Northeast Utilities: Reduction in Buyback Plan Leads to Lower Estimates
10/12/2001 The Wall Street Journal

Northeast Utilities, Berlin, Conn., lowered earnings estimates for 2001 and 2002, as a result of scaling down plans to buy back shares. The electric utility operator projected that it will earn "toward the lower end" of its previously announced range of $1.35 to $1.50 a diluted share in 2001, excluding one-time gains and charges. Analysts had expected it to earn $1.46 this year, according to Thomson Financial/First Call, compared with $1.55 in 2000. For 2002, Northeast said it anticipates earnings of between $1.40 and $1.65 a share. Analysts had expected $1.56. By reducing the buying back of shares, a Northeast spokeswoman said, it will be able to make hundreds of millions of dollars of additional capital investments over the next five years in the electric transmission and natural-gas distribution systems in Connecticut. In 4 p.m. New York Stock Exchange composite trading, Northeast shares dropped 6.8%, or $1.30, to $17.95.

Questions:

1. Is the scaling down of the buyback good or bad?  Explain.  What does the market think?
2. "Northeast Utilities, Berlin, Conn., lowered earnings estimates for 2001 and 2002, as a result of scaling down plans to buy back shares."  Could you infer from this sentence alone that scaling down the buyback is a bad decision?  Explain.
3. Northeast claims that reducing the buy-back would enable it to make additional capital investments.  If so, why did it announce the buyback in a larger scale, before?  Under what circumstances would it be optimal to reduce the buyback?  Which of these circumstances would be viewed positively by the market?