Duke Energy CEO Considering Spinoff Of Gas Unit
wral.com
7:54 pm EDT May 2, 2006
RALEIGH, N.C. "Duke Energy Corp. said Tuesday profit slid almost 60 percent in the first quarter, and it is considering selling off its natural gas holdings and other volatile units to focus on electric utilities and pipelines.
The Charlotte-based company expects a decision by the end of the year, President and Chief Executive Officer James E. Rogers said in an interview.
"One of the things we're doing is reviewing the question of whether we create more share value by spinning (off) the gas business to the shareholders," said Rogers, the former head of Cincinnati-based Cinergy who took over after Duke Energy bought Cinergy last month.
The unit figured in the company's announcement Tuesday of a decline in its first-quarter profit.
Net income slid to $358 million, or 37 cents per share, for the January-March period, from $866 million, or 88 cents per share, in the prior-year quarter. Excluding one-time items and discontinued operations, earnings per share was 48 cents in the latest quarter versus 43 cents a year ago.
Analysts had forecast earnings, excluding special items, of 49 cents per share, according to a survey by Thomson Financial. The estimate accounts for stock options granted to employees.
Revenue slid to $3.2 billion from $5.3 billion as Duke Energy stopped listing the natural gas-collection unit in the company's consolidated earnings after selling its majority share to ConocoPhillips in July. Each company now owns half of the business.
The unit's earnings fluctuate along with other energy commodity prices, and spinning it off would probably help improve the predictability of the company's earnings, Chief Financial Officer David Hauser said. He distinguished that from the smooth cash flows of Duke's natural gas pipeline and electric utility businesses, which are regulated.
The company is also considering a separate proposal to spin off its natural gas holdings, including the pipelines, into a standalone business.
Operating results from Duke Energy's core electricity business in the Carolinas grew nearly 7 percent year-over-year with an increase of 41,000 customers.
That offset a warm winter and a battered manufacturing sector, which caused a 12 percent slide in industrial sales. The utility reported 47 fewer textile factory customers as the industry continues contracting under foreign competition.
Duke Energy's natural gas transmission and overseas units also reported higher operating results, while its real estate division reported lower land sales.
Results for Duke Energy and Cinergy were not combined in the first quarter but will be reported together in the future. Duke Energy paid $9 billion for Cincinnati-based power utility Cinergy, forming a company with $70 billion in assets and about 5.4 million customers in the Midwest and Southeast.
Cinergy's profits fell to $79.3 million, or 39 cents a share, during the first quarter from $117 million, or 60 cents, during the same period of 2005. Ongoing earnings were 62 cents per share, absent discontinued operations and special items, for this year's first quarter, up from 60 cents last year.
Rogers said with combined results of Duke Energy and Cinergy showing up beginning in the second quarter, executives are "comfortable" in forecasting a $1.90 per share annual profit target. Analysts see a profit of $1.85 in 2006.
Duke Energy is the nation's top power generator until Chicago's Exelon Corp. closes its acquisition of New Jersey's Public Service Enterprise Group Inc., which is expected to occur later this year.
Duke shares fell 12 cents to close at $28.84 Tuesday on the New York Stock Exchange. The stock has traded between $25.06 and $30.55 in the past year." |
