Constellation Energy profit rose 45% in fourth quarter

First report since plans for $11.5 billion merger announced

February 01, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

Constellation Energy Group reported a better-than-expected 45 percent jump in fourth-quarter profit yesterday in its first earnings release since it announced plans to merge with Juno Beach, Fla.-based FPL Group Inc.

The Baltimore-based energy provider and owner of Baltimore Gas and Electric Co. increased net income to $195.2 million, or $1.09 per share, compared with $134.9 million, or 76 cents per share, in the year-earlier period.

Growth in the company's fast-growing energy supply business led a 60 percent increase in sales to $5.16 billion from $3.22 billion.

The improved earnings come as the company is under increased scrutiny from regulators and investors examining its planned $11.5 billion merger with FPL, which gets most of its profit from its growing Florida utility business.

Constellation, which is poised to become a Fortune 100 company if the merger is approved, detailed the quarter in an expansive, two-hour conference call with analysts that was accompanied by 133 pages of graphs and charts outlining the company's performance and projected growth.

"On balance, it was a very thorough and very positive meeting," said Raymond Moore, an analyst with Shields & Co. in New York who doesn't own Constellation shares. "They've done some really decent numbers."

Constellation shares rose 26 cents to close at $58.28 per share in trading yesterday.

The latest financial results point to continued growth in Constellation's business supplying and selling gas, electricity and coal to large customers and utilities in markets where sales are not overseen by regulators.

The merchant energy segment - which accounts for the majority of Constellation's revenue - boosted earnings to 82 cents per share for the quarter, up from 56 cents in the year-earlier period. The company increased sales of natural gas to other utilities and has emerged as a major supplier of coal in the United Kingdom.

"It was a year where we pursued a lot of growth opportunities and were successful, and particularly in the build-out of our commercial business," said Mayo A. Shattuck III, Constellation's chairman, president and chief executive. He will become chairman of the merged company.

Constellation continued to increase sales of power to key industrial customers, including companies ranging from retailers Wal-Mart Stores Inc. and Costco Wholesale Corp. to industry giants such as IBM and defense contractor Lockheed Martin Corp. Constellation is the nation's largest supplier of energy to large commercial and industrial customers. The company owns power plants in 10 states with capacity to produce about 12,000 megawatts of electricity. But the company said it has contracts to sell up to 15,500 megawatts of electricity through supply contracts with municipalities and businesses stretching from New England to California.

The merchant energy businesses will continue to be headquartered in Baltimore after the merger, which company officials say will result in a net gain in jobs for Maryland. Shattuck said Constellation has added about 1,000 jobs in the Baltimore area over the past several years as the merchant energy business has grown.

Net income also grew 27 percent to $38.8 million at Baltimore Gas and Electric, which benefited in the fourth quarter as colder weather increased energy sales. Constellation has said BGE, which provides electricity to 1.2 million customers and gas to 600,000, will not be affected by the merger.

Constellation approved a 13 percent increase in its quarterly dividend to 37.75 cents per share, compared with 33.5 cents per share previously.

Excluding the effects of its proposed merger, the company said it expects to report 2006 earnings of $3.65 to $3.95 per share, and reaffirmed previous forecasts for 2007 earnings of $4.75 to $5 per share.

Constellation filed its merger proposal with the Maryland Public Service Commission and the Federal Energy Regulatory Commission on Jan. 23. The PSC is reviewing the plan for its impact on Maryland customers and is expected to hold hearings over the next few months. Company officials said they expect to get final regulatory approval in the June-to-August period, with final closing on the deal late in the third quarter or early fourth quarter.

paul.adams@baltsun.com

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