Exelon Tops, Looks Into 2011 - Analyst Blog

Exelon Corporation (EXC) announced fourth-quarter 2010 operating earnings of 96 cents per share compared with 92 cents per share in the year-ago quarter. The results of the company surpassed the Zacks Consensus Estimate of 91 cents by 5 cents.

GAAP earnings of Exelon during the quarter were 79 cents, compared with 88 cents in the year-ago period.

The difference between operating and GAAP earnings was owing to the following one-time items: an impact of 17 cents for mark-to-market losses, 3 cents for the cost associated with the retirement of assets, 1 cent for the cost of Illinois electric rate settlement, and 1 cent for the external cost of acquisition.

The company gained 4 cents related to nuclear decommissioning trust (NDT) fund investments and 1 cent for decrease in cost relating to asset retirements.

Exelon's operating earnings of 2010 were $4.06 per share compared with $4.12 per share reported in 2009. The results of the company outpaced the Zacks Consensus Estimate, provided by 19 covering analysts, by 6 cents.

Total Revenue

Exelon's total operating revenue for fourth-quarter 2010 was $4.5 billion versus $4.1 billion reported in the year-ago period reflecting a growth of 8.5%.

Reported quarter revenue missed the Zacks Consensus Estimate of $4.7 billion marginally by $0.2 billion.

Exelon's total operating revenue for 2010 was $18.7 billion versus $17.4 billion reported in the prior fiscal year, reflecting a growth of 7.1%.

Fiscal year 2010 revenue scraped past the Zacks Consensus Estimate of $18.6 billion.

Quarterly Highlights

Though total revenue grew 8.5% during the quarter, operating expenses, as a percentage of total revenue, also saw a marginal rise year over year. Consequently, operating income rose a more modest 3%.

Interest expenses during the quarter decreased by $7 million to $183 million versus $176 million in the year-ago quarter.

Segment Update

Generation: Exelon Generation achieved a nuclear capacity factor of nearly 93.1% in the fourth quarter of 2010 versus 89.8% in the year-ago quarter. Generation's average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $41.45 per megawatt/hour (MWh) in the quarter, compared with $38.36 per MWh in the prior-year quarter.

Commonwealth Edison Company (ComEd): In the fourth quarter of 2010, heating degree-days in the ComEd service territory were up 1.2% versus the same period in 2009 and were 0.6% above normal. ComEd's total retail electric deliveries increased 0.6% quarter over quarter due to gains in deliveries to large commercial and industrial customers.

PECO Energy Company (PECO): Heating degree-days in the PECO service territory were up 7.6% year over year and were 3.2% above normal. Total retail electric deliveries were up 1.4% from last year, reflecting an increase in deliveries to residential and large commercial and industrial customers. On the retail gas side, deliveries in the fourth quarter of 2010 were 11.7% higher than the year-ago level, mainly due to cold weather conditions.

Annual Highlights

The rise in total revenue for the fiscal year was more than offset by escalating operating expenses that increased at a higher trajectory compared to revenue, resulting in a slip in operating income by 3.5% year over year.

Exelon-operated nuclear plants achieved an average capacity factor of 93.9% in 2010 versus 93.6% in 2009.

Interest expenses of the company at the end of the year were $714 million versus $719 million at the end of 2009. The interest level of the company is expected to go higher in 2011 as Exelon issued debts during 2010 to acquire new assets.

The year also saw Exelon foraying into the wind power generation business via acquisition of wind assets from Deere & Company (DE) for $900 million. The initial value of the acquisition was $860 million, while Exelon will pay another $40 million to Deere when the construction work begins in some approved projects.

2011 Insights

Exelon expects to generate 165,900 gigawatts (GWh) of power assuming that its nuclear plants will achieve an average capacity factor of 93.0% in 2011.

The company expects to generate $4.3 billion from cash from operations in 2011. Exelon expects to issue new debts of $1 billion during 2011 and retire $600 million in debt during the year.

The capital expenditure of the company in 2011 is expected to be $2.3 billion, which includes utility growth capital expenditure of $450 million. In 2011 the company expects to return $1.4 billion cash to its shareholders through payment of dividend.

Exelon guided operating earnings for 2011 in a range of $3.90 – $4.20 per share, while the first quarter 2011 earnings per share are pegged in the range of $1.00- $1.20. The guidance assumes normal weather for the balance of the year.

Hedges

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 December 31, 2010, is 90% – 93% for 2011, 67% – 70% for 2012 and 32% – 35% for 2013.

Our View

We appreciate Exelon's endeavors, during 2010, to make investments worth $5 billion in different cost-effective and clean energy projects to reduce carbon emissions. The capital outlay, spanning the years 2010 and 2015, will result in new material and equipment orders, engineering and construction contracts, and professional and technical service agreements.

Exelon Corporation currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a longer-term Neutral recommendation on Exelon.

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.

 
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