Duke Energy Corporation (DUK) announced its first-quarter 2011 operating earnings of 39 cents per share, beating the Zacks Consensus Estimate by 4 cents. The results were also higher than the year-ago earnings of 36 cents per share.
The year-over-year growth in earnings was driven by the strong performance at Duke Energy International aided by a decline in corporate expenses.
The GAAP earnings of the company during first quarter 2011 were 38 cents per share versus 34 cents per share reported in the first quarter of 2010. The difference between the basic GAAP and operating figures emanated from special items and mark-to-market in the Commercial Power business.
Total Revenue
Duke Energy generated total revenue of $3,663 million in the first quarter, up from $3,594 million in the year-ago quarter. The year-over-year growth was driven by improved performance from Commercial Power, US Franchised Electric and Gas and Duke EnergyInternationalbusinesses, partly offset by a decline at Others.
Quarterly revenue was comfortably ahead of the Zacks Consensus Estimate of $3,582 million.
Segment Update
U.S. Franchised Electric and Gas: Earnings before Interest and Taxes (EBIT) at the segment decreased 4.3% year over year to $712 million due to less favorable weather in the first quarter of 2011 and an increase in operation and maintenance costs. These headwinds were partially offset by higher revenues from Duke’s modernization programs in the Carolinas and Indiana
Commercial Power: EBIT during the quarter decreased by $38 million from the first quarter of 2010. The year-over-year decline was due to customer switching in Ohio and lower mark-to-market impacts from economic hedges.
Duke Energy International: EBIT during the quarter increased by $40 million year over year to $180 million. The segment benefited from a favorable arbitration award in Peru, higher average contract prices in Brazil and congenial average foreign exchange rates.
Other: Net expenses during the quarter were $45 million, compared with expenses of $146 million in the first quarter of 2010. The year-over-year decline was primarily due to prior-year severance costs associated with the voluntary employee separation program and office consolidation and lower corporate governance costs.
Quarterly Highlights
During the reported quarter, U.S.Franchised Electric and Gas segment sold 35,356 Gigawatt hour (GWh) of electricity versus 36,667 GWh in the prior-year quarter reflecting a decline of 3.6%. Commercial Power meanwhile sold 11,460 GWh versus 8,629 GWh in the prior-year quarter. Duke Energy International Energy sales during the quarter were down by 904 GWh to 4,787 GWh from 5,691 GWh a year ago.
During the reported quarter total operating expenses increased by 0.85% to $2.86 billion from $2.83 billion in the prior-year quarter. However, as a percentage of revenue, expenses declined by 77 basis points year over year.
The relative decline in expenses as well as growth in revenue boosted the operating income of the company during the quarter. Operating income in the first quarter was $814 million as against $761 million in first quarter 2010.
Interest expenses during the quarter were $219 million, up $9 million over the prior year. The rise in interest expenses was attributable to higher debt levels incurred in order to fund its ongoing construction program.
Financial Update
The company continues to have a strong cash balance. Cash and cash equivalents as of March 31, 2011, was $1.41 billion versus $1.08 billion as of March 31, 2010.
Book value per share as of March 31, 2011 was $17.17, up 2.2% from $16.80 as of March 31, 2010.
The company’s long-term debts as of March 31, 2011, were $17.3 billion versus $16.3 billion as of March 31, 2010.
Cash flow from operations during the first quarter of 2011 was $961 million versus $1.2 billion during the first quarter of 2010.
Guidance
Duke Energy reiterated its adjusted earnings per share guidance for 2011 in the range of $1.35 to $1.40.
Peer Comparison
American Electric Power Company Inc. (AEP) competes directly with Duke Energy Corporation. The former announced its operating earnings for the first quarter 2011 of 82 cents per share, surpassing the Zacks Consensus Estimates of 79 cents and the year-ago quarterly earnings of 76 cents per share.
American Electric Power’s revenue during the reported quarter was $3.7 billion, increasing marginally from the year-ago figure of $3.6 billion, but a tad below the Zacks Consensus Estimate of $3.8 billion.
Our View
We appreciate the initiative taken by Duke Energy to distribute 10 million free compact fluorescent light bulbs (CFLs) to its customers in 2011, a step which will not only save energy but lower the emission of green house gas. Duke Energy had distributed more than 10 million free CFLs to approximately one million residential customers in 2010.
We also believe Duke Energy’s decision to merge with Progress Energy Inc. (PGN) will benefit both companies, creating the largest U.S. utility, once the merger is clinched after clearing all necessary regulatory hurdles.
Duke Energy Corporation currently retains a Zacks #3 Rank (short-term Hold rating).
Based in Charlotte, North Carolina, Duke Energy is an energy company. The company operates through three segments: U.S. Franchised Electric and Gas, Commercial Power, and International Energy.
AMER ELEC PWR (AEP): Free Stock Analysis Report
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