Exelon Corporation (EXC - Analyst Report) reported fourth-quarter 2014 adjusted operating earnings of 48 cents per share, missing the Zacks Consensus Estimate of 51 cents by 5.9%.

Quarterly earnings also decreased 4% from 50 cents per share in the year-ago quarter primarily due to unfavorable earnings related to the Dec 2014 extension of bonus income tax depreciation impact on the company’s Generation segment's domestic production activities deduction and adverse weather conditions at the service territories of its subsidiaries, Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO).

Exelon Corporation - Earnings Surprise | FindTheBest

On a GAAP basis, quarterly earnings were 2 cents per share compared with 58 cents per share a year ago. The difference between GAAP and adjusted operating earnings was due to the combined impact of certain non-recurring one-time adjustments, including primarily a long-lived asset impairment charge of 39 cents, a 9-cent merger and integration costs, and a charge of 8 cents from mark-to-market impact of economic hedging activities.

For 2014, the company’s adjusted operating earnings were $2.39 per share, in line with the Zacks Consensus Estimate. Annual earnings were 4.4% lower than $2.50 per share reported a year ago.

Exelon’s GAAP earnings stood at $1.88 per share in 2014 compared with $2.00 a year ago.

Total Revenue

In the fourth quarter, Exelon's total operating revenue of $7.26 billion beat the Zacks Consensus Estimate by 32.4%. Quarterly revenues soared 17.5% year over year primarily on the back of higher contribution from Generation (27.3%) and ComEd (1%).  This was partially offset by lower revenues at PECO (6.8% year over year) and Baltimore Gas and Electric (BGE) (4.2%).

The company’s total annual operating revenue came in at $27.43 billion, surpassing the Zacks Consensus Estimate by 11.5%. Reported revenues increased 10.2% from $24.89 billion a year ago.

Quarterly Highlights

In the quarter under review, Exelon's total operating expenses increased 32.6% year over year to $7,015 million, primarily due to higher purchased power and fuel costs, and operating and maintenance expenses.

The company reported operating income of $348 million in the quarter, down 60.9% from $889 million a year ago.

Interest expenses increased 39.4% year over year to $343 million on a higher long-term debt level.

Business Update

Exelon is currently undergoing a merger with Pepco Holdings, Inc. (POM - Analyst Report). The transaction is expected to conclude in the second or third quarter of 2015.

Financial Update

As of Dec 31, 2014, Exelon's cash and cash equivalents were $1.88 billion compared with $1.61 billion at the end of 2013.

Long-term debt as of Dec 31, 2014 totaled $19.36 billion, up from $17.62 billion as of Dec 31, 2013.

In 2014, net cash flow from operating activities was $4.46 billion compared with $6.34 billion a year ago.

Exelon's capital expenditure was $6.08 billion in 2014 compared with the prior-year figure of $5.4 billion.

Hedges

Exelon's hedging program involves hedging of commodity risks for expected generation, typically on a ratable basis, over a three-year period. The proportion of expected generation hedged as of Dec 31, 2014 was 93%–96% for 2015, 61%–64% for 2016, and 31%–34% for 2017.

Guidance

Exelon provided its guidance for 2015 adjusted earnings in the range of $2.25 to $2.55 per share.

Another Peer Release

PPL Corp. (PPL - Analyst Report) reported fourth-quarter 2014 adjusted earnings of 58 cents per share, surpassing the Zacks Consensus Estimate of 51 cents by 13.7%.

Zacks Rank

Exelon currently holds a Zacks Rank #3 (Hold). Another better-ranked stock in the same sector is PG&E Corp. (PCG - Analyst Report), carrying a Zacks Rank #2 (Buy).