Duke Energy Corporation (DUK) announced its fourth-quarter 2010 operating earnings of 21 cents per share, falling short of the Zacks Consensus Estimates marginally by 2 cents. The results were also lower by 7 cents over the year-ago earnings of 28 cents per share.
Duke Energy’s 2010 operating earnings were $1.43 per share compared with $1.22 per share reported in 2009. Fiscal 2010 earnings precisely matched the Zacks Consensus Estimate, as provided by 21 covering analysts.
The GAAP earnings of the company during 2010 were $1.00 per share versus 83 cents per share reported in 2009. 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 $3,445 million in the fourth quarter versus $3,110 million in the year-ago quarter. The year-over-year growth was driven by improved performance from Commercial Power, Othersand US Franchised Electric and Gassegments, partly offset by a decline at Duke EnergyInternational.
Quarterly revenue was comfortably ahead of the Zacks Consensus Estimate of $3,091 million.
The company generated total revenue of $14,272 million in 2010, up from $12,731 million reported in 2009. Revenues in 2010 were boosted by improved performance from all its operating segments but for the Other category, which witnessed a 7.8% year-over-year decline.
Total 2010 revenue surpassed the Zacks Consensus Estimate of $13,755 million.
Segment Update
U.S. Franchised Electric and Gas: Operating earnings at the segment increased 10.4% year over year to $605 million, driven by higher pricing from rate adjustments in the Carolinas, favorable weather and increased Allowance for Funds Used During Construction (AFUDC) from Duke Energy’s ongoing construction program.
In 2010, earnings grew by $645 million from 2009 levels, mainly due to the same factors that drove the fourth quarter upside.
Commercial Power: The operating income during the quarter decreased by $10 million from the fourth quarter 2009. The year-over-year decline was due to lower retail sales volume and higher operation and maintenance costs given the planned outage.
In 2010, the segment reported an operating loss of $229 million versus an income of $27 million in 2009. The decline was primarily due to 2010 non-cash goodwill and other impairment charges of approximately $660 million related to non-regulated generation operations in the Midwest.
Duke Energy International: Segment operating income was $110 million, higher by $6 million from the prior-year quarter. The increase was driven by higher sales in Brazil, partially offset by unfavorable results from Central America.
In 2010, the segment reported operating earnings of $486 million versus $365 million in 2009.
Other: Operating income during the fourth quarter 2010 was $113 million versus net expenses of $58 million in the fourth quarter 2009. The favorable outcome was owing to the sale of the company’s non-core assets.
Full-year 2010 net expense from Other was $255 million, compared with $251 million in 2009.
Quarterly Highlights
During the fourth quarter 2010 revenue from Duke Energy International was lower by 15.9% year over year while its contribution to total revenue plummeted by 258 basis points. However, healthy contributions from other segments pulled up the total revenue.
During the reported quarter, the company sold 4,346 Gigawatt hour (GWh) of electricity versus 6,174 GWh in the prior-year quarter, which primarily led to the dismal performance at Duke Energy International.
Annual Highlights
In 2010, the company saw a 13.75% year-over-year inflation in operating expenses. Despite escalating expenses, operating income of the company in 2010 grew by 9.4% to $2.4 billion from $2.2 billion in 2009.
Higher electricity sales during the year offset the impact of higher costs, thereby boosting the company’s operating performance.
During the year the company experienced a 2% growth in customer demand, which was mainly due to a 7% rise in industrial segment demand, indicating a gradual ramp in the economy, particularly in Duke Energy’s service territories.
The nuclear fleet of the company continues to perform well. The capacity factor in 2010 was 95.9% eclipsing the previous high of 95.2% in 2002.
Interest expenses for 2010 were $840 million versus $751 million in 2009, reflecting a growth of 11.8%. The rise in interest expenses was due to higher debt levels incurred in order to fund its ongoing construction program.
Financial Update
The company ended the year with a strong cash balance. Cash on hand as of December 31, 2010, was $1.67 billion versus $1.54 billion as of December 31, 2009.
Book value per share as of December 31, 2010 was $16.85 versus $16.72 as of December 31, 2009, reflecting a growth of 0.8%.
Long-term debts of the company as of December 31, 2010, were $17.9 billion versus $16.1 billion as of December 31, 2009.
Capital and investment expenditures in 2010 were $4.85 billion, up from $4.55 billion used in 2009. The year-over-year spike was mainly due to higher investments in International Energy and Other, while the Commercial Power segment saw lower levels of capital being invested.
Cash flow from operations for 2010 totaled $4.5 billion, a substantial increase of 30% from the 2009 level of $3.4 billion.
Guidance
Duke Energy expects adjusted earnings per share in 2011 in the range of $1.35 to $1.40.
Peer Comparison
American Electric Power Co. Inc. (AEP) competes directly with Duke Energy Corporation. The former announced its operating earnings for the fourth quarter 2010 of 38 cents per share, marginally below the Zacks Consensus Estimates of 39 cents. The earnings lagged the year-ago quarterly earnings by 12 cents.
Fiscal 2010 ongoing earnings came in at $3.03 per share, easily beating the Zacks Consensus Estimate of $2.90 and the fiscal 2009 earnings of $2.97 per share.
Our View
We 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.
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