Duke Energy Corporation (DUK - Analyst Report) announced third-quarter 2012 adjusted earnings of $1.47 per share, beating the Zacks Consensus Estimate of $1.45 while falling behind the year-ago number of $1.50. The upsurge came from revised customer rates, principally resulting from the company's modernization program. This helped offset less favorable weather and anticipated lower earnings from the International Energy and Commercial Power segments.
In the reported quarter, Duke Energy reported GAAP earnings per share of 85 cents versus $1.06 per share in the year-ago period.
In the third-quarter 2012, the variance of 62 cents between reported and adjusted earnings was due to special items and mark-to-market impacts of economic hedges in the Commercial Power segment (63 cents). This was partially offset by a penny from discontinued operations.
This is the first completed quarter after the merger with Progress Energy closed on July 2, 2012. In connection with the merger, Progress Energy has become a wholly owned direct subsidiary of Duke Energy.
Duke Energy generated total revenue of $6,722 million in the reported quarter, beating the Zacks Consensus Estimate of $6,223 million. It was also above the year-ago figure of $3,964 million.
U.S. Franchised Electric and Gas: Earnings before Interest and Taxes (“EBIT”) increased to $907 million year over year from $472 million. The results were primarily driven by the addition of Progress Energy's regulated utility operations in the Carolinas and Florida. Additionally, quarterly results were higher due to increased pricing and riders principally related to the implementation of revised customer rates at Duke Energy Carolinas, energy efficiency programs, and lower governance and operating and maintenance costs. These results were partially offset by less favorable weather.
International Energy: EBIT during the quarter decreased to $103 million year over year from $115 million due primarily to unfavorable average foreign currency exchange rates.
Commercial Power: EBIT was $31 million compared with the year-ago figure of $74 million. The variance was primarily due to lower results for the Midwest coal generation fleet resulting from the new market-based Electric Security Plan (ESP) in Ohio. This was partially offset by the ESP's non-bypassable stability charge. The new market-based ESP became effective January 1, 2012.
Other: This segment primarily includes corporate interest expense not allocated to the business units, results from Duke Energy's captive insurance company and income tax levelization adjustments. Other recognized a third-quarter 2012 adjusted net expense of $16 million, compared with an income of $5 million in the third quarter 2011. Results decreased primarily due to the addition of interest expense on Progress Energy's corporate debt.
At the end of the reported period, the company held cash & cash equivalents worth $1,761 million versus $2,110 million at year-end 2011. Long-term debt increased to $35,198 million from $17,730 million at year-end 2011. During the first nine months of 2012, the company generated $3,979 million from operating activities versus $3,027 million generated in the year-ago period.
Duke Energy remains on track to achieve its 2012 adjusted earnings guidance range of $4.20 to $4.35 per share.
The acquisition of Progress Energy at the inception of July 2012 made Duke Energy the largest U.S. utility in terms of market capitalization. Earlier, Chicago-based Exelon Corporation (EXC - Analyst Report) was the largest U.S. utility.
Based in Charlotte, North Carolina, Duke Energy is a diversified energy company with more than $100 billion in total assets. Its regulated utility operations serve approximately 7.1 million electric customers located in six states in the Southeast and Midwest. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the U.S.
Duke Energy Corporation’s U.S. electricity and gas operations generate a relatively stable and growing earnings stream. Looking ahead, the company’s outlook is supported by its strong balance sheet and ongoing capital expansion projects which add visibility to the story.
However, valuation continues to be restrained by a number of factors, including the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, foreign currency exchange volatility and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.