Duke Energy Corp, the largest power provider in the United States, reported a lower-than-expected quarterly profit on Friday, citing weak electricity demand and higher costs at two key units. The company, which uses coal, natural gas and nuclear plants to generate electricity, has had weak power sales since the 2008 recession as the housing market struggles to recover and consumers remain reluctant to increase their spending.
Demand from commercial customers was especially weak in the first quarter, Duke said, but it still expects to earn $4.20 to $4.45 per share this year. The midpoint of that forecast roughly matches analysts' average estimate of $4.33. Low rainfall in Brazil boosted generation costs at a key hydroelectric power station, the company said. Duke operates an international power supply business, primarily in South America, but the United States is its largest market.
"We expect the back half of 2013 to be stronger than the same period in 2012," Chief Financial Officer Lynn Good said in an interview. She said pending rate increase requests and cost savings from the integration of Progress Energy, acquired last summer for $18 billion, will help Duke reach its profit goal for the year. The company is seeking a 9.7 percent rate increase in North Carolina and a 5.1 percent rate increase in Ohio. Both increases are controversial within the states, though Good said she expects to have increases approved later this year.
"The combination of all those things represents about $1 billion of revenue," she said. For the quarter, the company posted a profit of $634 million, or 89 cents per share, up from $295 million, or 65 cents per share, a year earlier. Adjusting for the Progress Energy transaction, Duke said it earned $1.02 per share. By that measure, analysts expected $1.04, according to Thomson Reuters I/B/E/S.
Chief Executive Jim Rogers, who plans to step down at the end of the year, declined to comment on who might succeed him to run Duke, which provides electricity for more than 20 million customers. "The most important decision a board ever makes is selection of a CEO," Rogers said in an interview. The board members are "taking their time and being deliberate."
Rogers was CEO when Duke bought Progress Energy and had prepared to retire when the deal closed. The plan was for Progress CEO William Johnson to take the top job. But once the deal was consummated, Rogers was named CEO by the new Duke board of directors. This caused deep cultural rifts inside the combined company and angered North Carolina regulators. Rogers said he has worked since then to unify the company. "Both companies share the same objectives, but the how of achieving it differs in some areas," he said.
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