Duke Energy reports strong Q1 earnings

Duke Energy posted better-than-expected earnings for the first quarter Friday despite a continuing slump in residential sales and poor results from its international business.

For the three months that ended March 31, Charlotte-based Duke reported earnings of $1.22 a share on profits of $864 million. That compared to the 14-cent loss of a year earlier, when the impending sale of 11 power plants in the Midwest weighed down results.

Adjusted for one-time costs and gains, Duke earned $1.24 a share, well above the $1.14 analysts surveyed by Thomson Reuters had forecast and 6 percent higher than earnings in the first quarter of 2014.

Duke had missed Wall Street’s expectations the previous two quarters.

Revenues of about $6 billion, below analysts’ projections, were down slightly from nearly $6.3 billion a year ago.

Retail sales have dropped slightly over the past 12 months as demand by residential customers remained stagnant. Duke’s residential customer base grew 1.2 percent in the quarter, but sales to them dropped 1.4 percent.

Chief Financial Officer Steve Young said in an interview that the slump was due to colder weather that drove up sales in the winter of 2014, compared to this year, to energy efficiency and to a trend toward smaller homes such as apartments. Duke said it still expects overall retail growth of 0.5 to 1 percent this year as the economy improves.

Boosting Duke’s earnings by 13 cents a share in the quarter was the output of 11 commercial power plants in the Midwest. But it won’t have that income in the future – Duke sold the plants last month to Houston’s Dynegy for $2.8 billion.

Duke will spend $1.5 billion from the sale to buy back company stock and use the rest to pay down debt. “This is the sale of a business, and it just makes sense to return some capital given our investment plans over the next few years,” Young said.

A drop in earnings from the company’s international business, primarily hydroelectric power plants in central and South America, cost 13 cents a share. Duke, which recently decided not to sell the business, blamed lower production from its hydro plants and higher purchased-power costs linked to a long drought in Brazil.

Duke reaffirmed its 2015 adjusted earnings projections of $4.55 to $4.75 a share. Its stock closed Friday at $77.90, up 33 cents.

Chief executive Lynn Good told analysts that Duke expects to spend $1.2 billion to $1.3 billion to close coal-ash ponds at four high-priority power plants in North Carolina. Duke said this week that it will dispose of ash in on-site landfills at its Dan River plant in Eden and the Sutton plant in Wilmington.

Duke has estimated the costs of closing all 32 of its ash ponds in the state, as legislators have ordered, at $3.4 billion.

Duke expects to ask the state Utilities Commission for permission to pass those costs to customers, as part of general rate cases, in about 2018 or 2019, Good said.

In an interview, Good said Duke is running ahead of state deadlines, beginning in December 2016, to file plans to close its ponds. “We are advancing the closure plans very aggressively,” she said.

Good would not stake out Duke’s positions on energy-related bills now before North Carolina legislators. Among them are measures to allow electricity sales by independent energy developers and to freeze the state’s green-energy standard.

“We have been and continue to be supportive of a very collaborative process to develop energy policy and renewable policy,” Good said. “We are supportive of a process that brings all stakeholders to the table as opposed to trying to move legislation on any single issue.”

This story was originally published May 1, 2015 at 8:30 AM with the headline "Duke Energy reports strong Q1 earnings."