2nd UPDATE: RWE 1Q Net Profit Above Expectations,Backs 09 Goals

German utility RWE AG (RWE.XE), which is targeting Dutch peer Essent NV in a EUR9.3 billion takeover offer, Thursday reported above-expectations first-quarter results and reiterated it expects stable earnings in 2009.

RWE said it still expects earnings before interest, taxes, depreciation and amortization as well as operating profit to come in at the 2008 levels.

Recurrent net profit in 2009 is also expected to match the EUR3.37 billion achieved last year, Essen-based RWE said.

In the company's first-quarter report RWE Chief Executive Juergen Grossmann conceded the economic crisis has reached the utility sector as power demand showed "record declines of 5% and 4%" in the German and U.K. markets.

Still, analysts said RWE appears to be faring better than its main domestic rival E.ON AG (EOAN.XE), which sounded more cautious when it reported first-quarter results Wednesday.

E.ON had said its 2009 earnings guidance is subject to significantly more uncertainty than in previous years as it is difficult to predict the further economic development.

RWE is sounding more optimistic than E.ON with related to its more narrow regional focus, said UniCredit analyst Karin Brinkmann, who rates RWE as hold.

E.ON in recent years entered many markets in southern and eastern Europe that RWE isn't active in.

"But in the economic crisis that expansion has had several negative repercussions on E.ON's business in terms of currency depreciation and the sharp drop in demand from industrial customers," Brinkmann said.

RWE, though, isn't feeling the impact of lower industrial power and gas demand in southern Europe because it isn't active in those markets and also has less exposure to currency depreciation than E.ON, because it is active in fewer non-euro markets, Brinkmann added.

RWE Thursday also reported first-quarter net profit more than doubled to EUR1.75 billion from EUR809 million a year earlier, exceeding the EUR1.37 billion forecast by 16 analysts polled by Dow Jones Newswires.

Recurrent net profit adjusted for non-recurring items, such as last year's impairment charge of more than EUR600 million related to the initial public offering of its U.S.-based water unit American Water Works Co (AWK), came in at EUR1.51 billion from EUR1.42 billion a year earlier, exceeding the EUR1.44 billion forecast by 16 analysts polled by Dow Jones Newswires.

Operating profit rose 4.8% to EUR2.62 billion from EUR2.5 billion. Analysts had forecast EUR2.55 billion.

RWE said operating earnings were driven by exceptionally high profit contributions from its trading business and gas midstream activities of RWE Supply & Trading.

RWE warned, however, the strong performance of the trading business "cannot be extrapolated for the full year".

Analysts said the results demonstrate RWE is currently faring better through the economic crisis than competitor E.ON which reported a 5% fall in operating profit Wednesday.

Still, RWE's result aren't quite as good as they look at first glance, said WestLB analyst Peter Wirtz, who rates RWE as neutral.

Wirtz said the power generation business performed slightly worse than expected due to lower electricity sales volumes reflecting weak demand in the recession.

He added that the RWE Supply & Trading result was boosted by the absence of a non-recurring effect related to the revaluation of gas derivatives used to hedge supply agreements. The revaluation reduced last year's first quarter result by around EUR110 million.

RWE's shares have lost around 25% in value over the past 12 months, outperforming its Dow Jones Euro Stoxx Utilities peer group

At 0748 GMT RWE traded lower EUR0.45 or 0.8% at EUR58.00 in an overall softer market.

Company Web site: www.rwe.com

-By Jan Hromadko, Dow Jones Newswires; [phone]; [e-mail]