- Duke Energy reported a 51% y-o-y increase in Q4 2012
earnings driven by the Progress Energy merger. Adjusted for the
merger earnings were about flat.
- USFE&G quarterly revenues grow 2x on merger,
but cautious outlook for demand growth ~1 % per year.
- Rate increases in Carolina's on track, could be
approved by the end of the year.
- Commercial businesses post lackluster results due to lower
- Caution that poor rainfall could hit profitability
in Brazilian hydropower operations.
) published its Q4 earnings on February 13, marking its
second quarterly earnings release following the Progress
Energy merger. Adjusted for the Progress merger, earnings per share
of $0.70 was about flat compared to the fourth quarter of 2011.
Here are the key takeaways and trends from the firm's earnings
U.S. Franchised Electric and Gas
Revenues for the division nearly doubled to around $4.9 billion
from $2.5 billion while operating income also grew to around $846
million from $434 million, thanks to the Progress Energy
Duke Energy 8-K
)) However, organic growth was minimal. The division is Duke's
largest business segment and
accounts for around 90% of its Trefis price
Sluggish Load Growth Expected
: Load growth, adjusted for weather effects was quite sluggish, at
around 0.6%. Although industrial and commercial usage grew by
around 1% and 0.7% respectively, the weaker economic
environment and a growing focus on energy savings meant that
residential consumption remained flat despite some customer growth
over the last year. Duke's outlook for electricity demand has also
been very cautious, expecting demand to grow at about 1% over the
next few years.
: Given the slowing load growth, much of the company's
earnings growth will hinge on operational improvements and
synergies from the Progress Energy merger. The merger provides
scope to reduce fuel and transmission costs through enhanced
economies of scale and provides opportunities for joint dispatch.
The firm mentioned that it had recognized around $52 million in
cost savings relating to the merger over the last two quarters. The
merger has also helped reduce manpower. A total of 1100 headcount
reductions are expected by the end of this year.
Status of Rate Increases
: Over 90% of Duke's Energy's business comes from its regulated
utility services, and the firm is dependent on state regulators for
rate increases to defray costs of expansions and upgrades to its
fleet. Over the last few months, the firm filed for rate
increases totaling $359 million for its Progress Energy
Carolina's division and a $446 million hike for its Duke
Energy Carolinas division. The firm expects the new rates to be
approved by the end of this year. ((Bloomberg)) The firm
also has two more pending rate cases in Ohio, for its electric
distribution and gas distribution. These increases should help to
boost revenues and profitability marginally going forward.
International And Commercial Power Segments
International Operations Clock Modest Revenue Growth, But
Profitability Could Be Impacted
: The firm's international division operates power generation
facilities and engages in sales and marketing of electric power and
natural gas, primarily in Latin America. Revenues for the
division grew by around 4% year-over-year to $353 million while
operating profits fell by around 25% to around $93 million.
Although the division accounts for just around 16% of the firm's
business, we believe that they are important from a
growth perspective, given the high demand for energy and relatively
high electricity prices in Latin America. The firm has been
steadily expanding its presence in the Latin American market and
acquired a diesel power plant and two hydroelectric facilities in
Chile last year.
Duke's Brazilian operations rely on hydroelectric power assets
and off late the country has been experiencing low
rainfall. The firm warned that it these
conditions continue to persist, it could drive up
generation costs for the firm and subsequently impact profitability
of the firm's international business segment. ((Seeking Alpha))
Commercial Business Weighed Down By Lower Rates:
Duke's commercial power segment includes the non-regulated
generation business in the mid-west, the firm's renewable energy
portfolio and retail operations. The segment saw its revenues fall
by around 16% while posting an operating loss of around $1 million
for the quarter. This was attributable to lower market based rates
in Ohio and lower margins for the firm's retail operations.
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