Duke Energy Corp. :DUK-US: Earnings Analysis: Q1, 2017 By the Numbers : May 12, 2017

Duke Energy Corp. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Duke Energy Corp. – Xcel Energy Inc., Southern Company, SCANA Corporation, American Electric Power Company, Inc., Dominion Energy Inc, PPL Corporation, FirstEnergy Corp., PG&E Corporation, Ameren Corporation and NextEra Energy, Inc. (XEL-US, SO-US, SCG-US, AEP-US, D-US, PPL-US, FE-US, PCG-US, AEE-US and NEE-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 5729 million, Net Earnings of USD 716 million.
  • Gross margins widened from 28.89% to 30.48% compared to the same period last year, operating (EBITDA) margins now 40.16% from 38.08%.
  • Year-on-year change in operating cash flow of -22.54% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 5729 4816 6821 5484 5622
Revenue Growth (%YOY) 1.9 -9.51 5.21 -1.88 -6.66
Earnings (mil) 716 305 1054 510 691
Earnings Growth (%YOY) 3.62 -37.24 12.49 -15 -10.61
Net Margin (%) 12.5 6.33 15.45 9.3 12.29
EPS 1.02 -0.32 1.7 0.74 1.01
Return on Equity (%) 6.97 2.99 10.48 5.11 6.93
Return on Assets (%) 2.09 0.91 3.34 1.67 2.28

Access our Ratings and Scores for Duke Energy Corp.

Market Share Versus Profits

Revenues History
Earnings History

DUK-US‘s change in revenue this period compared to the same period last year of 1.90% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that DUK-US is holding onto its market share. Also, for comparison purposes, revenues changed by 18.96% and earnings by 134.75% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 28.89% to 30.48% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 38.08% to 40.16% compared to the same period last year. For comparison, gross margins were 22.63% and EBITDA margins were 34.70% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DUK-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to -51.21 days from -48.77 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

DUK-US‘s change in operating cash flow of -22.54% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 23.60% to 25.17% and (2) one-time items. The company’s pretax margins are now 18.52% compared to 16.17% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Duke Energy Corp.

Company Profile

Duke Energy Corp. engages in electric power and gas distribution operations, and provides other energy related services. It operates its business through the following segments: Regulated Utilities, International Energy, and Commercial Portfolio. The Regulated Utilities segment conducts electric and gas operations primarily through Duke Energy Carolinas, Duke Energy Progress, Duke Energy Florida, Duke Energy Indiana, and the regulated transmission and distribution operations of Duke Energy Ohio. The International Energy segment principally operates and manages power generation facilities and engages in the sales and marketing of electric power, natural gas, and natural gas liquids outside the U.S. The Commercial Posrtfolio segment owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants as well as other contractual positions. The company was founded on April 3, 2006 and is headquartered in Charlotte, NC.

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