Cites Significant Progress on Previously Announced Strategic Initiatives, Provides 2009 and 2010 Guidance
– By Jack Bryar –
Constellation Energy (NYSE:CEG) has reported results for the fourth quarter of 2008 and fiscal year ended Dec. 31, 2008.
Summary Highlights:
* Reported adjusted earnings per share (EPS) of $3.57 and $0.03, respectively, for the full year and fourth quarter 2008; reported GAAP earnings were a loss of $7.34 and $7.75, respectively, for the full year and fourth quarter 2008
* Entered into nuclear joint venture in which EDF Development Inc. will acquire a 49.99 percent interest in Constellation Energy Nuclear Group’s existing nuclear assets
* Curtailed energy trading activities in conjunction with ongoing commodities portfolio de-risking effort
* Announced sale of international coal and freight and downstream gas businesses
* Set 2009 earnings guidance of $2.90 to $3.20 per share and provided 2010 guidance of $3.05 to $3.45 per share
* Announced quarterly dividend equivalent to 96 cents per share annually, reduced from $1.91 per share, resulting in annual cash savings of approximately $190 million
For the full year 2008, adjusted earnings were $3.57 per share, down from adjusted earnings of $4.60 per share for the full year 2007. Adjusted earnings exclude the impact of special items, discontinued operations, certain economic, non-qualifying hedges and synfuel earnings. On a GAAP basis, the company lost $7.34 per share for the full year 2008, compared with earning $4.50 per share in 2007. For 2008, special items primarily reflected expenses of $6.72 per share related to the company’s merger activities and impairment charges of $3.04 per share recorded in the third and fourth quarters related to upstream gas properties, merchant energy segment goodwill and other investments adversely impacted by events in the financial markets.
For the fourth quarter of 2008, adjusted earnings per share was 3 cents, compared with $1.48 per share earned in the same period in 2007. Adjusting for special items and certain economic, non-qualifying hedges totaling $7.78, reported GAAP earnings were a loss of $7.75 per share in the fourth quarter of 2008, compared with $1.42 per share earned in the fourth quarter of 2007.
“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,” said Mayo A. Shattuck III, chairman, president and chief executive officer, Constellation Energy. “To ensure our viability, the company was required in the fall of 2008 to execute rapidly on a series of strategic initiatives, including a proposed merger, to address the adequacy of our balance sheet and significant exposures in our capital-intensive commodities businesses. We moved decisively to protect the company during a time of great stress and preserved the strategic flexibility that allowed us to later enter into a more desirable joint venture with EDF. Unfortunately, these necessary steps came at the expense of significant near-term losses and earnings dilution.
“Reflecting on the events of 2008, we have commenced a comprehensive restructuring that will emphasize our core businesses – owning and operating generation assets, selling energy to wholesale and retail customers, and providing safe and reliable regulated utility service to our Baltimore Gas and Electric customers. The successful restructuring will deliver more predictable earnings and free cash flow, position the company to reduce variability in collateral and liquidity positions, and provide investors with improved transparency.”
Strategic Actions
In December 2008, the company entered into a definitive agreement with EDF, under which EDF’s subsidiary, EDF Development Inc., would acquire 49.99 percent 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 January and February 2009, the company entered definitive agreements to sell its London-based international commodities unit and downstream gas trading platform in Houston and expects to close both transactions by the end of the second quarter. Upon close, it is expected that these transactions will reduce collateral requirements by approximately $1 billion and meaningfully improve liquidity. As of Dec. 31, 2008, the company’s net available liquidity was $2.35 billion.
The company 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.
Earnings Outlook
Constellation Energy set earnings guidance for 2009 at $2.90 to $3.20 per share. The company expects earnings per share in 2010 in the range of $3.05 to $3.45.
“The next 12 to 24 months will be a period of transition that if appropriately executed will help strengthen the company,” said Shattuck. “The EDF joint venture is critical to this transformation and we are working with our partner to close this transaction as quickly as possible.
“We are squarely focused on the execution of our near-term initiatives, which are designed to specifically stabilize our company in this challenging economic environment. When successfully executed, these initiatives position Constellation Energy to invest capital in projects with attractive risk-adjusted returns and build long-term shareholder value,” Shattuck concluded.