Duke Energy (NYSE:DUK) released its third quarter earnings on November 6, posting a relatively stable set of numbers that were slightly below market expectations. While the results were bolstered by rate increases, higher wholesale margins and some improvement in the company’s international business, they were negatively impacted by cooler weather conditions. The company’s quarterly operating revenues and adjusted net income remained relatively flat year-over-year at around $6.7 billion and $1.03 billion respectively.  Below is a brief overview of some of the key factors that influenced the company’s earnings and what to expect going forward.
Trefis has a $73 price estimate for Duke Energy, which is in line with the current market price.
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Retail Sales Contract On Milder Weather: Duke energy’s retail sales declined by around 1.3% year-over-year to around 66,500 gigawatt hours due to unfavorable weather conditions through the quarter. The number of cooling degree days in Carolina’s and Midwestern operations declined by around 20% and 24% respectively. Cooling degree days measures the need for air conditioning based on the extent to which the average temperature on a day exceeds a certain reference temperature. However, on a weather-normalized basis, Duke’s retail sales increased by close to 1.7% over the last year, which we believe is a relatively healthy trend. Overall, the company’s total number of customers for the U.S. franchised electric and gas division grew by about 0.80% over the last year.
Operational Improvements And Cost Savings: It has been over a year since Duke closed its merger with Progress Energy. Following the merger, Duke has been able to derive synergies by eliminating some duplicate functions, reducing manpower, increasing scale in power generation and combining dispatch centers. As of Q3 2013, the company says that is has achieved cumulative fuel and joint dispatch savings of about $145 million, and says that it is on track to reduce the non-fuel operation and maintenance costs by close to 9% since the merger. 
International Business Does Well, Brazil Hydro Outlook Improves: Duke’s international energy business, which is primarily located in Latin America, owns and operates electric generation capacity and also sells and markets electricity and natural gas. The business saw its adjusted earnings grow by around 13% year-over-year to around $116 million, thanks to better pricing in Brazil as well as a positive impact of earnings from the Chilean generation assets that the company acquired last year. Duke Energy’s Brazilian operations, which account for around 40% of its international generation capacity, are composed entirely of hydroelectric assets. Brazil faced a drought earlier this year leading to lower reservoir levels, impacting generation volumes and driving up costs due to power purchases. However, the company said that hydro power conditions in Brazil were stabilizing, with reservoir levels improving over the last year, although they still remain slightly low. 
Rate Increases, More Favorable Weather Should Drive Q4 Results : Duke has guided an adjusted earnings of around $0.90 to $1.10 per share for Q4, which would be at least 30% higher than last year owing to cost reductions, improved weather conditions as well as rate increases. In September, Duke was awarded a 5.1% rate increase for its Duke Energy subsidiary in North Carolina and a 8.2% rate increase for its South Carolina operations. The full impact of these rate increases should be visible from Q4 onwards. Looking further ahead, Duke Expects its adjusted EPS to grow by between 4% to 6 % per year between 2013 and 2015, despite a relatively sluggish load growth (0.5% – 1%), in part due to merger synergies and the full effect of its rate increases.
Trefis is currently updating its valuation model and price estimate for Duke Energy to account for the earnings release.Notes: