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Exelon: Q3 Earnings Beat, Profits Still Bleak

By Taylor Muckerman and Joel South - Nov 2, 2012 at 11:00AM

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Exelon continues to see revenue increases but profits are still lagging.

Is the low cost of natural gas what prompted utility companies to switch from coal to the recently abundant alternative? Weren't these lower input costs supposed to help utilities become more profitable? Unfortunately, as of late, input costs have been keeping the market price of electricity at a point that has begun to squeeze the margins for these power providers.

Exelon ( EXC -0.34% ) is the nation's largest provider of electricity generated by nuclear reactors. It is also the second-largest utility in the nation by customer base, behind Duke Energy ( DUK 2.28% ), after completing its merger with Constellation in March of this year. It is this merger to which management attributes much of the success for increasing revenue for the second straight quarter. However, much to the chagrin of investors, Exelon's generation business continues to be squeezed by tighter margins.

Every quarter this year has seen a reduction in profits with little end in sight. Until the price of natural gas rises, companies in the sector are likely to continue feeling the pinch. Exelon's CEO believes that if natural gas prices rose above $6, Exelon would increase its gross margin by $1.9 billion. With this outlook, the future appears bright, but only if the supply and demand for natural gas start to align more evenly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Exelon Corporation Stock Quote
Exelon Corporation
$52.74 (-0.34%) $0.18
Duke Energy Corporation Stock Quote
Duke Energy Corporation
$99.88 (2.28%) $2.23

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