Constellation Energy Group Inc. said yesterday that it had a first-quarter loss because of a $198.4 million charge from two new accounting changes that are affecting the energy industry, but the Baltimore-based company still exceeded analysts' expectations.
Constellation reported a loss of $131.4 million, or 80 cents per diluted share, for the three months that ended March 31, compared with a profit of $228.6 million, or $1.40 a share, in the corresponding period a year earlier.
Without the accounting charges, Constellation earned $59.1 million, or 36 cents per share in the first quarter. The company said the per-share operating profit was 43 cents when a loss on energy hedges of 7 cents per share was also excluded.
A survey of 11 analysts by Thomson First Call had estimated earnings of 42 cents per share for the quarter.
"We're looking at it from an operating standpoint," said Michael S. Worms, an energy analyst at Gerard Klauer Mattison. "The accounting changes had to be made. The company is on track for meeting its earnings guidance for the year."
Constellation had warned in recent months about the accounting changes, which consisted of a $430 million pretax charge to earnings, or $1.61 per share, relating to how gains and losses from energy trading contracts are reported. That loss was partially offset by a $112.1 million pretax gain, or 41 cents per share, resulting from a second accounting change dealing with how companies accrue the cost of retiring their assets.
"Management focus, crisp execution, operating excellence, balance sheet strength and superior risk management, these all proved to be significant contributors to our first-quarter success," Chief Executive Officer Mayo A. Shattuck III said during a conference call with analysts. "This represents the sixth consecutive quarter that this management team has met or exceeded earnings guidance.
"That we were able to achieve this goal in a highly volatile quarter marked by historic natural gas price increases and severe first-quarter weather in the Northeast speaks to the earnings and operational balance that we enjoy at Constellation."
Shattuck and his executive team urged Wall Street analysts not to raise earnings guidance for the year because of the weakened trading market and other volatility in the industry. Constellation expects to earn $2.65 to $2.85 per share for the year.
"We want to remain conservative about the rest of the year," Shattuck said. "It's important for us to earn the credibility of [Wall] Street. We've come an incredible distance. ... We prefer to stay on that track to make sure we maintain that credibility over time."
Colder weather in Central Maryland and lower interest expenses helped Baltimore Gas and Electric Co. deliver record earnings of 48 cents per share for the first quarter, but Constellation's merchant energy business reported a 13 cent per share loss.
Constellation's revenue for the quarter rose to $2.6 billion from $1.1 billion for the same period a year earlier.
"Many of their peers have gotten into financial problems," Worms said. "Constellation has a strong balance sheet, which has attracted business to them, and they've been able to acquire some businesses. Their conservative strategy is working for them."
Shares of Constellation fell 68 cents to $29.28 on the New York Stock Exchange yesterday.