Duke Energy Posts Strong Quarter Amid Storm; Profitability Outlook Maintained

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Duke Energy (NYSE: DUK) released its third quarter results on November 2, 2018, and conducted a call with analysts following the release. The company reported better than expected results for the third quarter, wherein, adjusted EPS was reported at $1.65. a rise of $0.06 as compared to the same period last year. Revenue came in at $6.63 billion for the company, a rise of $0.15 billion as compared to the quarter a year ago. A Fortune 125 company, Duke marked the quarter with strong execution across all divisions and a robust response to the unprecedented storm activity. The company has narrowed its adjusted diluted earnings guidance to $4.65-$4.85 from previous $4.55-$4.85. Further, the company had continued the momentum on its grid modernization, advanced its efforts to produce cleaner energy, and made investments on its Atlantic coast pipeline (natural gas).

We have a $79 price estimate for the company, which is slightly lower than the current market price. View our interactive dashboard – Q3: Our Outlook For Duke Energy In 2018 – and view our key assumptions to arrive at a price estimate of your own.

Key Highlights From Q3

The company posted GAAP EPS of $1.51 in the face of the storm activity as the company responded to three million outages in the third quarter. The company also obtained significant regulatory approvals for the Atlantic Coast Pipeline and continued to advance the gas infrastructure project.

  • Electric Utilities & Infrastructure – This division reported a segment income of $1,167 million as compared to $1,020 million the quarter a year ago. The company earnings were pulled down by $84 million due to an after-tax impairment charge of the Florida settlement agreement. Higher results for this quarter were primarily due to a realization of strong retail volumes in more favorable weather conditions. Higher revenues coupled with lower income tax expense were partially offset by higher depreciation and amortization expense. Higher operation and maintenance expense, primarily driven by higher restoration costs, and other impairment charges related to the Indiana settlement decimated the earnings further. The company delivered a robust response to the storm activities and encountered approximately 3 million outages during the period, out of which, 93% of the 1.8 million outages in the Carolinas, were restored within 5 days and the grid improvement benefits will provide the means to restore a similar number of outages within 3 days in Q4. The company will complete the rebuild of the whole system required along the Florida coast.
  • Gas Utilities and Infrastructure – This division reported a segment income of $17 million for this quarter, as compared to $19 million in the quarter a year ago.  Earnings for this division were impacted by true-ups of prior year estimates related to the Tax Act. These costs were treated as special items and excluded from adjusted earnings. Further, the company got the approvals for its gas pipeline construction on the Atlantic coast. The company has increased its cost guidance by $0.5 million to $7.0 million and is intending the complete the key-portions of pipeline and other amenities by the end of 2019.
  • Commercial Renewables – Adjusted earnings for this division came in at $26 million for this quarter, as compared to $7 million in the quarter a year ago, largely due to a new solar project placed in service, but the company reported a loss of $62 million, largely due to charges from annual goodwill testing. Further, the company has initiated the process to recycle capital from the existing portfolio and is well positioned to peddle the 300MW of wind and solar energy by late 2019.

 

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