Utility services holding company Exelon Corp. (EXC) on Friday reported an 8% increase in profit for the third quarter from the year-ago period, helped by higher one-time gains and lower operating expenses that offset a 17% decline in revenue amid difficult weather, economic and market conditions. Excluding items, adjusted operating earnings per share for the quarter declined, but matched analysts' consensus estimate. For fiscal year 2009, Exelon reduced the higher end of its adjusted earnings outlook range.
Third-Quarter Results
The Chicago, Illinois-based company's net income for the third quarter increased to $757 million, or $1.14 per share, from $700 million, or $1.06 per share, in the year-ago quarter.
The company, which serves more than 5 million customers, said that GAAP results for the latest period include unrealized gains related to nuclear decommissioning trust or NDT fund investments of $0.13 per share, mark-to-market gains of $0.12 per share primarily from Generation's economic hedging activities and income of $0.05 per share resulting from the reduction in Generation's decommissioning obligations.
The quarter's GAAP results also include costs of $0.02 per share related to the 2007 Illinois electric rate settlement agreement and external costs of $0.01 per share related to Exelon's terminated offer to acquire Exelon's rival NRG Energy Inc. (NRG).
Exelon had terminated its hostile bid to acquire rival NRG Energy, Inc. in July after NRG shareholders re-elected all of the company's board nominees at its annual meeting.
The year-ago quarter's GAAP results included mark-to-market gains of $0.10 per share, income of $0.02 per share resulting from the reduction in Generation's decommissioning obligations, costs of $0.04 per share for the 2007 Illinois electric rate settlement agreement and unrealized losses of $0.09 per share related to NDT fund investments,
Exelon's adjusted operating earnings for the latest quarter declined to $633 million, or $0.96 per share, from $706 million, or $1.07 per share, in the year-ago period. On average, eleven analysts polled by Thomson Reuters expected the company to report earnings of $0.96 per share for the quarter. Analysts' estimates typically exclude special items.
While reporting its financial results for the second quarter in July, Exelon had said it expects adjusted operating earnings for the third quarter in a range of $0.90-$1.00 per share.
The decline in operating earnings was due to lower energy gross margins at Exelon Generation Co. on unfavorable portfolio and market conditions, higher costs at Generation related to higher number of scheduled nuclear refueling outage days and reversal of benefits recorded in the first quarter of 2009 related to an Illinois investment tax credit ruling.
In addition, reduced load at Commonwealth Edison Co. and PECO Energy Co. driven by the impact of unfavorable weather conditions and current economic conditions, and increased depreciation and amortization expense also reduced operating earnings for the quarter.
GAAP operating revenues for the quarter dropped 17% to $4.34 billion from $5.23 billion in the prior year quarter. Adjusted operating revenues also declined 17% to $4.36 billion from $5.27 billion in the prior-year quarter. Analysts' had a consensus revenue estimate for the quarter of $5.36 billion.
John Rowe, chairman and CEO of Exelon, said, "We are achieving our financial commitments despite difficult weather, economic and market conditions. We continue to deliver cost savings and solid operations as shown by a 94.7 percent nuclear capacity factor for the third quarter and reliable utility performance through the critical summer months. We remain committed to achieving full year 2009 operating earnings within the guidance range we issued last fall and are narrowing that range to $4.00 to $4.10 per share."
Peer Performance
Ameren Corp. (AEE) is scheduled to announce its financial results for the third quarter on October 30. Analysts expect the company to report earnings of $0.99 per share for the quarter.
In September, Ameren revealed a voluntary separation election offer to about 350 of the its total 9,870 employees as well as those of its subsidiary companies in response to the current economic conditions. This offer followed earlier announcements of reductions of approximately 140 positions in Ameren Energy Resources Company, LLC, the company's merchant generation business segment.
Meanwhile, Dynegy Inc. (DYN) is slated to release financial results for the third quarter on November 5. Analysts expect the company to report earnings of $0.03 per share for the quarter on revenues of $877.54 million.
Other Metrics
Exelon's operating expenses for the quarter declined to $2.94 billion from $3.82 billion a year ago. Of this, purchased power expenses dropped to $796 million from $1.33 billion in the year-ago period, while fuel expenses declined to $404 million from $718 million in the prior-year quarter.
Operating income for the quarter was $1.40 billion, down from $1.41 billion in the same period last year.
Segmental Results
At Exelon Generation, which consists of owned and contracted electric generating facilities, wholesale energy marketing operations and competitive retail sales operations, net income for the third quarter increased to $657 million from $635 million in the year-ago period. Exelon Generation's average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $36.32 per MWh in the quarter, compared to $36.54 per MWh in the year-ago period.
Generation's nuclear fleet, including its owned output from the Salem Generating Station, produced 35,684 gigawatt-hours, or Gwh, in the latest quarter, down from 36,451 GWh in the year-ago period. The Exelon-operated nuclear plants achieved a 94.7% capacity factor for the quarter compared with 97.2% for the prior-year quarter. Exelon is the largest nuclear power generator in the U.S.
ComEd, consisting of the electricity transmission and distribution operations in northern Illinois, recorded net income for the quarter of $46 million, up from $33 million in the year-ago period. The results for the latest quarter include costs of $2 million after-tax related to the Illinois electric rate settlement, while the year-ago quarter's results include costs of $1 million after-tax. Excluding the impact of these items, ComEd's net income increased $14 million from the year-ago period on higher distribution revenue, lower operating and maintenance expense, and discrete disallowances recorded in 2008, net of allowed regulatory assets, mandated by the September 2008 rate case order.
PECO, which consists of the electricity transmission and distribution operations and the retail natural gas distribution business in southeastern Pennsylvania, reported an increase in net income for the third quarter to $92 million from $90 million a year ago, primarily due to lower uncollectible accounts expense. This was partially offset by reduced load due to current economic conditions and unfavorable weather conditions, and higher CTC amortization in accordance with PECO's 1998 restructuring settlement.
PECO's weather-normalized retail kWh deliveries decreased by 3.9% from the third quarter of 2008, primarily reflecting decreased residential and large commercial and industrial deliveries. Weather had an unfavorable after-tax impact of $9 million on the segment's earnings for the latest quarter relative to 2008, and an unfavorable after-tax impact of $19 million relative to normal weather that was incorporated in earnings guidance.
Prior-Quarter Results
In July, Exelon reported a drop in its profit for the second quarter from the year-ago period, as revenues declined on weak economy and lower demand. Net income for the quarter was $657 million, or $0.99 per share, compared with $748 million, or $1.13 per share, in the previous-year quarter. GAAP operating revenues for the quarter dropped to $4.14 billion from $4.62 billion, and non-GAAP operating revenues, adjusting for the impact of the 2007 Illinois electric rate settlement, declined to $4.17 billion from $4.69 billion in the same period of the prior year.
Year-To-Date Results
For the nine months of fiscal year 2009, Exelon's GAAP net income rose to $2.13 billion, or $3.21 per share, from $2.03 billion, or $3.06 per share, in the previous-year period.
Adjusted net income for the period increased to $2.11 billion, or $3.19 per share, from $2.07 billion, or $3.13 per share, in the year-ago period.
GAAP operating revenues dropped to $13.20 billion from $14.37 billion in the same period last year. Adjusted operating revenues declined to $13.28 billion from $14.56 billion a year ago.
Outlook
For fiscal year 2009, Exelon reduced the higher end of its adjusted earnings outlook. The company now forecasts adjusted earnings in a range of $4.00-$4.10 per share, compared to the prior range of $4.00-$4.30 per share. Analysts expect the company to report earnings of $4.11 per share for the year.
Exelon announced several cost cutting activities in June, including the elimination of about 500 positions. The move came in the wake of the deepening economic crisis, affecting Exelon's business and industry, implying the need for a leaner and efficient organizational structure. These measures are expected to save the company about $350 million in operations and maintenance costs in 2010.
Stock Quotes
In Friday's regular trading session, EXC is trading at $50.26, down $0.58 or 1.14% on a volume of 0.49 million shares. In the past 52 weeks, the stock has been trading in a range of $38.41-$58.98.
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