(New throughout with CEO comments, details. Changes dateline, previous TORONTO)
By Jeffrey Jones
CALGARY, Alberta, April 21 (Reuters) - A charge from TransAlta Corp's (TA.TO) sale of its Mexican power plants led to a 41 percent drop in first-quarter profit, masking a bigger-than-expected jump in operating earnings, the Canadian-based electricity generator said on Monday.
TransAlta, which last month won a battle over strategy with a large shareholder, said results were buoyed by a combination of strong plant operations and wide gross margins amid strong power prices in Alberta and the U.S. Pacific Northwest.
Chief Executive Steve Snyder said he expects higher electricity prices in those two regions due to rising demand and stronger natural gas prices.
The Calgary-based company also said it will start a C$75 million ($75 million) efficiency upgrade at its 2,073 megawatt Sundance plant in central Alberta. The project, due to be completed by the end of 2009, will increase capacity by 53 MW.
"Upgrades continue to be among our best-returning projects," Snyder told analysts.
In the quarter, TransAlta earned C$33 million, or 17 Canadian cents a share, down from C$56 million, or 28 Canadian cents, a year earlier.
The result included a C$65 million charge from the $304 million sale of the company's two Mexican power plants, announced earlier this year.
Comparable earnings, excluding one-time items, jumped nearly 77 percent to C$99 million, or 50 Canadian cents a share, up from C$56 million, or 28 Canadian cents.
That beat the average 45 Canadian cent a share profit forecast of analysts polled by Reuters Estimates.
Revenue grew 20 percent to C$803 million.
TransAlta's power plants were operational 91.8 percent of the time, up from a year-earlier 88.2 percent, and overall production increased to 13,226 gigawatt hours, up from 12,697.
TransAlta shares jumped 97 Canadian cents, or 3 percent, to C$34.02 on the Toronto Stock Exchange. They are up 2 percent so far this year.
The company announced the sale of its Mexican operations in February and said it would use the proceeds for share buybacks. That deal came against the backdrop of a proxy battle against 8.9 percent owner Luminus Capital Management LLC, which wanted it to pile on debt for major buybacks.
Luminus pulled out of the proxy fight in March and has since told regulators it could increase its stake in the company to as much as 20 percent.
"From our perspective, it's just a decision that Luminus has made. It doesn't conflict with us at all," Snyder said. "I think the only thing it means is they must think there is a lot of value in our shares."
Earlier this month, TransAlta agreed with France's Alstom (ALSO.PA) to spend C$12 million ($11.9 million) to study the first stage of a carbon capture and storage development for one of its Alberta plants. If it works, a commercial-scale plant could cost as much as C$400 million.
Snyder said such projects will help Alberta province -- Canada's largest greenhouse-gas emitter -- to reach its overall reduction goals more quickly than building nuclear plants, as proposed by Ontario operator Bruce Power.
$1=$1 Canadian Additional reporting by Jonathan Spicer; Editing by Bernadette Baum