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International troubles depress Duke Energy earnings

The Duke Energy Center towers over Charlotte’s South Tryon Street on Oct. 26.
The Duke Energy Center towers over Charlotte’s South Tryon Street on Oct. 26. mhames@charlotteobserver.com

Charlotte’s Duke Energy reported third-quarter earnings Thursday that were down 27 percent from a year ago because of weaker performance in its international business and a loss in its commercial segment.

A long drought in Brazil, weak economies and unfavorable currency exchange rates have hammered Duke’s international unit, which consists largely of hydroelectric plants in Central and South America.

“International has been the challenge all year,” chief executive Lynn Good said in an interview. “We’re delivering in 2015 about half the earnings of 2013 and 2014.”

Income from international business, which makes up about 10 percent of all of Duke’s business, was $69 million for the third quarter, down from $80 million in the same period a year ago.

Duke decided in February, after a strategic review, to hold on to the business and on Thursday said it expects profits to stabilize in 2016.

“We certainly learned a lot this year with the extraordinary amount of volatility that international has exhibited,” Good said Thursday. “Volatility is not something that is a great fit for Duke, if you look at the level of dividend we pay. There are no specific plans that I would share but we continue to look at our portfolio.”

Companywide, Duke posted a quarterly profit of $932 million, down from $1.27 billion in the same period last year and below the $1.05 billion consensus estimate of analysts surveyed by Bloomberg.

Earnings were $1.35 a share, down from $1.80 in the third quarter of 2014. Adjusted to account for discontinued operations and non-recurring costs, earnings were $1.47 a share, up from $1.40 last year but below the $1.52 consensus.

Duke has missed analysts’ earnings estimates in four of the past five quarters. The company narrowed the range of its expected earnings for the year Thursday.

Revenue for the three months that ended Sept. 30 was $6.48 billion, below the Wall Street consensus of $6.81 billion. In the third quarter last year, the company reported revenue of $6.40 billion.

Third-quarter earnings are important to electric utilities because they include revenues from the warm-weather months when power demand is highest. An unusually hot summer boosted earnings for Duke’s regulated businesses, helping offset weakness in its international operations.

Duke lowered its full-year earnings guidance range to $4.55 to $4.65 a share from $4.55 to $4.75 a share. Good said the adjusted guidance took into account an expected hit on fourth-quarter earnings from turbulent weather in October and the weakness in its international business.

Last week Duke announced it would buy Charlotte-based Piedmont Natural Gas for $4.9 billion in cash and assume $1.8 billion in debt, with the acquisition closing in 2016. Duke said the deal positioned it for further expansion in natural gas, which fuels a growing percentage of its power plants.

That growth “could be a combination of things” inside and outside its six-state service territory, Good said. Earlier this year, Duke bought a 7.5 percent stake in the proposed Sabal Trail pipeline in Alabama, Georgia and Florida. It’s also a 50 percent investor, with Piedmont, in the Atlantic Coast Pipeline from West Virginia to Eastern North Carolina.

“We have been exploring ways we could expand in natural gas because we see it being so important to the future,” Good said. “What Piedmont does is give us a bigger platform, management expertise, a good operator. We have great expectations for a growing business plan with that platform.”

Also weighing on Duke’s third-quarter earnings was a quarterly loss in the company’s commercial portfolio because of certain discontinued operations. In April, Duke sold 11 commercial power plants in the Midwest to Houston-based Dynegy for $2.8 billion. Poor winds also hurt commercial wind farms.

Duke Energy is the largest electric utility in the U.S., with 7.3 million electric customers in six states in the Southeast and Midwest.

Katherine Peralta: 704-358-5079, @katieperalta

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