By Ann de Rouffignac
OGJ Online
HOUSTON, Apr. 18--Duke Energy Corp. surprised analysts with first quarter income of $454 million, or 74�/share, compared to $388 million, or 53�/share, for the same period in 2000.
Revenue increased 126% to $16.5 billion from $7.3 billion for the comparable quarter last year. Analysts were expecting 58�/share and quizzed executives on a Wednesday conference call about the source of the "earnings surprise." Some analysts wanted to know if gas sales in California were responsible for most of the increased income.
"The earnings surprise came from across the company -- not just selling gas in California," said CEO Richard Priory.
He said Duke's Field Services, Duke Energy International, and Duke Energy North America's first quarter performance beat company expectations. Looking forward, executives said the company will continue to grow in the 10-15% range. Priory said he was comfortable with achieving growth at the higher end of that range for 2001.
"We feel our stock is undervalued at this time in view of the results," said Priory.
Indeed, investors had a mixed reaction to Duke's first quarter and buoyed confidence about future quarters. Stock prices bounced around Wednesday trading as low as $43.55 and as high as $45.56 on 5.9 million shares traded. The shares closed at $44.61/share, up one penny.
Turning towards California where the company operates merchant power plants, executives said a reserve of $110 million taken in the fourth quarter for receivables was sufficient and conservative. They said no additional reserves are needed in this quarter. Unpaid balances have actually declined, they said.
Executives pointed out revenue from power sales in California had been booked even though some of those receivables had not been collected yet. The majority was sold forward last year on long-term contracts.
Analysts questioned whether revenue might be higher if the power had not been sold forward given the extremely bullish prospects on power for the summer.
"We hedged the gas contracts at the same time we sold the power forward," said Harvey Padewer, group president Duke Energy Services.
Analysts also wondered what happened to DukeNet Communications touted last year as a key element to the company's growth. Executives responded opportunities are still there and the communications business was already in "positive territory." The strategy is taking some time to sharpen, said Priory.
The Energy Services group which includes North American Wholesale Energy, International Energy, and other segments reported earnings of $428 million before taxes or a 208% increase over first quarter 2000. Wholesale Energy contributed $348 million of that sum -- a whopping 324% increase over first quarter 2000.
Padewer said construction plans include putting 6,100 Mw of new capacity into operation by 2002. Duke plans to announce 2,000 Mw of new peaking plants soon. Company officials said they are not worried about overbuilding of power plants and would not identify any regions where that is a possibility.
"No markets are showing signs of over capacity yet," said Priory. "Previously, we thought there would be some over capacity by now."
Contact Ann de Rouffignac at [email protected]