Duke Energy Corp. (DUK) reported adjusted second quarter 2014 earnings of $1.11 per share that came in ahead of the Zacks Consensus Estimate of $1.00 by 11%. Quarterly earnings also increased 27.6% from the year-ago figure of 87 cents.
The strong numbers were fired by its Regulated Utilities and International Energy segments. The upside resulted from favorable weather and a lower effective tax rate. A tax benefit resulting from the reorganization of the company's operations in Chile was an added catalyst.
During the quarter under review, Duke Energy’s revenues increased 7.4% year over year to $5,283.0 million. The reported figure, however, failed to meet the Zacks Consensus Estimate of $6,106.0 million by 13.5%.
On the cost front, total operating expenses were $4,839 million in the quarter, down 4.3% from $5,059 million in the year-ago period. The costs comprised regulated input costs (up 7.7%), non-regulated input costs (down 2.5%), natural gas cost (flat year over year), operation & maintenance cost (up 2.5%) and depreciation and amortization expense (up 12.2%).
Operating income improved 35.9% year over year to $1,116 million.
Quarterly Segmental Highlights
Regulated Utilities (formerly known as U.S. Franchised Electric and Gas): Adjusted income was $689.0 million, up from $590.0 million a year ago. This was driven by higher pricing and riders, favorable weather, a lower effective tax rate, lower operating and maintenance expenses and increased wholesale net margins.
International Energy: Segment income advanced to $146.0 million from $87.0 million buoyed by robust results in Latin America, in particular higher volumes and pricing in Brazil and positive results at National Methanol Company. The positives were partly offset by unfavorable foreign currency exchange rates.
Commercial Power: The segment recorded an operating income of $16.0 million in the quarter as against a $3.0 million loss in the year-ago period. The improved results reflect higher earnings from the renewable business and from the Midwest coal and gas generation fleets.
Other: The segment includes corporate interest expense not allocated to the other business units, results from Duke Energy’s captive insurance company, other investments, and income tax levelization adjustments.
Net expenses were $65.0 million, up from $57.0 million in the year-ago quarter.
As of Jun 30, 2014, the company held cash & cash equivalents of $2,008 million versus $1,501.0 million as of Dec 31, 2013. Long-term debt increased to $40,593.0 million (including current maturities) from $40,256.0 million as of Dec 31, 2013. The debt-to-capitalization ratio stood at 49.8% in the quarter.
Duke Energy boosted its full year 2014 adjusted earnings guidance range to $4.50–$4.65 per share from its previous forecast of $4.45–$4.60 per share. It had earlier pegged its longer-term average annual growth at 4% to 6% through 2016.
At the Peers
Edison International (EIX) reported solid second quarter 2014 results with adjusted earnings of $1.08 per share well ahead of the Zacks Consensus Estimate of 83 cents by 30.1%. Earnings for the quarter also increased 36.7% from the year-ago figure of 79 cents per share.
Entergy Corp. (ETR) posted second quarter 2014 operational earnings of $1.11 per share, higher than the year-ago number of $1.01 per share by 9.9%. However, earnings failed to surpass the Zacks Consensus Estimate of $1.14. Quarterly earnings increased on the back of strong performance from its Utility and Entergy Wholesale Commodities units.
American Electric Power Company Inc. (AEP) reported second quarter 2014 operating earnings of 80 cents per share, beating the Zacks Consensus Estimate of 75 cents by 6.7%. The quarterly figure also improved 9.6% from the year-ago adjusted profit of 73 cents per share. The upbeat performance was supported by investments in infrastructure and transmission as well as system improvement.
The largest power provider in the U.S. – Duke Energy – reported higher quarterly earnings, aided by positive contributions from across the board. We believe the company’s regulated electricity and gas operations will enable it to generate a relatively steady and growing earnings stream in the future.
Duke remains focused on selling off its Midwest commercial generation business, which includes ownership interests in 11 power plants. The company’s willingness to get out of the wholesale power-generation business in the Midwest will reduce volatility in its financial results.
Going forward, key growth drivers for the company include its strong balance sheet, ongoing capital expansion projects and an above industry average dividend yield. However, the unfavorable macro backdrop, predominantly fossil-fuel based generation assets and tepid demand for electricity remain matters of concern. Duke Energy presently holds a short-term Zacks Rank #3 (Hold).