Duke Energy posts strong second quarter 2014 results; increases outlook for 2014

CHARLOTTE, N.C., Aug. 7, 2014 /PRNewswire/ -- Duke Energy today announced second quarter 2014 adjusted diluted EPS of $1.11, compared to 87 cents for second quarter 2013, and reported diluted EPS of 86 cents, compared to 48 cents for the same period last year.

The company saw strong performance from all of its business units in the quarter, led by Regulated Utilities, which continued to benefit from favorable weather and a lower effective tax rate, and International Energy, which recognized a tax benefit resulting from the reorganization of the company's operations in Chile.

Based upon results through the first half of the year, the company is increasing its 2014 adjusted earnings guidance range from $4.45 to $4.60 per share to $4.50 to $4.65 per share.

"Our strong second quarter performance and continued focus on operational excellence leaves us well-positioned to meet our financial objectives in 2014 and beyond. We are committed to maintaining affordable customer rates and to supporting the strength of our local communities, as evidenced by our recent agreement with the North Carolina Eastern Municipal Power Agency," said Lynn Good, president and CEO.

"We are executing our strategy to position the business for long-term sustainable growth, benefitting our customers and shareholders," she added.

Business Unit Results

In addition to the summary business unit discussion below, a comprehensive table of quarterly and year-to-date earnings per share drivers compared to the prior year are provided on pages 10 and 11.

The discussion below of second-quarter results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 24 through 27 present a reconciliation of reported results to adjusted results.

Regulated Utilities

Regulated Utilities recognized second quarter 2014 adjusted segment income of $689 million, compared to $590 million in the second quarter 2013, an increase of $0.13 per share.

Increased quarterly results at Regulated Utilities were primarily driven by:

• Higher revenues from increased pricing and riders (+$0.07 per share) primarily related to the implementation of revised customer rates
• Favorable weather (+$0.07 per share) driven by warmer than normal temperatures across Duke Energy's service territories
• Lower effective tax rate (+$0.05 per share) primarily due to a state tax settlement that resulted in a favorable adjustment to deferred taxes
• Lower operating and maintenance expenses (+$0.03 per share) primarily driven by a prior-year donation associated with the 2013 Duke Energy Progress rate case settlement as well as the benefit of nuclear outage cost levelization
• Increased wholesale net margins (+$0.02 per share) primarily resulting from growth in contracted amounts

These favorable drivers were partially offset by:

• Higher depreciation and amortization expense (-$0.07 per share) primarily resulting from additional plant in service and a decrease in cost of removal amortization
• Higher interest expense (-$0.03 per share) primarily due to lower post-in-service debt returns on projects now reflected in customer rates
• Lower AFUDC equity (-$0.01 per share) primarily due to the completion of certain major capital projects

On a year-to-date basis, Regulated Utilities recognized adjusted segment income of $1,426 million, compared to $1,246 million in the comparable year-to-date period of 2013, an increase of $0.26 per share.

Increased year-to-date results at Regulated Utilities were primarily driven by:

• Higher revenues from increased pricing and riders (+$0.20 per share) primarily related to the implementation of revised customer rates
• Favorable weather (+$0.15 per share) across Duke Energy's service territories
• Higher weather-normal retail volumes (+$0.06 per share) of 1.5 percent compared to 2013 primarily driven by strong results in the first quarter
• Lower effective tax rate (+$0.05 per share) primarily due to a state tax settlement that resulted in a favorable adjustment to deferred taxes
• Increased wholesale net margins (+$0.05 per share) primarily resulting from growth in contracted amounts and favorable weather

These favorable drivers were partially offset by:

• Higher depreciation and amortization expense (-$0.14 per share) due to additional plant in service and the prior-year impact of cost of removal amortization primarily in Florida
• Higher interest expense (-$0.06 per share) due to lower post-in-service debt returns on projects now reflected in customer rates
• Lower AFUDC equity (-$0.03 per share) primarily due to the completion of certain major capital projects

International Energy

International Energy recognized second quarter 2014 adjusted segment income of $146 million, compared to $87 million in the second quarter 2013, an increase of $0.09 per share.

International Energy's improved quarterly earnings were driven by:

• Favorable results in Latin America (+$0.08 per share) primarily due to a tax benefit resulting from the reorganization of the company's operations in Chile
• Higher results at National Methanol Company (+$0.02 per share) due to a prior-year extended planned maintenance outage

These favorable drivers were partially offset by unfavorable foreign currency exchange rates (-$0.01 per share).

On a year-to-date basis, International Energy recognized adjusted segment income of $276 million, compared to $184 million in the comparable year-to-date period of 2013, an increase of $0.13 per share.

International Energy's improved year-to-date earnings were driven by:

• Stronger results in Latin America (+$0.13 per share), primarily due to a tax benefit resulting from the reorganization of the company's operations in Chile and higher average volumes and pricing in Brazil
• Higher results at National Methanol Company (+$0.02 per share) due to a prior-year extended planned maintenance outage

These drivers were partially offset by unfavorable foreign currency exchange rates (-$0.03 per share).

Commercial Power

Commercial Power recognized second quarter 2014 adjusted segment income of $16 million, compared to a segment loss of $3 million in the second quarter 2013, an increase of $0.02 per share.

Commercial Power's improved quarterly earnings were primarily driven by:

• Higher results from the Midwest coal and gas generation fleets (+$0.02 per share) primarily due to higher PJM capacity prices
• Increased results at the renewables business (+$0.01 per share) due to higher production of the wind and solar portfolio

On a year-to-date basis, Commercial Power recognized adjusted segment income of $26 million, compared to $3 million in the comparable year-to-date period of 2013, an increase of $0.03 per share.

Commercial Power's improved year-to-date earnings were primarily driven by:

• Increased results from the renewables business (+$0.03 per share) due to higher production of the wind and solar portfolio and lower operating costs
• Higher results from the Midwest coal and gas generation fleets (+$0.03 per share) primarily due to higher PJM capacity prices

These results were partially offset by lower earnings from the company's competitive retail business, Duke Energy Retail (-$0.02 per share).

Other

On an adjusted basis, Other primarily includes corporate interest expense not allocated to the business units, results from Duke Energy's captive insurance company, other investments, and income tax levelization adjustments.

Other recognized a second quarter 2014 adjusted net expense of $65 million, compared to $57 million in the second quarter 2013. On a year-to-date basis, Other recognized adjusted net expense of $113 million, compared to $100 million in the comparable period of 2013.

Earnings Conference Call for Analysts

An earnings conference call for analysts is scheduled for 10 a.m. ET today to discuss Duke Energy's financial performance for the quarter and other business updates.

The conference call will be hosted by Lynn Good, president and chief executive officer, and Steve Young, executive vice president and chief financial officer. 

The call can be accessed via the investors' section (http://www.duke-energy.com/investors/) of Duke Energy's website or by dialing 877-718-5108 in the United States or 719-325-4765 outside the United States. The confirmation code is 6615300. Please call in 10 to 15 minutes prior to the scheduled start time.

A replay of the conference call will be available until 1 p.m. ET, Aug. 17, 2014, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 6615300. A replay and transcript also will be available by accessing the investors' section of the company's website.

Special Items and Non-GAAP Reconciliation

Special items affecting Duke Energy's adjusted diluted EPS for second quarter 2014 and second quarter 2013 include:

Reconciliation of reported to adjusted diluted EPS for the quarters:

Non-GAAP financial measures

Management evaluates financial performance in part based on the non-GAAP financial measures, adjusted earnings and adjusted diluted earnings per share (EPS). These items are measured as income from continuing operations after deducting income attributable to noncontrolling interests, adjusted for the dollar and per share impact of special items and mark-to-market impacts of economic hedges in the Commercial Power segment. Special items represent certain charges and credits, which management believes will not be recurring on a regular basis, although it is reasonably possible such charges and credits could recur. Mark-to-market adjustments reflect the impact of derivative contracts, which are used in Duke Energy's hedging of a portion of the economic value of its generation assets in the Commercial Power segment and also relate to existing derivative positions that may have tenors beyond the planned disposal date of the nonregulated Midwest generation business. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately as such derivative contracts do not qualify for hedge accounting or regulatory treatment. The economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities (e.g. coal, electricity, natural gas). Economic hedging involves both purchases and sales of those input and output commodities related to generation assets. Operations of the generation assets are accounted for under the accrual method. Management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset. However, due to the divestiture of the nonregulated Midwest generation business as mentioned above, certain derivative positions have tenors beyond the planned disposal date of these assets. As such, management expects to exclude any settlement of these derivative positions from adjusted diluted EPS as these realized gains and losses more closely relate to the loss on disposal of these assets. Management believes the presentation of adjusted earnings and adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy's performance across periods. Management uses these non-GAAP financial measures for planning and forecasting and for reporting results to the Board of Directors, employees, shareholders, analysts and investors concerning Duke Energy's financial performance. Adjusted diluted EPS is also used as a basis for employee incentive bonuses. The most directly comparable GAAP measures for adjusted earnings and adjusted diluted EPS are Net Income Attributable to Duke Energy Corporation and Diluted EPS attributable to Duke Energy Corporation common shareholders, which include the dollar and per share impact of special items, mark-to-market impacts of economic hedges in the Commercial Power segment and discontinued operations. Management evaluates segment performance based on segment income. Segment income is defined as income from continuing operations net of income attributable to noncontrolling interests. Segment income, as discussed below, includes intercompany revenues and expenses that are eliminated in the Condensed Consolidated Financial Statements. Management also uses adjusted segment income as a measure of historical and anticipated future segment performance. Adjusted segment income is a non-GAAP financial measure, as it is based upon segment income adjusted for special items and mark-to-market impacts of economic hedges in the Commercial Power segment. Management believes the presentation of adjusted segment income provides useful information to investors, as it provides them with an additional relevant comparison of a segment's performance across periods. The most directly comparable GAAP measure for adjusted segment income is segment income, which represents segment income from continuing operations, including any special items and mark-to-market impacts of economic hedges in the Commercial Power segment.

Due to the forward-looking nature of any forecasted adjusted earnings guidance, information to reconcile this non-GAAP financial measure to the most directly comparable GAAP financial measure is not available at this time, as management is unable to project all special items or mark-to-market adjustments for future periods. The earnings guidance range assumptions for 2014 include a full-year of earnings contributions from the nonregulated Midwest generation business, which management has begun a process to exit. Irrespective of whether this business is reclassified as discontinued operations for accounting purposes, management expects to continue including any nonregulated Midwest generation business earnings in adjusted earnings, adjusted diluted EPS, and adjusted segment income. Management believes it is unlikely a sale transaction will close in 2014.

Due to the forward-looking nature of any forecasted adjusted segment income or adjusted Other net expenses and any related growth rates for future periods, information to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures is not available at this time, as the company is unable to forecast all special items, the mark-to-market impacts of economic hedges in the Commercial Power segment, or any amounts that may be reported as discontinued operations or extraordinary items for future periods.

Duke Energy is the largest electric power holding company in the United States with more than $115 billion in total assets. Its regulated utility operations serve approximately 7.2 million electric customers located in six states in the Southeast and Midwest. Its commercial power and international business segments own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable energy assets in the United States.

Headquartered in Charlotte, N.C., Duke Energy is a Fortune 250 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available at duke-energy.com. 

Forward-Looking Information

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions.

These forward-looking statements are identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," "potential," "forecast," "target," "outlook," "guidance," and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: state, federal and foreign legislative and regulatory initiatives, including costs of compliance with existing and future environmental requirements or climate change, as well as rulings that affect cost and investment recovery or have an impact on rate structures or market prices; the extent and timing of the costs and liabilities relating to the Dan River ash basin release and future regulatory changes related to the management of coal ash; the ability to recover eligible costs, including those associated with future significant weather events, and earn an adequate return on investment through the regulatory process; the costs of decommissioning Crystal River Unit 3 could prove to be more extensive than is currently identified and all costs may not be fully recoverable through the regulatory process; the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; costs and effects of legal and administrative proceedings, settlements, investigations and claims; industrial, commercial and residential growth or decline in service territories or customer bases resulting from customer usage patterns, including energy efficiency effort and use of alternative energy sources including self-generation and distributed generation technologies; additional competition in electric markets and continued industry consolidation; political and regulatory uncertainty in other countries in which Duke Energy conducts business; the influence of weather and other natural phenomena on operations, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes; the ability to successfully operate electric generating facilities and deliver electricity to customers; the impact on facilities and business from a terrorist attack, cyber security threats, data security breaches and other catastrophic events; the inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates and the ability to recover such costs through the regulatory process, where appropriate, and their impact on liquidity positions and the value of underlying assets; the results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; declines in the market prices of equity and fixed income securities and resultant cash funding requirements for defined benefit pension plans, other post-retirement benefit plans, and nuclear decommissioning trust funds; changes in rules for regional transmission organizations, including changes in rate designs and new and evolving capacity markets, and risks related to obligations created by the default of other participants; the ability to control operation and maintenance costs; the level of creditworthiness of counterparties to transactions; employee workforce factors, including the potential inability to attract and retain key personnel; the ability of subsidiaries to pay dividends or distributions to Duke Energy Corporation holding company (the Parent); the performance of projects undertaken by our nonregulated businesses and the success of efforts to invest in and develop new opportunities; the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; the impact of potential goodwill impairments; the ability to reinvest retained earnings of foreign subsidiaries or repatriate such earnings on a tax-free basis; and the ability to successfully complete future merger, acquisition or divestiture plans. 

Additional risks and uncertainties are identified and discussed in Duke Energy's and its subsidiaries' reports filed with the SEC and available at the SEC's website at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than Duke Energy has described. Duke Energy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Media Contact: Tom Shiel
Office: 704.382.2355 | 24-Hour: 800.559.3853

Analysts: Bill Currens
Office: 704.382.1603