Boosted by a high sale price for 11 power plants in the Midwest, Duke Energy reported a 27 percent profit increase for the third quarter Wednesday but missed Wall Street’s expectations.
Duke earned nearly $1.3 billion for the quarter, compared with $1 billion a year earlier, on $6.4 billion in revenue. Earnings per share of $1.80 were boosted 43 cents by the $2.8 billion power plant sale to Dynegy.
Adjusted for such one-time events, earnings were $1.40 a share compared with $1.46 in the same period last year, well below financial analysts’ estimates of $1.52. Earnings had beaten analysts’ estimates the three previous quarters.
Investors shrugged. After surging since October, Duke stock closed Wednesday at $83.50, up $1.27.
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The company’s earnings report estimated its costs under North Carolina’s coal ash legislation, which mandates that Duke close its 32 coal ash ponds by 2029, at $3.4 billion.
That figure is likely to change as state regulators and a newly created Coal Ash Management Commission decide how and when ponds are to be closed. Duke had previously told regulators it could cost $2 billion to $10 billion to close the ponds.
Utilities’ third quarters are key because they capture the heaviest electricity demand for summer cooling.
Duke said its regulated utilities, which account for most of its income, benefited from higher rates during the third quarter. Weather, while cooler than normal, produced more revenue than in summer 2013.
But profits were hurt by the closing of two large industrial plants in Eastern North Carolina.
The Dynegy sale, to close early next year, netted about $500 million more than Duke had expected. That allowed it a $477 million reversal of a $1.4 billion charge recorded earlier in the year. Duke says it could spend the money on growth, to avoid future debt or buy back stock
While Duke said its earnings projections of $4.50 to $4.65 a share for the year are still “achievable,” some analysts question its long-term earnings growth projections of 4 percent to 6 percent a year through 2016.
Duke continues to add residential customers at about 1 percent a year, but customers are also using less electricity. After missing analysts’ expectations in the third quarter, Duke warned that it also expects lower results in the fourth quarter.
Edward Jones utilities analyst Andy Smith says Duke’s recent capital investments, including new gas-fired power plants in the Carolinas, put Duke in a good position to meet its growth projections.
“They don’t want to commit beyond 2016, but I think they’re positioned for at least a couple of years beyond that,” he said.
The company expects to finish a review of its international business, including a possible sale, by late this year or early 2015. Its hydroelectric operations in Brazil have been staggered by a severe drought. The unit lost $36 million for the quarter, worth 5 cents a share.
Duke announced $5.5 billion in third-quarter spending that is aimed at growing the company.
“We’re trying to put projects together that make sense for our customers, make sense for the jurisdiction and for the long-term strategy and positioning of the utility” serving those areas, CEO Lynn Good said.
Among them is $2 billion for a partnership with Charlotte’s Piedmont Natural Gas and two other companies in a 550-mile natural gas pipeline to tap the rich shale-gas deposits up the East Coast.
The line, to run from West Virginia to North Carolina’s Robeson County, would be the second major interstate pipeline across the state. It’s expected to be completed by late 2018.
“Once it’s in place, depending on financing, we’d expect it to add 5 to 10 cents a share to the bottom line,” said Chief Financial Officer Steve Young.
Duke said it will spend $500 million to acquire three large solar farms and buy power from five more new projects in North Carolina. The projects are expected to generate energy by the end of 2015.
Duke will also pay $1.2 billion for interests in five power plants owned by the North Carolina Electric Membership Power Agency, which supplies municipal systems in Eastern North Carolina. It also announced a $1.9 billion grid modernization project in Indiana.