Constellation's NewEnergy Segment Reports Higher Earnings

Constellation's NewEnergy segment reported higher adjusted earnings of $52 million for the second quarter, versus $44 million a year ago.

The second-quarter 2011 adjusted earnings include a mark-to-market timing gain of about $22 million, which was partially offset by costs associated with residential marketing and NewEnergy's recent acquisitions.

GAAP earnings for the NewEnergy segment were $47 million, versus $43 million a year ago.

Quarterly adjusted Gross Margin for the NewEnergy segment was $321 million, versus $251 million a year ago. NewEnergy segment revenues were $2.560 billion, versus $2.391 billion a year ago.

Constellation reported that the MXenergy and StarTex Power acquisitions added 640,000 residential customers and 70,000 non-residential customers to Constellation's book, bringing Constellation's total to about 900,000 residential customers and 95,000 business customers.

MXenergy contributed approximately 540,000 power and gas customers in 15 states and two Canadian provinces, and StarTex contributed approximately 170,000 electric customers in Texas.

Constellation said that the combined residential acquisitions are expected to be modestly accretive in 2012 and more significantly accretive in 2013 and beyond.

During an earnings call, executives said that they see, "significant opportunities" for further shopping in New Jersey, Ohio, and Illinois in the coming months.

More generally, Constellation said that it would focus on growing NewEnergy volumes, particularly with complementary Exelon generation once the merger is complete, in Ohio, New Jersey, Pennsylvania, Illinois and Maryland.

Constellation CEO Mayo Shattuck said that Constellation believes it is important to be an early mover in the residential market due to customer stickiness, citing, in particular, New Jersey and Illinois.

"The land-grab has started, and I think we have a pretty good head start on it," Shattuck said of the residential market.

Shattuck also said that the StarTex and MXenergy acquisitions have developed Constellation's mass market sales channels, products, and geographic base, and that it now has the platform to support mass market organic growth. However, investors should not be surprised to see inorganic growth such as through portfolio acquisitions, Shattuck added.

Consolidated earnings at Constellation were negatively impacted by longer-than-expected outages at its nuclear facilities and the impact of the recent acquisitions in the competitive residential electric market. While Constellation lowered its consolidated earnings guidance range by $10 million, it did not adjust prior full year 2011 earnings guidance of $180-$220 million for the NewEnergy segment (as the lowering of guidance was taken in the Generation segment).