Duke Energy Corporation DUK reported second-quarter 2015 adjusted earnings of 95 cents per share that fell short of the Zacks Consensus Estimate of $1.02 by 6.9%. Quarterly earnings also fell 14.4% year over year.
GAAP earnings came in at 78 cents per share, down 9.3% from 86 cents in the second quarter of 2014. The variance between the pro forma and GAAP numbers in the reported quarter was due to a 17 cents impact from costs related to the Progress Energy merger and discontinued operations.
The disappointing results are attributable to continued weakness in the international business, particularly in Brazil, and the timing of operation and maintenance (O&M) expenses at Regulated Utilities.
Total Revenue
In the second quarter, total revenue of $5,589 million lagged the Zacks Consensus Estimate of $6,011 million by 7%. Even on a year-over-year basis, revenues declined 2.1%.
The regulated electric unit’s revenues were $5,090 million (down 0.9%), representing approximately 91% of the company’s total revenue. Its non-regulated electric and other segment generated revenues of $403 million, down 13% year over year. Revenues from the regulated natural gas business were $96 million, down 10.3% from the year-ago level.
Operational Update
The company’s total operating expenses were $4,356 million in the second quarter, marginally down by 1.6% from the year-ago quarter. Costs declined on account of lower fuel expenses in both regulated (4.8% year over year) and non-regulated (6.3%) businesses. Absence of any impairment charge this quarter also helped to curtail overall expenses.
Operating income during the quarter declined 3.3% year over year to $1,246 million.
Interest expense remained flat at $403 million from the year-ago level.
Quarterly Segmental Highlights
Regulated Utilities: Adjusted income in the quarter was $632 million, down 8.3% from $689 million a year ago. The upside can be attributed to higher O&M expenses, depreciation and amortization expenses and effective tax rate.
International Energy: Adjusted income of $52 million from this segment plunged 64.4% from $146 million in the year-ago quarter. The decline was due to unfavorable results in Latin America, particularly impacts from the weak economy and lower demand for electricity in Brazil as well as adverse foreign currency exchange rates.
Commercial Portfolio: Subsequent to the sale of the non-regulated Midwest Commercial Generation business to Dynegy Inc. DYN in April, the segment (formerly Commercial Power) includes Duke Energy’s unregulated renewable assets as well as its commercial electric and gas transmission investments.
This segment recorded adjusted income of $8 million in the quarter, down 50% over the year-ago period. The decline was attributed to lower earnings from the renewables fleet resulting from lower wind resources.
Other: The segment includes corporate interest expenses not allocated to the other business units, results from Duke Energy’s captive insurance company, other investments, and income tax levelization adjustments.
Adjusted net expenses were $34 million, significantly down from $65 million in the year-ago quarter.
Financial Condition
As of Jun 30, 2015, the company had cash & cash equivalents of $960 million, significantly down from $2,036 million as of Dec 31, 2014. Long-term debt (excluding current maturities) stood at $36,795 million compared with $37,213 million as of Dec 31, 2014.
In the first half of 2015, net cash from operating activities was $2,879 million compared with $2,619 million in the same period last year. The company’s capital expenditure was $3,189 million, up from $2,454 million in the prior-year period.
Stock Repurchase Program
In connection to the sale of Midwest Generation business to Dynegy, Duke Energy completed a $1.5 billion accelerated stock repurchase program. The program resulted in the retirement of approximately 19.8 million shares.
Guidance
The company reaffirmed its 2015 adjusted earnings guidance in the range of $4.55 to $4.75 per share.
Zacks Rank
Duke Energy presently holds a Zacks Rank #2 (Buy). Other favorably placed stocks in the utility space include Empresa Nacional de Electricidad S.A. EOC and Enersis S.A. ENI, both sporting a Zacks Rank #1 (Strong Buy).
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