Constellation Energy reports Q4 loss; cuts dividend - Update

(RTTNews) - Electric utility Constellation Energy (CEG | Quote | Chart | News | PowerRating) Wednesday reported a net loss for the fourth quarter, hurt by merger termination costs, impairment losses, as well as lower revenues. Further, the company announced a reduction in quarterly dividend, which is expected to lead to annual cost savings. Looking ahead, the company issued a profit forecast for fiscal 2009, which is above Street estimates.

Constellation entered into a definitive agreement with Electricite de France S.A. (ECIFF.PK) or EDF in December 2008, under which EDF's subsidiary, EDF Development Inc., would acquire 49.99% of Constellation Energy Nuclear Group's existing nuclear assets. The proposed nuclear joint venture transaction remains on track and is expected to close in the third quarter of 2009.

In order to execute this deal, Constellation terminated its merger deal with Warren Buffett's MidAmerican Energy Co. (MDPWK.PK). As per the termination agreement, MidAmerican received $175 million as breakup fee, and Constellation issued 20 million shares or about 9.9% of its outstanding stock to MidAmerican worth $418 million. MidAmerican will also receive a $1 billion note at 14% interest, due December 2009.

The Baltimore, Maryland-based company reported a fourth-quarter net loss of $1.406 billion, compared to net income of $258.1 million in the same quarter last year. On a per-share basis, the company reported a net loss of $7.75, compared to net income of $1.42 per share in the previous year.

Excluding special items and certain economic, non-qualifying hedges totaling $7.78 per share, earnings for the quarter plunged to $0.03 per share from adjusted earnings of $1.48 per share in the same period in 2007. On average, four analysts polled by Thomson Reuters were looking for quarterly earnings of $1.24 per share. Analysts' estimates typically exclude special items.

Baltimore Gas and Electric Co. or BGE segment reported adjusted earnings of $0.23 per share in the quarter, compared to adjusted earnings of $0.17 in the fourth quarter of 2007. BGE's performance in the latest period was positively affected by benefits from the Maryland settlement and lower operating and maintenance costs, partially offset by lower electric distribution revenues due to milder weather and weaker economic conditions, higher bad debt and higher interest expense.

The Merchant Energy segment lost $0.22 per share during the quarter, compared to adjusted earnings of $1.27 per share in the fourth quarter of 2007. The company attributed the segment's poor performance to lower gross margin at Global Commodities, primarily related to unfavorable portfolio management and trading results, unfavorable earnings at Customer Supply, mainly due to lower retail power margins, and higher interest expense, partially offset by favorable Generation gross margin due to the roll-off of below-market hedges.

Total revenues for the quarter declined to $4.926 billion from $5.349 billion reported for the same period last year. The Street expected revenues of $5.87 billion.

The company operates in three segments: Merchant Energy, Regulated Electric, and Regulated Gas. Nonregulated revenues dropped to $3.947 billion from $4.463 billion in the previous-year quarter. Regulated electric revenues grew to $699.2 million from $618.3 million, while Regulated gas revenues advanced to $280.4 million from $268.6 million.

The utility reported a loss from operations of $1.336 billion in the quarter, compared to income from operations of $452.5 million in the prior year period.

Total expenses for the quarter climbed to $6.196 billion from $4.897 billion, primarily due to merger termination and strategic alternatives costs of $1.165 billion and impairment losses and other costs of $264.7 million, which were absent in the previous year. The company also reported a loss on sales of Upstream Gas Assets of $66 million in the just concluded period.

Further, the company said today that it is continuing to reduce the size and risk of its commodities and commercial businesses. Energy trading activities will be scaled back and used primarily to hedge the company's generation assets and customer supply business. The company will further rightsize its commercial businesses to reflect current market conditions and the higher cost of contingent capital required to support these activities.

For the previous quarter, Constellation Energy reported a net loss of $225.7 million or $1.27 per share, compared to a profit of $251.4 million or $1.38 per share in the prior year. On an adjusted basis, earnings were $0.76 per share, down from $1.45 per share a year ago. Total third-quarter revenues dropped to $5.32 billion from $5.86 billion a year ago.

Among others in the industry, Allegheny Energy, Inc. (AYE | Quote | Chart | News | PowerRating) said last week that fourth-quarter GAAP net income plunged to $16.21 million or $0.10 per share from $110.41 million or $0.65 per share for the prior-year quarter. Results for the latest period included after-tax net unrealized loss of $70.9 million related to economic hedges, while the year-ago quarter included $31.8 million of earnings resulting from the Merrill Lynch litigation settlement. Operating revenues for the quarter declined to $707.84 million from $786.32 million in the same quarter last year.

Additionally, Constellation Energy said Wednesday that its board of directors declared a quarterly dividend of $0.24 per share on the company's common stock, payable April 1 to shareholders of record at the close of business on March 10. This amounts to $0.96 per share annually, a reduction from the previous $1.91 per share annual dividend. The dividend reduction is expected to result in annual cash savings of about $190 million.

For the full year, the company reported a net loss of $1.314 billion or $7.34 per share, compared to net income of $821.5 million or $4.50 per share in the prior year. Adjusted earnings were $3.57 per share, down from $4.60 per share for the full year 2007. Total revenues declined to $19.818 billion from $21.193 billion generated in 2007. Analysts expected full year earnings of $4.84 per share on revenues of $20.53 billion.

Cash and cash equivalents at the end of December 31, 2008 was $202.2 million, while it was $1.096 billion as of December 31, 2007.

Commenting on the results, Mayo Shattuck III, chairman, president and chief executive officer of Constellation Energy, said, ''The rapid deterioration of the global credit and financial markets, coupled with one of the most volatile commodities markets in our history, made 2008 an extremely challenging year for our company."

Looking ahead, the company issued 2009 earnings guidance of $2.90-$3.20 per share. Analysts expect earnings for 2009 in the range of $2.12-$3.06 per share with a consensus of $2.83 per share.

The company expects earnings of $3.05-$3.45 per share for 2010.

CEG closed Tuesday's regular trade at $24.27, down 3.46% from the previous close. For the past year, the stock moved in the range of $13.00-$98.86.

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