Duke Energy reports second quarter 2016 financial results

CHARLOTTE, N.C., Aug. 4, 2016 /PRNewswire/ --

• Second quarter 2016 GAAP reported diluted EPS was $0.74 compared to $0.78 for the second quarter of 2015
• Adjusted diluted EPS of $1.07 for second quarter 2016, compared to $0.95 for the second quarter of 2015
• Company remains on track to achieve its 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share

Duke Energy today announced second quarter 2016 reported diluted earnings per share (EPS), prepared in accordance with Generally Accepted Accounting Principles (GAAP) of $0.74, compared to $0.78 for second quarter 2015. Second quarter 2016 adjusted diluted EPS was $1.07, compared to $0.95 for second quarter 2015.

GAAP reported diluted EPS includes the impact of special items, which are excluded from adjusted diluted EPS. Special items during the second quarter of 2016 include charges related to an impairment in Central America, costs to achieve mergers and cost savings initiatives.

Second quarter adjusted diluted EPS was higher than the prior year due to higher retail revenues from pricing and rider recoveries, lower O&M expense, and additional earnings from the North Carolina Eastern Municipal Power Agency (NCEMPA) acquisition.

Based upon results through the second quarter, the company remains on track to achieve its 2016 adjusted diluted earnings guidance range of $4.50 to $4.70 per share.

"Our solid second quarter performance reflects the strength of our regulated utilities driven by strategic investments, dedicated cost management and a relentless focus on operational excellence," said Lynn Good, Duke Energy chairman, president and CEO. "The execution of our long-term strategy to modernize the energy grid and generate cleaner energy creates value for customers, delivers growth for shareholders and enhances our position as a leader in the industry.

"Looking ahead, we are on track with our proposed acquisition of Piedmont Natural Gas and the marketing of our Latin American assets," Good added. "The successful completion of both transactions will align our portfolio to focus on domestic infrastructure businesses that drive more stable earnings and cash flow growth."

Business unit results

In addition to the summary business unit discussion below, a comprehensive table of quarterly earnings per share drivers compared to the prior year is provided on pages 15 and 16.

The discussion below of the second-quarter results includes adjusted segment income, which is a non-GAAP financial measure. In addition to the drivers that follow, the variances in GAAP reported earnings were impacted by special items. The tables on pages 25 through 28 present a detail of special items and a reconciliation of GAAP reported results to adjusted results.

During the first quarter of 2016, Duke Energy began to evaluate interim period segment performance based on financial information that includes the impact of income tax levelization within segment income. This represents a change from the previous measure, where the interim period impacts of income tax levelization were included within Other, and therefore excluded from segment income. As a result, prior period segment results presented in this release have been recast to conform to this change.

Regulated Utilities

Regulated Utilities recognized second quarter 2016 adjusted segment income of $718 million, compared to $632 million in the second quarter 2015, an increase of $0.13 per share.

Higher quarterly results at Regulated Utilities were primarily driven by:

• Higher pricing and riders (+$0.08 per share)
• Lower O&M expenses (+$0.05 per share), primarily as a result of favorable outage costs and cost savings initiatives
• Increased wholesale net margins (+$0.03 per share), primarily due to the long-term wholesale contract associated with the NCEMPA purchase in the prior year

These favorable drivers were partially offset by:

• Less favorable weather (-$0.04 per share)

On a year-to-date basis, Regulated Utilities recognized adjusted segment income of $1,413 million, compared to $1,406 million in the comparable year-to-date period of 2015, an increase of $0.01 per share.

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

• Higher pricing and riders (+$0.15 per share)
• Increased wholesale net margins (+$0.05 per share) primarily due to the long-term wholesale contract associated with the NCEMPA acquisition in the prior year
• Lower O&M expense (+$0.03 per share) as a result of favorable outage costs and cost savings initiatives, despite higher storm costs (-$0.06 per share)
• Lower effective tax rate (+$0.03 per share)

These favorable drivers were partially offset by:

• Less favorable weather (-$0.14 per share)
• Higher depreciation and amortization expense (-$0.06 per share) primarily resulting from additional plant in-service
• Higher non-income taxes (-$0.04 per share) primarily due to increased property taxes

Commercial Portfolio

Commercial Portfolio recognized second quarter 2016 adjusted segment income of $14 million, compared to $11 million in the second quarter 2015, an increase of $0.01 per share.

Higher quarterly results at Commercial Portfolio were primarily driven by increased investments in the Atlantic Coast and Sabal Trail pipelines.

On a year-to-date basis, Commercial Portfolio recognized adjusted segment income of $41 million, compared to $112 million in the comparable year-to-date period of 2015, a decrease of $0.10 per share.

Commercial Portfolio's lower year-to-date earnings were driven by the absence of earnings from the Midwest Generation business (-$0.12 per share), which was sold in April 2015, partially offset by higher earnings from the renewables portfolio (+$0.01 per share) and increased investments in the Atlantic Coast and Sabal Trail pipelines (+$0.01 per share).

International Energy

International Energy recognized second quarter 2016 adjusted segment income of $43 million, compared to $52 million in the second quarter 2015, a decrease of $0.02 per share.

International Energy's decreased quarterly earnings were driven by lower earnings at National Methanol Company (NMC) (-$0.02 per share) and a higher effective tax rate (-$0.02 per share), partially offset by stronger results in Latin America (+$0.03 per share) primarily due to improved hydrology in Brazil despite weaker foreign currency exchange rates.

On a year-to-date basis, International Energy recognized adjusted segment income of $166 million, compared to $88 million in the comparable year-to-date period of 2015, an increase of $0.11 per share.

Higher year-to-date earnings at International Energy were driven by a lower effective tax rate (+$0.08 per share), stronger results in Latin America (+$0.06 per share) primarily due to improved hydrology in Brazil, partially offset by weaker foreign currency exchange rates, and lower earnings from NMC (-$0.03 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, and other investments.

Other recognized second quarter 2016 adjusted net expense of $36 million, compared to net expense of $37 million in the second quarter 2015, which was flat on a per share basis. The decreased net expense was primarily driven by a change in effective tax rate (+$0.02 per share) and higher interest expense (-$0.01 per share).

On a year-to-date basis, Other recognized adjusted net expense of $104 million, compared to $67 million in the comparable period of 2015, a decrease of $0.05 per share. Other's year-to-date results were primarily driven by higher interest expense (-$0.02 per share) and a change in effective tax rate (-$0.01 per share).

The consolidated adjusted effective tax rate for second quarter 2016 was 31.4 percent, compared to 31.3 percent in the second quarter of 2015. Adjusted effective tax rate is a non-GAAP financial measure. The tables on pages 29 and 30 present a reconciliation of GAAP reported effective tax rate to adjusted effective tax rate.

Accelerated stock repurchase program

In connection with the transaction to sell the Midwest Generation Business to Dynegy for $2.8 billion, which closed on April 2, 2015, Duke Energy completed a $1.5 billion accelerated stock repurchase program (ASR).  The program resulted in share retirements of approximately 19.8 million, providing a benefit to the year-to-date 2016 results of $0.03 per share.

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 and financial updates.

The conference call will be hosted by Lynn Good, chairman, 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 877-723-9502 in the United States or 719-325-4795 outside the United States. The confirmation code is 4669837. 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, August 14, 2016, by calling 888-203-1112 in the United States or 719-457-0820 outside the United States and using the code 4669837. A replay and transcript also will be available by accessing the investors' section of the company's website.

Special Items and Non-GAAP Reconciliation

The following table presents a reconciliation of GAAP reported to adjusted diluted EPS for quarterly results in 2016 and 2015:

(1) Adjusted earnings for the second quarter of 2015 excludes GAAP reported loss from discontinued operations of $0.09 per diluted share, which was driven by the impact of a litigation reserve related to the nonregulated Midwest generation business, as well as a tax charge recorded within continuing operations of $0.06 resulting from changes in state tax apportionment factors related to the sale of the Midwest generation business.

Non-GAAP financial measures

Management evaluates financial performance in part based on non-GAAP financial measures, adjusted earnings and adjusted diluted EPS. These items represent income from continuing operations net of income (loss) attributable to noncontrolling interests, adjusted for the dollar and per-share impact of special items. Special items represent certain charges and credits, which management believes are not indicative of our ongoing performance, and are discussed below. 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, stockholders, 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 stockholders.

Special items included in the periods presented include the following:

• Costs to achieve mergers and International impairment represent charges that result from potential or completed strategic acquisitions and divestitures that do not reflect ongoing costs of the business.
• Costs savings initiatives represent restructuring charges incurred to reduce future expenses and do not represent ongoing costs.
• Midwest generation operations represents the operating results of the nonregulated Midwest generation business and Duke Energy Retail Sales (collectively, the Disposal Group), which have been classified as discontinued operations. Management believes inclusion of the Disposal Group's operating results within adjusted earnings and adjusted diluted EPS results in a better reflection of Duke Energy's financial performance during the period.

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 for future periods (such as legal settlements, the impact of regulatory orders, or asset impairments).

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 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, which are discussed above. 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.

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 or any amounts that may be reported as discontinued operations or extraordinary items for future periods, as discussed above.

Duke Energy's adjusted earnings, adjusted diluted EPS, and adjusted segment income may not be comparable to similarly titled measures of another company because other entities may not calculate the measures in the same manner.

Duke Energy is one of the largest electric power holding companies in the United States. Its regulated utility operations serve approximately 7.4 million electric customers located in six states in the Southeast and Midwest, representing a population of approximately 24 million people. Its Commercial Portfolio 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 an S&P 100 Stock Index company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available at duke-energy.com.

The Duke Energy News Center serves as a multimedia resource for journalists and features news releases, helpful links, photos and videos. Hosted by Duke Energy, illumination is an online destination for stories about remarkable people, innovations, and community and environmental topics. It also offers glimpses into the past and insights into the future of energy.

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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 and can often be identified by terms and phrases that include "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will," "potential," "forecast," "target," "guidance," "outlook" or other similar terminology. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements; accordingly, there is no assurance that such results will be realized. These factors 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 costs and liabilities to comply with federal and state regulations related to coal ash, including amounts for the required closure of certain ash basins, are uncertain and difficult to estimate; the ability to recover eligible costs, including amounts associated with coal ash basin asset retirement obligations and future significant weather events, and earn an adequate return on investment through the regulatory process; the costs of decommissioning Crystal River Unit 3 and other nuclear facilities could prove to be more extensive than amounts estimated and all costs may not be fully recoverable through the regulatory process; credit ratings of the company or its subsidiaries may be different from what is expected; 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 variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, including self-generation and distributed generation technologies; advancements in technology; additional competition in electric markets and continued industry consolidation; political, economic and regulatory uncertainty in Brazil and 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, earthquakes and tornadoes; the ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to the company resulting from an incident that affects the U.S. electric grid or generating resources; the impact on facilities and business from a terrorist attack, cybersecurity threats, data security breaches, and other catastrophic events such as fires, explosions, pandemic health events or other similar occurrences; 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, interest rate fluctuations 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, 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 successfully complete future merger, acquisition or divestiture plans; the expected timing and likelihood of completion of the proposed acquisition of Piedmont Natural Gas Company, Inc. (Piedmont), including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the acquisition, and under certain specified circumstance pay a termination fee of $250 million, as well as the ability to successfully integrate the businesses and realize anticipated benefits and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;  and the likelihood, terms and timing of the potential sale of International Energy, excluding the equity investment in National Methanol Company, could change the presentation of certain assets, liabilities and results of operations as assets held for sale, liabilities associated with assets held for sale, and discontinued operations, respectively.

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 described. Forward-looking statements speak only as of the date they are made; Duke Energy expressly disclaims an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Media Contact: Catherine Butler24-Hour: 800.559.3853

Analysts: Mike CallahanOffice: 704.382.0459        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Duke Energy