Constellation Energy to focus on growing national business

It declares 26 cents dividend, reaffirms 2003 earnings of $2.65 to $2.85 per share

April 26, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Banking on Constellation Energy Group Inc.'s successful turnaround and financial strength over the past year, Chief Executive Officer Mayo A. Shattuck III told shareholders yesterday that the former regional utility is now focusing on a national campaign to market its energy services to consumers across the country.

In the past year, Constellation has opened two major power plants in Texas and California. It also has acquired an energy business with hundreds of large commercial and industrial customers from California to New England and the Midwest to Canada.

With key footholds in deregulated markets nationwide, Constellation now has to build its brand name to compete for customers nationwide, Shattuck said at the company's annual shareholders meeting at the Renaissance Harborplace Hotel.

The national campaign began this year. The $5 million drive will sponsor a professional golf tournament, a billboard at Oriole Park at Camden Yards, National Public Radio programs and advertisements in other states.

"We are no longer a regionally defined company," Shattuck said. "I think the biggest change is that we live and work in a competitive marketplace now. We have a great distribution utility, Baltimore Gas and Electric Co., that is highly regarded and well-performing. But the other 70 percent of the company is national and competitive.

"We never really embarked on any purposeful campaign to get the name out in a marketing sense, especially for our clients who are growing exponentially on a nationwide basis. But we are now in a position in which we have to brand, to compete and win."

Yesterday's meeting was filled with laughter and applause - a noticeable difference from the grim atmosphere of Constellation's last two annual meetings. At the first of those meetings, the company announced its ambitious, but ill-received plan to split into two businesses. At the second, it announced the costly scrapping of that plan.

But unlike many of its peers, Constellation emerged relatively intact from a year marked by scandal and financial turmoil at many top energy companies.

Belt-tightening

To turn things around in his first full year as Constellation's leader, Shattuck trimmed the work force, killed major power plant projects not under construction, sold off non-energy-related businesses and preserved cash and refinanced debt to improve its liquidity.

Those moves, Shattuck said, have helped Constellation become the No. 1 electricity supplier in deregulated markets to commercial and industrial customers, and one of the top 10 energy traders at a time when other utilities are scaling back their energy trading businesses.

This week, Constellation reaffirmed that it expects to earn $2.65 to $2.85 per share for the year.

As part of its national strategy, Constellation is in discussions with various companies to purchase existing plants.

Analysts have been pleased with the results so far.

"We continue to like the [Constellation] story and maintain our `buy' rating," Steven I. Fleishman, an energy analyst at Merrill Lynch Global Securities Research, wrote in a report this week.

"Among the utilities with merchant energy exposure, CEG is one of the few left standing. A strong balance sheet, heavily contracted generation position, a results-oriented management team, and a trading business focused on supplying power to credit-worthy utilities and large industrial customers have allowed CEG to execute on its financials in difficult markets," Fleishman wrote.

Investors shared in that optimism, although many said they would like to see Constellation's $1.04-per-share annual dividend raised. It didn't happen yesterday as the company declared a quarterly dividend of 26 cents a share, or $1.04 on an annual basis.

Constellation has slowly increased the figure since 2000, when it cut the dividend by 71 percent to save money as it prepared to split into two businesses, a regional delivery company that included BGE and a nationwide energy supplier that sold energy in the wholesale market.

`Stupid idea'

"That was a stupid idea," said Jeff Vignale, 47, a Halethorpe resident who inherited 300 shares of Constellation from his father. "I didn't want them to split."

Agreeing with Vignale, Towson investor Gerald Fischbach said he was happy to see the changes.

"I'm glad they sold off the non-profitable businesses," said Fischbach, 60, who owns 3,000 shares. "I wasn't even aware they had a nursing home, but I'm glad they sold it. They were selling appliances and they sold that business, too. They should stick to energy."

And after riding out Constellation's ups and downs over the past few years, Clifford White stood up with relief during the meeting and praised Shattuck.

"I want to thank you for turning this company around," said the Linthicum resident, who owns almost 900 shares.

White, 51, also made a pitch to raise the dividend, adding after the meeting, "If they're making so much money, we're stockholders, they should share some of the profit with us."

Shares of Constellation fell 33 cents to close at $29.42 on the New York Stock Exchange.

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