Exelon (EXC) Beats Q2 Earnings Estimates, Misses Revenues

Exelon Corporation (NYSE:EXC) EXC reported second-quarter 2016 adjusted operating earnings of 65 cents per share, 16.1% above the Zacks Consensus Estimate of 56 cents. Earnings were 10.2% lower than year-ago earnings of 59 cents.

The year-over-year improvement in quarterly earnings was attributable to favorable impacts of regulatory rate increases and higher revenue at Generation under the Reliability Support Services Agreement approved in the second quarter of 2016.

On a GAAP basis, quarterly earnings were 29 cents per share compared with 74 cents per share a year ago. The difference between GAAP and adjusted operating earnings was due to the combined impact of hedging activities, impairment of assets, plant retirements, some other one-time charges and a gain on fund investments combining to a net charge of 36 cents.

Total Revenues

Exelon's total operating revenues of $7,536 million missed the Zacks Consensus Estimate of $7,653 million by 1.5%. However, quarterly revenues increased 15.8% year over year.

Quarterly Highlights

Exelon's total operating expenses increased 13.7% year over year to $6,308 million. The increase in operating expenses was primarily due to higher purchased power and fuel expenses and operating and maintenance expenses.

The company reported an operating income of $1,259 million in the quarter, up 31.2% from $954 million a year ago.

Interest expenses of $376 million were 45.2% higher than the year-ago quarter.

Exelon was serving nearly 3.95 million customers in the second quarter, up 1.5% year over year. Total sales of electricity in the reported quarter were 63,092 gigawatt hrs (GWh) compared with 63,074 GWh in the year-ago quarter.

Financial Position

As of Jun 30, 2016, Exelon's cash and cash equivalents were $1,647 million compared with $6,502 million at the end of 2015.

Long-term debt as of Jun 30, 2016, was $31,541 million, up from $23,645 million as of Dec 31, 2015.

In the first half of 2016, net cash flow from operating activities was $4,553 million compared with $3,969 million in the year-ago period. Exelon's capital expenditure was $4,489 million compared with $3,460 million in second-half 2015.

Hedges

Exelon's hedging program involves 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 Jun 30, 2016, was 97–100% for 2016, 78–81% for 2017, and 47–50% for 2018.

Looking Ahead

Exelon expects third-quarter operating earnings in the range of 65 cents to 75 cents per share. The company maintained its 2016 earnings guidance in the range of $2.40 to $2.70 per share.

Peer Releases

Dominion Resources Inc. D reported second-quarter 2016 operating earnings of 71 cents per share, in line with the Zacks Consensus Estimate.

Duke Energy Corporation DUK reported second-quarter 2016 adjusted earnings of $1.07 per share that came in above the Zacks Consensus Estimate of $1.01 by 5.9%.

NextEra Energy, Inc. NEE reported second-quarter 2016 adjusted earnings of $1.67 per share, outpacing the Zacks Consensus Estimate of $1.58 by 5.7%.

Our View

Exelon was able to surpass earnings expectation in the reported quarter thanks to the solid performance of its operating segments. Also, contributions from the acquired Pepco Holdings assets boosted results.

BGE Electric and Natural Gas Distribution rate case orders that were passed will help the company to earn additional combined revenues of $92 million. The decision to shut down its loss making nuclear plants – Clinton and Quad Cities – in the reported quarter is also a positive development. These factors will help the company to further strengthen its performance going forward.

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