February 20, 2018 / 12:36 PM / a month ago

UPDATE 2-$2 bln share issue takes shine off Duke Energy profit beat

(Recasts with share issue, share fall)

By Yashaswini Swamynathan

Feb 20 (Reuters) - U.S. power provider Duke Energy Corp said on Tuesday it would issue $2 billion in new shares this year to deal with the financial impact of recent tax reforms that it also said would weigh on 2018 earnings growth.

Shares of the biggest U.S. utility by generation capacity fell as much as 2.5 percent as the announcement overshadowed better-than-expected fourth quarter profits driven by colder weather and a drop in costs. (bit.ly/2EUKDFw)

The company also forecast 2018 adjusted earnings in a range of $4.55-$4.85 per share, compared with $4.57 in 2017. That falls below Duke’s plans to grow earnings by 4 percent to 6 percent annually till 2022.

“The effects of the lower corporate tax rate, including the dilution from planned equity issuances, will partially offset ... organic growth,” said Chief Financial Officer Steve Young said on a post-earnings call.

The new issuance and the weak guidance would also lead investors to bring down their expectations for 2018, Guggenheim Securities LLC analyst Shahriar Pourreza said.

“There is a large equity overhang ... which is probably driving the shares down,” he said.

While the new tax code passed in December reduces the corporate income tax rate to 21 percent from 35 percent, state regulators have ordered utilities to pass on the benefits to customers in the form of lower rates.

Duke, which serves about 7.6 million customers, said earlier this month that it would pass on savings from the new federal tax laws to North Carolina customers. (bit.ly/2HtmS5Y)

“Because Duke Energy is not a significant cash taxpayer, any reduction to customer rates will place downward pressure on our consolidated cash flows,” Young said.

Duke, valued at $53 billion, has been expanding its business through acquisitions and investment in renewable energy and power generation stations for electric vehicles.

The company, which like other power providers spends a large chunk of its revenue on maintenance, said it lowered the costs of running its power plants by 11 cents per share in the reported quarter.

Operating revenue from its electric utilities unit, which accounts for the bulk of Duke’s overall business, rose 3.3 percent to $5.10 billion.

Net income attributable to the company rose to $703 million, or $1 per share, in the quarter ended Dec. 31, compared to a loss of $227 million, or 33 cents per share, a year earlier.

Excluding items, Duke Energy earned 94 cents per share, beating analysts’ average estimate by 2 cents, according to Thomson Reuters I/B/E/S. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Shailesh Kuber and Shounak Dasgupta)

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