Duke Energy reports first quarter 2015 adjusted earnings

CHARLOTTE, N.C., May 1, 2015 /PRNewswire/ --

• First quarter 2015 adjusted diluted earnings per share (EPS) were $1.24, compared to $1.17 for the first quarter 2014
• Reported diluted EPS of $1.22 for first quarter 2015, compared to a reported net loss of $0.14 in first quarter of 2014
  • Reported results for first quarter 2014 included a pre-tax impairment charge of approximately $1.4 billion, or $1.23 per share, related to the Midwest Generation business
• Completed sale of Midwest Generation business and commenced a $1.5 billion accelerated stock repurchase program in early April
• Company affirms its 2015 adjusted diluted earnings guidance range of $4.55 to $4.75 per share

Duke Energy today announced first quarter 2015 adjusted diluted EPS of $1.24, compared to $1.17 for first quarter 2014. First quarter 2015 reported EPS was $1.22, compared to a net loss of $0.14 for first quarter 2014.

First quarter 2015 adjusted diluted EPS reflected strong results at the company's regulated businesses driven by cold winter weather and strong operational performance. Additionally, the Midwest Generation business, which was sold to Dynegy on April 2, 2015, benefitted from higher wholesale capacity prices and energy margins. These favorable drivers were partially offset by macro-economic headwinds at International Energy related to the ongoing drought in Brazil and lower MTBE prices at National Methanol.

Based upon results through the first quarter, the company remains on track to achieve its 2015 adjusted diluted earnings guidance range of $4.55 to $4.75 per share.

"I am pleased with our operational and financial performance in the first quarter," said Lynn Good, president and CEO. "Our customers needed a record amount of electricity during the exceptionally cold weather in February, and we were there. We were also quick to respond during numerous winter storms that caused significant outages.

"We continue to make progress on our strategic initiatives, including closing the transaction to sell our Midwest Generation business to Dynegy and obtaining provisions to enable the NCEMPA purchase transaction in North Carolina," Good added.

Business unit results

In addition to the summary business unit discussion below, a comprehensive table of quarterly adjusted earnings per share drivers compared to the prior year is provided on page 14.

The discussion below of first-quarter results includes adjusted segment income, which is a non-GAAP financial measure. The tables on pages 22 through 23 present a reconciliation of reported results to adjusted results.

Regulated Utilities

Regulated Utilities recognized first quarter 2015 adjusted segment income of $774 million, compared to $737 million in the first quarter 2014, an increase of 5 cents per share.

Higher quarterly results at Regulated Utilities were primarily driven by:

• Increased wholesale net margins (+$0.04 per share) primarily due to growth in contracted amounts
• Favorable rider adjustments (+$0.03 per share), including increased energy efficiency programs

These favorable drivers were partially offset by:

• Higher O&M expenses (-$0.02 per share) due to timing of fossil outages and higher nuclear costs, including impacts of nuclear outage cost levelization partially offset by lower storm costs
• Lower weather-normal retail customer volumes (-$0.02 per share) of -0.7 percent compared to an increase of 2.6 percent in the first quarter of 2014. The prior year increase was partially due to unusual changes in customer usage patterns resulting from the extended periods of cold weather

International Energy

International Energy recognized first quarter 2015 adjusted segment income of $36 million, compared to $130 million in the first quarter 2014, a decrease of $0.13 per share.

Lower quarterly results at International Energy were primarily driven by:

• Unfavorable results in Latin America (-$0.10 per share) primarily due to lower hydro generation volumes and higher purchased power costs resulting from the multi-year drought in Brazil
• Lower margins at National Methanol (-$0.02 per share), largely driven by lower MTBE prices

Commercial Power

Commercial Power recognized first quarter 2015 adjusted segment income of $95 million, compared to $10 million in the first quarter 2014, an increase of $0.12 per share. Commercial Power's first quarter 2015 adjusted earnings include the impact of the Midwest Generation business, which was sold to Dynegy on April 2, 2015.

Higher quarterly results at Commercial Power were primarily driven by:

• Stronger results from the Midwest Generation business (+$0.13 per share) primarily due to higher PJM capacity prices and increased generation margins

This favorable driver was partially offset by:

• Lower results from the renewables business (-$0.01 per share) due to lower wind production in the United States

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 quarterly income tax levelization adjustments.

Other recognized a first quarter 2015 adjusted net expense of $24 million, compared to net expense of $48 million in the first quarter 2014. The $0.03 per share increase was primarily driven by favorable quarterly income tax levelization adjustments.

The consolidated adjusted effective tax rate for first quarter 2015 was 32.4 percent, compared to 33.5 percent in the first quarter of 2014.

Accelerated Stock Repurchase Program

In connection with closing the transaction to sell the Midwest Generation business to Dynegy for $2.8 billion on April 2, 2015, Duke Energy commenced a $1.5 billion accelerated stock repurchase program (ASR). On April 6, 2015, Duke Energy received delivery of and retired approximately 16.6 million shares, which is approximately 85 percent of the total number of shares of Duke Energy common stock expected to be repurchased under the ASR. The final number of shares to be repurchased is dependent upon the daily volume-weighted average stock price of Duke Energy's common stock during the term of the program.

The final settlement of the ASR is expected to occur by the end of the third quarter of 2015. As a result of the ASR, weighted-average shares of Duke Energy common stock outstanding in 2015 are expected to be approximately 695 million.

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 888-318-7469 in the United States or 719-785-1768 outside the United States. The confirmation code is 2235186. 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, May 11, 2015, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 2235186. 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 quarterly results in 2015 and 2014 include:

Reconciliation of reported to adjusted diluted EPS for the quarter:

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 net of income (loss) attributable to noncontrolling interests, adjusted for dollar and per share impact of mark-to-market impacts of economic hedges in the Commercial Power segment and special items including the operating results of the Midwest Generation business (Disposal Group) classified as discontinued operations for GAAP purposes. 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. As result of the agreement in August of 2014 to sell the Disposal Group to Dynegy, the operating results of the Disposal Group are classified as discontinued operations, including a portion of the mark-to-market adjustments associated with derivative contracts. Management believes that including the operating results of the Disposal Group classified as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted EPS. Derivative contracts are used in Duke Energy's hedging of a portion of the economic value of its generation assets in the Commercial Power segment. The mark-to-market impact of derivative contracts is recognized in GAAP earnings immediately and, if associated with the Disposal Group, classified as discontinued operations, 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. 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 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 the mark-to-market impacts of economic hedges in the Commercial Power segment and special items, including the operating results of the Disposal Group classified as discontinued operations for GAAP purposes. Management believes the presentation of adjusted segment income as presented 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 the 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 2015 include a half-year of earnings contributions from the Midwest Generation business. Irrespective of discontinued operations accounting treatment, operating results from the Midwest Generation business remain in Duke Energy's adjusted earnings, adjusted diluted EPS, and adjusted segment income.  As a result of completing the sale on April 2, 2015, operating results of the Midwest Generation business will no longer be included, on a prospective basis, in Duke Energy's financial results beginning in the second quarter 2015.

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 $120 billion in total assets. Its regulated utility operations serve approximately 7.3 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," "guidance," "outlook," 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 compliance with current and any 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 nuclear facilities could prove to be more extensive than are currently identified and all costs may not be fully recoverable through the regulatory process; the risk that the credit ratings of the 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 efforts 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; construction and development risks associated with the completion of Duke Energy and its subsidiaries' capital investment projects in existing and new generation facilities, including risks related to financing, obtaining and complying with terms of permits, meeting construction budgets and schedules, and satisfying operating and environmental performance standards, as well as the ability to recover costs from customers in a timely manner or at all; 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 prospective undistributed earnings of foreign subsidiaries or repatriate such earnings on a tax-efficient 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  24-Hour: 800.559.3853

Analysts: Bill Currens  Office: 704.382.1603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Duke Energy