Electric utility Exelon Corporation (EXC - Analyst Report) released its fourth quarter results with earnings per share of 64 cents, falling short of the Zacks Consensus Estimate by a penny. Earnings were also lower than the year-ago figure of 82 cents by 21.9%
The decline in quarterly earnings was mainly due to lower energy margins at the Generation segment, higher operating and maintenance expense, increase in average diluted common shares as a result of the merger and higher depreciation & amortization expenses.
GAAP earnings during the fourth quarter were 44 cents per share versus 91 cents reported in the year-ago quarter. The difference between GAAP and operating earnings was due to charges of 5 cents related to divestiture, 5 cents for merger integration, 24 cents for amortization of commodity contract intangibles and 1 cent for Midwest bankruptcy charges. The one-time gains included 14 cents from hedging activities and 1 cent from asset retirement.
2012 operating earnings were $2.85 per share, substantially lower than the year-ago figure of $4.16 per share and also short of the Zacks Consensus Estimate by 2 cents. GAAP earnings for 2012 were $1.42 per share versus $3.75 reported in the year-ago quarter.
Exelon’s total operating revenue for fourth-quarter 2012 was $6.44 billion, reflecting year-over-year growth of 48.4%. Reported quarter revenue missed the Zacks Consensus Estimate of $9.1 billion.
2012 revenue of the company was $24.7 billion, up 29.9% from $18.99 billion reported in 2011. However, the results lagged the Zacks Consensus Estimate by 4.8%.
Highlights of the Release
During the quarter the company generated 34,882 gigawatt-hours (GWh) of electricity more or less in line with 34,893 GWh generated in fourth quarter 2011.
The company has put more emphasis on renewable sources for the generation of electricity and is gradually idling its fossil fuel based units. In Dec 2012 the company decided to construct four wind based units having a combined generation capacity of 273 megawatts (MW). In the same month Exelon decided to sell its three Maryland fossil fuel power plants, having a generation capacity of 2,648 MW, to Raven Power Holdings LLC.
Total operating expenses in the fourth quarter increased sharply by 66.1% to $5.5 billion from $3.3 billion a year ago. The increase was largely due to an 87.8% increase in purchase power and fuel, and 47.1% increase in operating and maintenance costs.
The rise in operating expenses during the reported quarter impacted the operating income of the company. Operating income in the reported quarter declined 5.3% year over year to $974 million.
Fourth Quarter Segment Update
Generation: Operating revenue increased 55.4% year over year to $3.92 billion from $2.52 billion a year ago. Net income dropped 26.8% year over year to $283 million.
Exelon Generation achieved a nuclear capacity factor of 93.0% in the fourth quarter of 2012, in line with the year-ago quarter. Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $26.52 per megawatt/hour (MWh) in the quarter, compared with $39.31 per MWh in the prior-year quarter.
Commonwealth Edison Company (ComEd): Operating revenue decreased 5.4% year over year to $1.29 billion. Net income increased 33.9% to $161 million.
In the quarter, heating degree-days in the ComEd service territory were up 10.8% versus the same period in 2011, but it was 11.5% below normal. Total retail electric deliveries increased 0.4% sequentially.
PECO Energy Company (PECO): Operating revenue increased 1.5% year over year to $790 million. Net income increased 9.5% to $81 million.
During the reported quarter, heating degree-days in the PECO service territory were up 13.8% from the same period in 2011 and were 9.0% below normal. On the retail gas side, deliveries in the fourth quarter of 2012 were up 12.4% from the year-ago period.
BaltimoreGas and Electric (BGE): Operating revenue totaled $703 million in the fourth quarter and a net income clocked $18 million.
Others: Net income from the “Other” category was $3 million. Others includes eliminating and consolidating adjustments, Exelon's corporate operations, shared service entities and other financing and investment activities.
Cash and cash equivalents as of Dec 31, 2012 were $1,486 million versus $1,016 million at the end of 2011.
Long-term debt as of Dec 31, 2012 totaled $18.34 billion versus $12.2 billion at year-end 2011.
Cash from operating activities in 2012 was $6,132 million versus $4,853 million in the comparable period last year.
Capital expenditure in 2012 increased to $5,789 million from $4,042 million in the comparable year-ago period.
Exelon expects its first quarter 2013 earnings in the range of 60 cents to 70 cents. Exelon Corporation expects its 2013 earnings in the range of $2.35 to $2.65 per share. The guidance assumes normal weather conditions in 2013.
Exelon expects to generate 218,000 GWh of power assuming that its nuclear plants will achieve an average capacity factor of 93.5% in 2013.
The company expects cash from operations in 2013 to be nearly $6 billion and also forecasts the issue of new debts of $0.85 billion during 2013. It hopes to retire $1.4 billion of debt during the year.
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 Dec 31, 2012, is 94% – 97% for 2013, 62% – 65% for 2014, and 27% – 30% for 2015.
Pike Electric Corporation (PIKE - Snapshot Report) reported earnings of 67 cents per share in the second quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 25 cents.
The company missed our projection primarily due to higher operating expenses. The sluggish pace of economic recovery in the U.S. continues to impact the long-term plans of Exelon. We nevertheless appreciate the initiatives undertaken by Exelon to enhance its renewable generation fleet.
Exelon Corporation currently retains a Zacks Rank #3 (Hold). We prefer electric utilities Ameren Corporation (AEE - Analyst Report) and TransAlta Corporation (TAC - Snapshot Report). Both these companies carry a Zacks Rank #1 and are yet to announce their fourth quarter results.
Based in Chicago, Illinois, Exelon Corporation, a utility services holding company, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers. With a market capitalization of $26.47 billion, the company has 19,267 full time employees.