Contrasting the Quarterly Reports of Energy Giants

It is earnings season – that time of the quarter where publicly traded companies issue their quarterly reports. The third quarter ended on September 30 and it normally takes a few weeks to close out all of the transactions and produce the numbers.

While perusing reports in the Wall Street Journal from companies that interest me, I was struck by a contrast worth sharing. The first report I saw was from Areva. Here are some quotes from that rather encouraging report:

French state-controlled nuclear engineering group Areva SA (CEI.FR) Wednesday reported a 6% increase in revenue for the third quarter, bolstered by its reactors and services division’s strong performance, leading the company to confirm its 2010 full-year outlook for significant revenue and backlog growth and an operating loss.
. . .
In the third quarter, Areva’s revenue rose to EUR2.01 billion from EUR1.9 billion a year earlier, with revenue from the reactors and services division up 11% to EUR759 million.
. . .
Areva designs and supplies nuclear reactors as well as builds nuclear power plant facilities. It also mines uranium and provides nuclear-related services. It is the world’s largest of its kind and competes with providers like Westinghouse, of the U.S., and a growing number of Asian groups. It’s EPR reactor is considered one of the world’s most advanced, though there have been some difficulties and long delays in installing the reactors at inaugural projects.

On the page providing the Areva report, there was a link to a quarterly report from a related company. Here are some quotes from that report.

Royal Dutch Shell PLC on Thursday posted a 6.5% rise in third-quarter net profit, helped by higher oil and gas prices, higher output and greater cost efficiency.
. . .
The Anglo-Dutch energy giant said net profit rose totaled $3.46 billion from $3.25 billion a year earlier. The bottom line was affected by a one-time $1.13 billion charge the company took on fair value adjustments to commodity derivatives. Group revenues were $90.71 billion, compared with $75.01 billion in the third quarter of 2009.
(Emphasis added.)

The reason I mention this is to help at least a few people recognize that the business press does not seem to notice the competition between an integrated URANIUM energy company and an integrated OIL and GAS energy company. Areva is not just an engineering group, it is a company that provides a complete fuel cycle that includes mining, processing, enriching, conversion to useful power, and waste processing/recycling. It is the largest of its kind in the world, yet its quarterly REVENUES are smaller than the quarterly NET PROFITS of one of several large competitors in the energy business.

Revenue numbers measure the total amount of money taken in. Out of that money, companies must pay salaries, rent, capital repayments, taxes, transportation costs, advertising, and a host of other expenses. The net profit numbers measure what a business has left after paying out all of those expenses and due to the generous tax treatment of phantom “expenses” like accelerated depreciation of certain kinds of favored capital assets net profit numbers generally significantly under estimate the amount of free cash that the business has to spend or distribute to its managers and owners.

Next time you get into a conversation with people who try to put nuclear on the same plane as the established fossil fuel business (and even try coining words like “CONG” to describe nuclear as one more player in that big, dominating business) remember the difference in scale between Areva and Shell and remember that the business press does not even like to talk about them as being competitive in the same business – supplying reliable energy to customers who really want the power they get from consuming that energy rather quickly.

Please do not misunderstand me – I am a huge fan of gifted, talented, unpopular, underdogs who win important contests because the established players get old, fail to adapt, and drop out of the race.