Exelon Corporation (EXC) announced first-quarter 2011 operating earnings of $1.17 per share versus $1.00 per share in the year-ago quarter. The results of the company surpassed the Zacks Consensus Estimate of $1.06 by 11 cents.
The year-over-year growth in earnings was attributable to new electric and gas distribution rates at PECO effective January 2011, increase in nuclear volume due to fewer nuclear outages and higher realized energy prices in the Mid-Atlantic region due to the expiration of the power purchase agreement.
GAAP earnings of Exelon during the quarter were $1.01, compared with $1.13 in the year-ago period. The difference between operating and GAAP earnings during the quarter was owing to the following one-time items: an impact of 14 cents for mark-to-market losses, 2 cents for the cost associated with the retirement of assets, 4 cent for the cost of Illinois electric rate settlement, while the company gained 4 cents related to nuclear decommissioning trust (NDT) fund investments.
Total Revenue
Exelon’s total operating revenue for first-quarter 2011 was $5.05 billion versus $4.46 billion reported in the year-ago period, reflecting a growth of 13.2%.
Reported quarter revenue surpassed the Zacks Consensus Estimate of $4.95 billion.
Segment Update
Generation: The revenue generation from this segment during the quarter increased 13.1% to $2.73 billion from $2.4 billion in the prior-year quarter. Exelon Generation achieved a nuclear capacity factor of nearly 94.8% in the first quarter of 2011 versus 92.3% in the year-ago quarter.
Generation’s average realized margin on all electric sales, including sales to affiliates and excluding trading activity, was $44.30 per megawatt/hour (MWh) in the quarter, compared with $37.26 per MWh in the prior-year quarter.
Commonwealth Edison Company (ComEd): The revenue generation from this segment during the quarter was $1.46 billion versus $1.41 billion in the year-earlier period, reflecting a growth of 3.6%. In the first quarter of 2011, heating degree-days in the ComEd service territory were up 7.1% versus the same period in 2010 and were 3.9% above normal.
ComEd’s total retail electric deliveries increased 1.2% quarter over quarter due to gains in deliveries to large commercial and industrial customers.
PECO Energy Company (PECO): The revenue generation from this segment during the quarter was $1.15 billion versus $1.45 billion in the prior-year quarter, reflecting a decline of 20.8%. Heating degree-days in the PECO service territory were up 3.9% year over year. Total retail electric deliveries were down 0.6% from last year, primarily reflecting a decrease in deliveries to large commercial and industrial customers.
Operational Update
Total operating expenses during the quarter shot up 12.1% year over year. Steeper expenses were however ameliorated by the top-line growth. Consequently, operating income during the quarter increased by 16.3% to $1.38 billion from $1.2 billion reported in the year-ago quarter.
During the reported quarter the company experienced a year-on-year growth in electrical consumers by 16,615 and at the same time total electric sales increased by 1.2% to 42,367 Gigawatt hour (GWh) from 41,870 GWh in the first quarter 2010.
Interest expenses during the quarter decreased by $2 million to $181 million versus $183 million in the year-ago quarter.
Financial Update
Cash and cash equivalents, at $487 million, were substantially lower than $2,524.0 million at the end of the year-ago quarter.
Capital expenditures for the quarter were $1,150.0 million versus $878.0 million in the first quarter of 2010.
Exelon estimates capital expenditure of $2.3 billion in 2011, which includes utility growth capital expenditure of $450 million. In the current fiscal the company expects to return $1.4 billion cash to its shareholders through payment of dividends.
During the quarter Exelon Corporate, Generation and PECO replaced their unsecured revolving credit facilities with new facilities with aggregate bank commitments of $6.4 billion. The new credit facilities is scheduled to expire on March 23, 2016.
2011 Insights
Exelon expects to generate 165,800 GWh of power assuming that its nuclear plants will achieve an average capacity factor of 93.0% in 2011. Exelon expects Midwest to contribute 99,000 GWh, Mid-Atlantic to generate 56,300 GWh and South & West to contribute 10,500 GWh to total generation in 2011.
The company expects to generate $4.3 billion cash from operations in 2011. Exelon also forecasts the issue of new debts of $1 billion during 2011 and hopes to retire $600 million of debt during the year.
Exelon reiterated its operating earnings for 2011 in a range of $3.90 – $4.20 per share, while the second quarter 2011 earnings per share are pegged in the range of 90 cents to $1.00. The guidance assumes normal weather for the balance of 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 March 31, 2011, is 93% – 96% for 2011, 73% – 76% for 2012 and 38% – 41% for 2013.
Our View
Exelon reported strong results for the quarter beating both our top-line and earnings estimates. The high volumes generated from its nuclear power fleet are a primary contributing factor for the impressive performance.
Given the skepticism rife in nuclear power generation following the accident in the Fukushima Daiichi plant in Japan, the approval by the U.S. Nuclear Regulatory Commission to Generation’s request to increase the generating capacity of both units of the Limerick Generating Station by 16 MW each is testament to the ability of the company to safely increase its nuclear power yield.
We reiterate that the majority of the power generated by Exelon came from its nuclear power fleet, in the reported quarter, with the capacity factor 2.5% higher than the year-earlier level.
Exelon Corporation currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a longer-term Neutral recommendation on Exelon. The company competes with Ameren Corporation (AEE) and PPL Corporation (PPL).
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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