Duke Energy shares rose slightly Wednesday on the news that strong results from most of the company's major operating divisions led to a 48% increase in ongoing earnings per share for the fourth quarter to 43 cents and a 19% increase for the full year to $1.73. The company beat analysts' financial estimates of 37 cents/share for the quarter and $1.64/share for the year, according to Thomson Financial.
"I'm incredibly pleased with all we were able to accomplish in 2005," CEO Paul Anderson told analysts on a conference call. "It was a redefining year." Duke, which is in the middle of completing a $9 billion merger with Cinergy Corp., reported net earnings of 63 cents/share for the quarter compared to 36 cents in 4Q2004 and reported net earnings of $1.88/share for the year compared to $1.54/share a year earlier.
Anderson said Duke hopes to close its merger with Cinergy in April and believes the Cincinnati-based utility holding company will add about $800 million in ongoing earnings before interest and taxes (EBIT) in 2006. The merger still requires approvals in North Carolina and Indiana as well as from the Nuclear Regulatory Commission. Duke expects about $140 million in merger cost savings in 2006 and net cost savings of about $650 million over the next five years.
Anderson also said the company has made significant progress winding down and selling off Duke Energy North America's (DENA) operations, which have been the major drain on earnings in recent years. The company expects its $1.58 billion sale of DENA's power plants in the West and Northeast to LS Power to close by June.
Meanwhile, with the $700 million Duke paid last year to Barclays Capital to eliminate credit, collateral, market and legal risks associated with DENA's derivative trading positions, about 95% of DENA's trading and marketing portfolio has now been transferred off its books. Anderson also said about 95% of DENA's gas transportation, storage and structured contracts have been sold. Complete disposition of the remaining marketing and trading operations is expected to be completed by mid-2006. However, DENA still will contribute about $110 million in ongoing losses to Duke in 2006.
Highlights of the quarterly and 2005 results included record earnings for the company's real estate business, Crescent Resources, which reported a 108% increase in EBIT in the fourth quarter to $104 million primarily driven by higher income from residential and multi-family projects and the absence of $38 million in impairment and other charges. Year-end EBIT from continuing operations for Crescent was $314 million, compared to $240 million in 2004.
Other positives included an 11% increase in fourth quarter EBIT from continuing operations for Duke Power to $279 million, which was driven primarily by favorable weather. The increase was partially offset by a $46 million charge related to the estimated expenses from the December 2005 ice storm and higher operating and maintenance expenses. Year-end segment EBIT from continuing operations for Duke Power was $1.50 billion compared to $1.47 billion in 2004. The division is expected to produce flat earnings in 2006, Anderson said.
Duke Energy Gas Transmission reported quarterly EBIT of $344 million, compared to $343 million in fourth quarter 2004. For the year, the pipeline division produced EBIT of $1.39 billion versus $1.33 billion in 2004. Duke expects EBIT from the division to be basically flat in 2006.
Duke Energy's 50% stake in Duke Energy Field Services (DEFS) reported fourth quarter earnings of $162 million, compared to $124 million in fourth quarter 2004. EBIT from the division for the year soared to $1.95 billion from $367 million in 2004. In December, DEFS formed a master limited partnership, DCP Midstream Partners LP, and closed an initial public offering of 10.35 million common units at $21.50 per unit. Total proceeds were $208 million.
"Our major businesses contributed to the improved results in 2005," said Anderson. "I expect the company to continue on a positive trajectory with an equally strong performance in 2006."
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