Duke Energy Corporation
) announced second-quarter 2012 adjusted earnings of $1.02 per
share, beating both the Zacks Consensus Estimate of 95 cents and
the year-ago number of 99 cents. The upsurge came from revised
customer rates in the Carolinas and lower storm restoration costs
year-over-year. These were partially offset by less favorable
weather, higher financing costs, and increased depreciation
In the reported quarter, Duke Energy reported GAAP earnings per
share of 99 cents versus 98 cents per share in the year-ago period.
In the second-quarter 2012, the variance of 3 cents between
reported and adjusted earnings was due to merger-related costs and
mark-to-market impacts of economic hedges in the Commercial Power
The EPS numbers are derived after adjusting the reported and
prior-year periods to reflect the one-for-three reverse stock split
which was completed immediately prior to closing the merger with
Progress Energy on July 2, 2012. In connection with the merger,
Progress Energy has become a wholly owned direct subsidiary of Duke
Energy. As a result, the Duke Energy's financial results for the
second quarter 2012 are on a stand-alone basis and do not include
Progress Energy's results. The financial results of Progress Energy
will be included in Duke Energy's consolidated results only from
the third quarter of 2012.
Duke Energy generated total revenue of $3,577 million in the
reported quarter, falling short of the Zacks Consensus Estimate of
$4,355 million. However, it was above the year-ago figure of $3,534
U.S. Franchised Electric and Gas: Earnings before Interest and
Taxes ("EBIT") increased to $337 million year over year from $297
million. The results were primarily driven by the implementation of
new customer rates in the Carolinas; lower operation and
maintenance costs primarily due to significant prior-year storm
restoration costs; and increased pricing and riders. These results
were partially offset by higher planned depreciation expense; less
favorable weather; and higher financing costs.
International Energy: EBIT during the quarter decreased to $105
million year over year from $127 million due primarily to lower
pricing in Central America and unfavorable average foreign exchange
rates. These results were partially offset by favorable pricing in
Brazil as well as higher volumes and pricing in Peru.
Commercial Power: EBIT was $32 million compared with the
year-ago figure of $30 million. The positive variance was primarily
due to a non-bypassable stability charge under the new Electric
Security Plan (ESP) in Ohio; recovery of a Lehman Brothers
receivable previously written-off; lower operation and maintenance
costs and the prior-year impairment of the Vermillion gas-fired
plant. These were partially offset by lower margins from the
Midwest coal generation fleet resulting from the new ESP in Ohio
and lower margins and volumes realized by Duke Energy Retail.
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 second-quarter 2012 adjusted net
expense of $18 million, compared with an expense of $15 million in
the second quarter 2011.
At the end of the reported period, the company held cash & cash
equivalents worth $1,526 million versus $2,110 million at year-end
2011. Long-term debt decreased to $17,539 million from $17,730
million at year-end 2011. During the first half of 2012, the
company generated $2,002 million from operating activities versus
$1,717 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
) 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). We have a long-term Neutral recommendation on the
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