Electric utility Duke Energy Corp. (DUK) on Tuesday reported a 21% decline in profit for the second quarter from last year as the company continued to experience lower demand for power from industrial consumers amid the recession. The results for the latest quarter were also impacted by mark-to-market losses on economic hedges. Adjusted earnings per share for the quarter declined, but matched analysts' consensus estimate.
The utility sector is more or less protected from general factors such as consumer sentiment amid the severe economic downturn, as it is difficult for people to live without these services. They are highly regulated and have less competition as the territories are more or less insulated from peers, resulting in only one electricity provider in most towns. Also, their revenues are consistent as customers pay the bills in time for continuity of service.
However, the economic crisis has forced people to be more prudent in their electricity usage. The weather also has a key role in determining electricity usage, as cooler weather translates to less use of electricity.
Second-Quarter Results
For the second quarter, the Charlotte, North Carolina-based company said that net income attributable to the company was $276 million, or $0.21 per share, down from $351 million, or $0.28 per share, in the same period last year.
The results for the latest quarter were negatively impacted by Crescent-related guarantees and tax adjustments of $0.01 per share, international transmission adjustment of $0.02 per share, and mark-to-market losses on economic hedges of $0.02 per share.
The year-ago quarter's results were negatively impacted by Crescent project impairments of $0.05 per share, offset by a gain mark-to-market gains on economic hedges of $0.05 per share.
Adjusted earnings per share for the latest quarter were $334 million, or $0.26 per share, down from $337 million, or $0.27 per share, in the year-ago period. Analysts polled by Thomson Reuters expected the company to report earnings of $0.26 per share for the quarter. Analysts' estimates typically exclude special items.
Operating revenues for the quarter declined 9.9% to $2.91 billion from $3.23 billion in the prior-year quarter, and missed analysts' consensus revenue estimate for the quarter of $3.18 billion.
James Rogers, chairman, president and chief executive officer of Duke Energy, said, "I am pleased with our results through the first half of the year in this challenging environment. Our industrial sales are being negatively impacted by current economic conditions and we have largely offset this impact with our strong operational performance and cost management. Industrial sales are showing signs of stabilization, but we do not see significant improvement in the near term."
Peer Performance
American Electric Power Co. Inc. (AEP) on Friday reported a 13% year-over-year rise in profit for the second quarter, helped by improved rate structures and cost controls, despite a decline in quarterly revenues. The company's net earnings for the quarter increased to $316 million, or $0.67 per share, from $281 million, or $0.70 per share, in the prior-year quarter. Revenues for the quarter declined to $3.2 billion from $3.5 billion in the same quarter last year.
Constellation Energy Group, Inc. (CEG) on Friday reported a sharp decline in profit for the second quarter, hurt by charges and lower revenues. Net income for the quarter plunged to $28.3 million from $175 million reported last year. Net income applicable to common stock slumped to $8.1 million, or $0.04 per share, from $171.5 million, or $0.95 per share, in the prior-year period. Total revenues for the quarter dropped to $3.86 billion from $4.76 billion reported last year.
Other Metrics
Duke Energy's operating expenses for the quarter declined to $2.40 billion from $2.58 billion in the prior-year period. The company recorded a gain on sales of other assets of $13 million in the quarter, compared to a gain of $33 million in the year-ago period.
Operating income for the quarter declined to $528 million from $683 million in the same period last year.
Income from continuing operations for the quarter were $284 million, or $0.22 per share, down from $336 million, or $0.27 per share, a year ago. The company recorded a loss from discontinued operations for the quarter of $2 million, compared to income from discontinued operations of $13 million, or $0.01 per share, in the previous-year quarter.
Segmental Analysis
Duke Energy's U.S. Franchised Electric and Gas, or USFE&G segment, reported second-quarter operating revenues of $2.15 billion, down 10.4% from last year's revenue of $2.40 billion. Segment EBIT for the quarter declined to $500 million from $503 million a year ago. Results were adversely impacted by a decline in weather-adjusted sales volumes to industrial customers, partially offset by lower operating and maintenance costs.
Commercial Power unit generated operating revenues of $474 million for the quarter, down from $481 million in the prior-year quarter. Segment EBIT from continuing operations for the quarter was $79 million, down 66% from $235 million in the year-ago period. Results for the quarter were adversely affected by mark-to-market losses on economic hedges as compared to gains in the year-ago period, lower power prices for wholesale customers and lower volumes for Ohio retail customers.
Duke Energy International's operating revenues for the quarter declined to $271 million from $334 million a year ago. Segment EBIT from continuing operations declined 41% to $68 million from $116 million in the same period last year, driven primarily by an adverse ruling on prior years' transmission fees, a lower contribution from National Methanol resulting from reduced commodity prices, and unfavorable foreign exchange rates, primarily in Brazil.
The company's "Other" segment includes the results of Crescent, Duke Energy's real estate joint venture. The segment also includes costs associated with corporate governance, costs-to-achieve the Cinergy merger, Duke Energy's captive insurance company. The segment reported an increase in operating revenues to $42 million from $35 million in the year-ago quarter. Net expense from continuing operations for the quarter were $38 million compared to $189 million in the same period last year, due primarily to prior year Crescent impairments and losses, in addition to favorable governance expenses and favorable results from captive insurance in 2009.
Year-To-Date Results
For the first six months of fiscal year 2009, net income attributable to Duke Energy Corp. declined to $620 million, or $0.48 per share, from $816 million, or $0.64 per share, in the same period last year.
Adjusted earnings per share for the half year declined to $692 million, or $0.54 per share, from $777 million, or $0.61 per share, in the year-ago period.
Income from continuing operations for the six-month period were $630 million, or $0.48 per share, down from $800 million, or $0.63 per share, in the prior-year period.
Operating revenues for the half year were $6.23 billion, down from $6.57 billion in the year-ago period.
Outlook
Looking ahead, Duke Energy noted that achievement of the employee incentive target will require continued focus on operations and cost management in addition to some improvement in overall economic conditions.
According to the Energy Information Administration, total U.S. electricity consumption fell 1.6% in the 2008 and is forecast to decline 2.0% this year, before rebounding to return to a more normal growth rate of 0.8% in 2010.
Stock Quotes
DUK, which has been trading between $11.72 and $19.10 in the past 52 weeks, closed Monday's trading session at $15.57, up $0.09 on a volume of 9.78 million shares. In Tuesday's pre-market session, the stock is trading at $15.60, up $0.03 or 0.19%.
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