Exelon Corporation (EXC - Analyst Report) announced second-quarter 2013 operating earnings of 53 cents per share, down from the year-ago figure of 61 cents. The results also missed the Zacks Consensus Estimate by a penny. However, it was within the earnings guidance range.
The results excluded unrealized losses related to nuclear of 3 cents, constellation merger and integration costs of 2 cents, amortization of commodity contract intangibles of 13 cents and long-lived asset impairment charges of 8 cents. It also excluded mark-to-market impact of economic hedging activities of 30 cents. Including these charges and gains, GAAP loss per share reported by the company was 57 cents versus 33 cents in the year-ago quarter.
The results reflect lower energy margins at Generation, higher operating and maintenance expenses, higher depreciation and amortization expense and the impact of unfavorable weather at ComEd. However, these negatives were partially offset by merger synergies, favorable income taxes and increased distribution revenues at ComEd.
Exelon's total operating revenue for second-quarter 2013 was $5,882 million, reflecting year-over-year decline of 7.8%. The reported quarterly revenues were below the Zacks Consensus Estimate of $6,223 million.
During the quarter, total operating expenses declined 7.0% year over year to $4,972 million, mainly due to decreases in purchase power and fuel expense. However, decline in operating expenses could not offset the decline in revenue, resulting in an operating income of $910 million, down 12% year over year.
Generation: This segment generated net income of $273 million, down 32% year over year. Excluding Salem and the units owned by Constellation Energy Nuclear Group (CENG), the Exelon-operated nuclear plants achieved a 92.8% capacity factor, compared with 93.4% in the year-ago period.
Commonwealth Edison Company (ComEd): The segment’s net income was $96 million, up from $42 million in the year-ago period.
PECO Energy Company (PECO): The segment’s net income declined to $74 million from $81 million reported in the year-ago period, due to higher operating and maintenance expense partially offset by favorable income taxes.
BaltimoreGas and Electric (BGE): The segment generated net income of $23 million, up from $14 million in the year-ago quarter driven by higher electric and gas distribution rates.
The company ended the quarter with cash and cash equivalents of $956 million, down from $1,411 million at the end of 2012. Long-term debt as of Jun 30, 2013 totaled $16,121 million, down from $17,190 million as of Dec 31, 2012.
Exelon's hedging program involves the hedging of commodity risks for expected generation, typically on a ratable basis over a three-year period. The proportion of expected generation hedged as of Jun 30, 2013, is 96%–99% for 2013, 78%–81% for 2014, and 41%– 44% for 2015.
The company is about to take a strategic step after its merger with Constellation in Mar 2012. Over the next nine months, three commercial nuclear power plants operated by the Constellation Energy Nuclear Group (CENG) in New York and Maryland will be operationally integrated into the Exelon Generation nuclear fleet.
CENG was formed as a joint venture between Constellation Energy and EDF in 2009 to hold and oversee operations of the three Constellation nuclear plants. As per the terms of the agreement, the CENG plant operating licenses will be transferred to Exelon. CENG will remain a legal entity governed by a board of directors that comprise five EDF and five Exelon board members. Exelon will continue to own 50.01% stake in CENG, and EDF will own 49.99%. The application for transfer of operating licenses from CENG to Exelon will be submitted to the NRC very soon. Exelon will lend $400 million to CENG to support a special dividend to EDF, and EDF will retain an option to sell its CENG stake to Exelon at fair market value between 2016 and 2022.
Exelon maintained its guidance in the range of $2.35–$2.65 per share for 2013.
Both the parameters failed to meet the Zacks Consensus Estimate. However, going forward, company’s solid utility operations and the initiatives taken to increase production through renewable sources will act as tailwinds for the company. However, we prefer to remain on the sidelines based on the company’s second-quarter performance, increased regulatory landscape and pending rate cases. Exelon Corp. presently carries a Zacks Rank #3 (Hold).
However, stocks to look out for in the sector are IdaCorp, Inc. (IDA - Analyst Report), NiSource Inc. (NI - Analyst Report) and Northwestern Corp. (NWE - Snapshot Report), all of which have a Zacks Rank #2 (Buy).