Duke Energy Suffers Setbacks in Second-Quarter 2010, but Cites Strong Operational Performance

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Researched by Industrial Info Resources (Sugar Land, Texas)--Electric power company Duke Energy (NYSE:DUK) (Charlotte, North Carolina) reported a drop in net income for the second quarter of 2010, despite a slight increase in earnings, largely because of non-cash impairment charges of $660 million, the mark-to-market impact of economic hedges, and one-time corporate expenses. Net income was reported to be a loss of $222 million, compared to a gain of $276 million in the same period last year.

Duke officials were quick to point out that the impairment charges were largely due to the remaining goodwill in the Midwest operations, of which there were no charges left after the second quarter ended. When these charges are included with the mark-to-market and one-time corporate charges, the diluted net loss per share was $0.17, compared to a gain of $0.21 in second-quarter 2009; excluding these charges, adjusted earnings-per-share stood at a gain of $0.34, up from $0.26 in the same period last year.

Total operating revenues stood at $3.29 billion, a 12.84% increase from second-quarter 2009. The company attributed the boost in revenues to above-normal temperatures in all five of the company's service territories throughout the quarter, as well as improved weather-normalized retail sales and increased pricing. However, the company's Commercial Power segment was negatively impacted by lower retail sales volumes due to competition in Ohio, as well as lower gains on coal sales.

"The results for all of our business segments, taken as a whole, were higher than our expectations, principally driven by favorable weather and strong industrial sales," said Lynn Good, group executive and chief financial officer of Duke, in a conference call. "The competitive environment in Ohio continues to be challenging, but we have been successful in executing our plans to defend margins in that business."

Duke's total segment earnings before income taxes, depreciation and amortization (EBIT) were $193 million, compared to $647 million in second-quarter 2009. However, strong gains could be found in the U.S. Franchised and International segments:

• The U.S. Franchised Electric and Gas segment reported EBIT of $671 million, a 34.2% increase from the same period last year. When including depreciation and amortization in the second quarters of 2010 and 2009, the segment saw $345 million, a 90.61% increase. Segment revenues were $2.42 billion, a 12.7% increase.
• The Commercial Gas segment reported a loss of $604 million, which included the $660 million impairment charge, compared to a gain of $79 million in the same period last year. Including depreciation and amortization, the segment saw a $659 million loss, compared to a $30 million gain in second-quarter 2009. Segment revenues were $540 million, a 13.92% increase.
• The International Energy segment reported EBIT of $126 million, compared to only $68 million in the same period last year. Including depreciation and amortization, the segment saw $105 million, compared to $49 million in second-quarter 2009. Segment revenues were $310 million, a 14.39% increase.
• Other EBIT totaled a loss of $122 million, compared to a loss of $38 million in second-quarter 2009. Including depreciation and amortization, losses were $146 million, compared to losses of $58 million. Other revenues totaled $37 million, a 11.9% decrease.

Duke retains an optimistic outlook for full-year 2010, citing a continued focus on cost management and signs of an improving economy. The company has raised its 2010 adjusted, diluted earnings-per-share guidance from $1.25 - $1.30, to $1.30 - $1.35.

"Our strong operational performance in the first half of the year has us on target to achieve our operational metrics for 2010," said James Rogers, the chairman, president and chief executive officer of Duke, in the conference call. He added that the company was raising its earnings-per-share guidance based on favorable weather and stronger-than-expected weather-normalized retail volumes.

Industrial Info is tracking 65 active Duke projects that are worth a total of more than $34 billion, including the $15.65 billion construction of the 2,234-megawatt (MW) William States Lee III Nuclear Power Station in Cherokee Falls, South Carolina, which is scheduled to kick off in June 2012 and to be completed in September 2018. The project includes the construction of two Westinghouse AP1000 advanced pressurized reactors, each with a 1,117-MW steam turbine-generator. For more information, visit Industrial Info's International Power Database.

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