01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
Duke Energy's FY2019 10-K (filed February 20, 2020) shows a year of improved reported earnings and continued heavy capital investment.
GAAP Reported EPS rose to $5.06a from $3.76, and adjusted diluted EPS was $5.06 versus $4.72 in 2018. Revenue grew to $25.1 billion from $24.5 billion, and operating income rose to $5.7 billion from $4.7 billion. The improvement was driven mainly by favorable rate case outcomes in Electric Utilities and Infrastructure, improved margins and ACP equity earnings in Gas Utilities and Infrastructure, and growth at Commercial Renewables.
Net income available to common stockholders was $3.7 billionb. The balance sheet and funding picture is more stretched. Total assets reached $158.8 billion, and long-term debt rose to $55.0 billion.
Management plans projected capital and investment expenditures of roughly $11.1 to $11.8 billionc per year over 2020 to 2022, and expects to issue about $5.2 billion of debt in 2020. Duke funded this with $2.0 billion of preferred stock, $2.5 billion of forward-sale common equity expected to settle by December 2020, and continued debt issuance. Operating cash flow was $8.2 billion, against investing outflows of $12.0 billion and dividends of $2.7 billion.
The company reiterated 4% to 6% EPS growth through 2024 and a 65% to 75% dividend payout target. Key risks flagged in the filing include coal ash closure costs (North Carolina closure estimates now around $8 to $9 billiond, with a pending dispute over disallowed coal ash costs in South Carolina), the Atlantic Coast Pipeline (about $8 billion project cost, with adverse court rulings, a Supreme Court hearing, and delayed in-service into 2022), storm cost recovery, and rate case outcomes still pending in North Carolina, Indiana, and Kentucky. Fitch also announced it would withdraw Duke's ratings, while Moody's and S&P kept stable outlooks at Baa1 and A-.
02—Key points
Key Highlights
- GAAP Reported EPS of $5.06 in 2019, up from $3.76 in 2018; adjusted diluted EPS of $5.06 versus $4.72 the prior year.
- Consolidated operating revenues of $25.1 billion (up from $24.5 billion) and operating income of $5.7 billion (up from $4.7 billion, which included 2018 impairments and severance charges).
- Projected capital and investment spending of about $11.8 billion in 2020, $11.3 billion in 2021, and $11.2 billion in 2022, with Electric Utilities and Infrastructure taking the largest share.
- Long-term debt rose to $55.0 billion, and total assets reached $158.8 billion, while operating cash flow of $8.2 billion covered only part of the $12.0 billion investing outflow.
- North Carolina coal ash settlement (December 31, 2019) reduced the estimated cost to close remaining basins by about $1.5 billion; total NC and SC ash closure cost is now approximately $8 to $9 billion, with about $2.3 billion spent through 2019.
- Atlantic Coast Pipeline (47% owned, about $8 billion total cost, $1.2 billion carrying value) faces continued legal challenges, with mechanical completion expected late 2021 and in-service in the first half of 2022.
- Dividend increased for the 93rd consecutive year to $3.75 per share, with a targeted 65% to 75% payout ratio and 4% to 6% EPS growth expected through 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Duke Energy Corp kept $0.15.
- Revenue$24.35B100.0%
- Cost of revenue−$6.83B28.0%
- Gross profit$17.52B72.0%
- Operating costs−$11.81B48.5%
- Operating income$5.71B23.4%
- Interest, other & tax−$1.96B8.1%
- Net income$3.75B15.4%
Where FY2019 revenue went
$24.35B- Operating costs: $11.81B, 49% of revenue
- Cost of revenue: $6.83B, 28% of revenue
- Net income: $3.75B, 15% of revenue
- Interest, other & tax: $1.96B, 8.1% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $24.35B$23.76B | +2.5% |
| Cost of Revenue | $6.83B$6.83B | −0.1% |
| Gross Profit | $17.52B$16.93B | +3.5% |
| Operating Expenses | $19.37B$19.75B | −1.9% |
| Operating Income | $5.71B$4.68B | +21.9% |
| Interest Expense | $2.20B$2.09B | +5.3% |
| Net Income | $3.75B$2.67B | +40.6% |
| EPS (Basic) | $5.06$3.76 | +34.6% |
| EPS (Diluted) | $5.06$3.76 | +34.6% |
| Shares Outstanding (Basic) | 729.00M708.00M | +3.0% |
| Shares Outstanding (Diluted) | 729.00M708.00M | +3.0% |
05—Questions
Frequently Asked Questions
Why did Duke's reported earnings increase so sharply in 2019?
GAAP EPS rose to $5.06 from $3.76 mainly because 2018 included large one-time charges, including regulatory and legislative impacts from North Carolina rate orders, impairments, severance, and a loss on the sale of Beckjord. The 2019 improvement also reflects favorable rate case and rider outcomes in Electric Utilities and Infrastructure, improved Gas Utilities margins with higher ACP equity earnings, and new solar projects in Commercial Renewables. Adjusted EPS rose a more modest 7%, from $4.72 to $5.06.
How is Duke funding its large capital program without over-leveraging?
In 2019 Duke issued $2.0 billion of Series A and B preferred stock and entered forward sale agreements for $2.5 billion of common equity, expected to settle by December 31, 2020. It also plans to issue about $500 million of common equity per year through at least 2022 through its DRIP and ATM programs. Debt is still the main source, with $5.2 billion of new issuance anticipated in 2020. The target capitalization is about 45% equity and 55% debt, and the filing says all Duke Energy Registrants were in compliance with debt covenants at year-end.
What are the biggest legal and regulatory risks to Duke's earnings?
The largest items are coal ash closure costs, which may be disallowed for recovery, and a pending South Carolina Supreme Court appeal over $115 million (Carolinas) and $65 million (Progress) of coal ash costs the PSCSC denied. Other items include the Atlantic Coast Pipeline's legal challenges and pending federal approvals, storm cost recovery for Hurricanes Florence, Michael, and Dorian, and pending rate cases in North Carolina (2019 rate cases with up to $291 million and $464 million requested increases), Kentucky, and Indiana. The filing states that impairment charges could follow if these matters go against Duke.
What did Fitch's rating withdrawal mean for Duke?
In January 2020 Fitch announced plans to withdraw its ratings on Duke Energy Corporation effective around February 20, 2020. Moody's and S&P maintained stable outlooks, with Moody's at Baa1 and S&P at A-, and senior unsecured debt at BBB+ from S&P. Management noted that credit ratings could be negatively affected if the balance sheet weakens or earnings and cash flow outlooks deteriorate materially.
How significant is the Atlantic Coast Pipeline to Duke's investment profile?
Duke owns 47% of ACP, with a carrying value of $1.2 billion at December 31, 2019, and guarantees 47% of its $3.4 billion revolving credit facility, a maximum exposure of $827 million. Adverse court rulings have vacated key permits and the biological opinion, and the Supreme Court is scheduled to hear the Appalachian Trail crossing case in February 2020. ACP triggered the Adverse Government Actions clause in December 2019. Duke's auditor identified ACP's equity investment as a critical audit matter, and the company concluded no impairment was needed, though the filing warns that further delays or cost increases could require one.
06—Continue