Exelon Up On A Down Day

Exelon Corporation (NYSE:EXC), which owns the ComEd utility in Chicago and PECO utility in Pennsylvania, reported fourth quarter earnings for 2008 and provided the markets with some rare positive news on a rough day for the broad exchanges. The numbers exceeded analyst’s expectations with consolidated earnings, in accordance with GAAP, the last quarter coming in at $707 million, or $1.07 per diluted share, compared with earnings of $562 million, or $0.84 per share, in the fourth quarter of 2007. Reuter’s estimates were projecting $1.03 per share. Full year 2008 consolidated earnings prepared in accordance with GAAP were $2,737 million, or $4.13 per diluted share, compared with $2,736 million, or $4.05 per diluted share in 2007.

Inside the Numbers

The earnings surprise this morning was primarily due to higher energy margins at Exelon’s Generation division with increased nuclear output and lower purchased power costs. There were also lower costs associated with plans for a new nuclear plant in Texas and lower interest expense at Generation. These gains however were diminished by decreases in income tax benefits, higher operating and maintenance expense at Generation, and higher depreciation and amortization expenses.

A couple large after-tax items continued to have their effect on Exelon’s bottom line this past quarter with mark-to-market gains of $93 million, or $0.15 per diluted, and an unrealized loss of $68 million, or $0.10 per share, due to the decommissioning trust fund investments for AmerGen nuclear plants.

NRG Bid Continues

With the probable takeover of NRG Energy looming, the potential benefits remain clear for the combined efforts of the two energy giants. The pro forma NRG/Exelon giant would be the largest US power company based on generating capacity with 51,000 MW while attaining the lowest carbon emitting intensity in the industry. With a meeting between NRG shareholders and Exelon scheduled in the next few months, a deal is expected to be finalized during the fourth quarter of 2009 with projected synergies of $1.5-3 billion.

Looking Forward

As market conditions continue to deteriorate around the globe, energy consumption has fallen but upper management at Exelon feel very comfortable with their company’s position as they reaffirmed its guidance for full-year 2009 non-GAAP earnings of $4.00 to $4.30 per share and first quarter 2009 earnings of $1.10 to $1.20. Some things to be concerned with will be continued mark-to-market adjustments, the realization of losses from the AmerGen trust fund investments, any extensive roadblocks with the NRG (NYSE:NRG) takeover, and the volatility of energy demand.

John W. Rowe, Exelon’s chairman and CEO, reiterated,

“Despite the impact of the deteriorating economy, we achieved our 2008 goals of operating excellence in generation and delivery, setting the industry standard for our low-carbon platform and evaluating and pursuing appropriate growth opportunities. We expect 2009 to be a year of many challenges, but we will work to mitigate the impact and are reaffirming our operating earnings guidance range of $4.00 to $4.30 per share.”

Liquidity Position

As companies continue to fight the never-ending pain of liquidity, Exelon has positioned itself as best it could for this credit crisis. After issuing over $2 billion in bonds in 2008 to refinance or repay outstanding debt, Exelon has only $29 million in long-term debt in 2009 with $7.3 billion in bank commitments from a group of 23 different institutions.

Where Next

As the markets continue to buoy between insanity and reality, Exelon has maintained a sane position in this economy and has proven today with its latest earnings release that they are sticking to their marks and positioning themselves for a strong run once this economy turns around. A few doubts still remain with the NRG bid, but barring any unforeseen hurdles in the coming months, anything short of a global collapse should not prevent this deal from going through. Once done, Exelon will be the premiere player in the U.S. and be a contender for the top spot worldwide. As I wrote last fall after their third quarter report, I see great value in this company and would stay aware for a good buying opportunity.

Disclosure: The mutual fund the author is associated with is long EXC.

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