Research

Exelon: The President’s Utility Continues To Deliver Excuses Instead Of Performance

In our August 13th report evaluating Exelon’s Q2 2012 performance, we were amused at the alliterative alphabet soup of adjustments (EXC’s Q2 2012 adjustment letter footnotes” went up to “J”) in Exelon’s Q2 2012 results. Despite the fact that Natural Gas Prices have skyrocketed from $1.89/MCF in April to $3.70 as of November 1st, Exelon served up another steaming hot bowl of alphabet soup adjustment excuses to investors with regards to its financial performance. We find it interesting that not only has Exelon’s Q3 2012 adjusted EPS declined by 31.25% year-over-year, but that 54.5% of Exelon’s adjusted EPS is lost to its recurring bout of “non-recurring charges”.

As far back as May, the company’s consensus estimates for Exelon’s FY 2012 and FY 2013 EPS were $3.01 and $3.03 respectively. This represented a 20% decline versus 2011 EPS, which have stagnated since 2007. At the June 7th Investor Day meeting, Exelon announced that the company couldn’t even meet those low bar targets. Exelon announced that 2012 adjusted operating EPS was $2.55-$2.85. Because natural gas prices have skyrocketed by nearly 100% over the last six months, Exelon was able to recently increase its full year adjusted EPS guidance to $2.75-$2.95 as well as generate adjusted EPS of $.77 for Q3 2012 that beat analyst expectations by $.05. We are shocked that natural gas prices have skyrocketed by nearly 100% since bottoming out in April even though the US is facing another potential recession, fracking has served as a game-changer for gas production and natural gas production had increased by 6.8% year-to-date versus prior year levels. The reason why we believe that fracking is an important game-changer in the energy industry in general and the natural gas segment in particular is because natural gas production has increased by 6.8% even though the number of natural gas drilling rigs has dropped by 55% year-over-year.

We are glad that Exelon’s Cover Slide did not include the words “Performance that Drives Progress” in its financial presentation supplement documents since we see a company with a long and proud track record of underperformance and its 2012 adjusted EPS is regressing back to 2004 levels. Exelon did this in Q1 2012 and followed it up in Q2 2012 by declaring “Another quarter of solid financial and operating performance”.

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