Duke Energy Corp. shares were flat Thursday morning despite news that the company missed third quarter earnings estimates and probably will miss earnings targets for the year. The company said its quarterly net income from continuing operations was 35 cents/share compared to the 37 cents/share average of analysts’ expectations. Large losses in the company’s trading, marketing and power generation division, Duke Energy North America (DENA), continue to overshadow improvements in other company operations.

Duke reported that it will reduce its worldwide workforce by 8%, or 2,000 positions, to save about $200 million/year. However, the company took $105 million (8 cents/share) in pretax severance charges in the third quarter related to the downsizing and expects to take $30 million in additional severance charges in the fourth quarter.

“We have made tough decisions necessary to strengthen our financial position and will continue that discipline as we move into 2004,” said CEO Richard B. Priory.

COO Fred Fowler said that through a companywide cost-reduction plan, Duke is examining all aspects of its business operations. “These actions are fundamental to our efforts to position the company for future growth.”

Duke reported third quarter 2003 earnings, including special items, of 5 cents/share or $49 million in net income compared to 27 cents/share or $230 million in net income in third quarter 2002. Earnings for the first nine months of the year are down 42% to 76 cents share including special items.

The company’s large electric utility operations in the Carolinas reported a 24% drop in earnings before interest and taxes (EBIT) to $436 million mainly because of 21% fewer cooling degree days than last year’s third quarter and a sluggish economy, which affected sales to industrial customers. EBIT for the power utility is down 11% so far this year.

EBIT for Duke’s gas pipeline business fell only 3% for the quarter and is up 16% for the first nine months of the year. The pipeline segment should get a boost in the fourth quarter because its Hubline and Patriot pipeline expansions are scheduled to go into service.

Nevertheless, the abysmal performance of Duke’s energy trading and power generation and marketing business, DENA, will continue to hold the company down. DENA showed a $411 million quarterly loss compared to a $107 million quarterly loss last year. For the first nine months of the year, the division posted a $177 million loss compared to $143 million in EBIT over the same period last year.

In third quarter 2003, mild weather, high natural gas prices and low spark spreads in many parts of the nation combined to severely impact DENA’s earnings, Duke said. The company wrote off $254 million of goodwill, which was primarily related to the formation of DENA’s trading and marketing business. This charge reflected the reduction in scope and scale of DENA’s business and the continued deterioration of market conditions.

DENA also was affected by an $81 million EBIT loss on various pending asset sales and assets held for sale and a $17 million charge related to its portion of a settlement with the Commodity Futures Trading Commission. In September, Duke Energy Trading and Marketing LLC agreed to pay $28 million to settle charges filed by the CFTC that DETM attempted to manipulate the natural gas market by providing energy trade publications with false prices and volumes from natural gas transactions. By settling, DETM neither admitted nor denied the charges (see Daily GPI, Sept. 18).

DENA also took a $5 million charge for severance costs during the third quarter, compared to $12 million in the prior year’s third quarter.

Priory said the lower than expected results at DENA will likely cause full-year ongoing earnings per share to be between $1.20 and $1.25, which is much lower than the $1.25-1.44 analysts had been expecting.

Some of Duke’s other business, however, continued to show strong growth. EBIT from field services, for example, was up 130% during the quarter to $53 million and was up 64% for the first nine months of the year. International energy operations also grew with EBIT of $44 million compared to a loss in 3Q2002 of $41 million. International EBIT for the first nine months of the year is up 186% to $209 million.

While total EBIT was down 47% for the quarter, it fell only 6% for the first nine months of the year compared to the same period in 2002.

Duke said it has generated gross proceeds of $1.9 billion, including $346 million of assumed debt, in 2003 from asset sales that have been announced or closed. The company reduced $1.7 billion of net debt and trust preferred securities during the first nine months of 2003. By year end, the company expects to meet its target to reduce net debt and trust preferred securities by $1.8 billion.

Duke also cut its capital expenditures for 2003 to $2.8 billion, down $200 million from what it previously forecasted. Liquidity remains strong, with $1.8 billion in cash and cash equivalents as of Sept. 30.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.