 million, or 31 cents a share, compared with $37.4 million, or 49 cents, in the same period a year ago.

Revenue was $518.4 million compared with $454.2 million.

For the year, the company had a net income of $109.7 million, or $1.38 a share, compared with $114.2 million, or $1.52 in 2003. But excluding a $20.3 million charge related to the settlement of a state franchise tax dispute and a $1.9 million gain from discontinued operations, profits would have been $128.1 million or $1.61 a share in 2004.

Revenue came to $1.92 billion in 2004 versus $1.8 billion the year before.

HEI delayed its earnings report after discovering that it had "overamortized" the net premiums of American Savings Banks' mortgage-backed securities.

"I am happy to report that this issue has been resolved and resulted in an increase of $1.5 million in 2004 net income," said Robert Clarke, HEI chairman, president and chief executive, in a statement. The delay "does not represent a material weakness in internal controls over financial reporting at the bank."

Wall Street analysts had not fretted about the delay, in part since error contributed to profits instead of diminishing them. Moreover, HEI was not asked by the Securities and Exchange Commission to make the change.

In spite of an upward revision in earnings, HEI still fell short of Wall Street's expectations. Excluding one-time items, the company earned $1.61 for the year. The Street was expecting $1.72, according to Thomson Financial. For the fourth quarter, the consensus estimate was 42 cents. HEI came in with 31 cents.

In the quarter, HECO's expenses soared by 27 percent to $392.2 million. Most of the increase came from fuel oil costs — up 52 percent to $143 million — as well as a 12 percent increase in the cost to purchase power from other power producers.

"Oil prices peaked in October," said Suzy Hollinger, HEI manager of investor relations.

She said HECO and its utility subsidiaries use a byproduct of oil that is affected by prices of crude. In the quarter, crude oil averaged $49.33 per barrel compared with $34.72 a year ago.

While operating revenue rose to $422.8 million compared with $353.2 million in the quarter, HECO's earnings still took a hit overall: $13.2 million compared with $22.3 million in 2003.

HECO had 2.55 billion in kilowatt-hour sales, up from 2.51 billion in the year-ago quarter.

American Savings Bank, however, showed improved profits. It earned $16.7 million in the quarter versus $14 million a year ago. Net interest income rose to $50.4 million from $48.3 million while other income totaled $14.6 million, up from $12.4 million.

Shares of HEI fell 23 cents to $29.53 yesterday. Earnings came out after the market's close.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.