02/16/2012 10:38 EST | Updated 04/17/2012 05:12 EDT

Duke 4Q earnings fall 33 per cent but beat Wall Street expectations, Progress swings to a loss

NEW YORK, N.Y. - Duke Energy Corp.'s fourth quarter earnings fell 33 per cent as mild temperatures reduced the demand for electricity while tumultuous weather increased the costs of storm repairs.

On Thursday, Duke said it earned $288 million, or 22 cents per share, in the fourth quarter, down from $427 million, or 32 cents per share, in the last quarter of 2010. Duke's earnings, adjusted to remove the effects of special items, rose 14 per cent to 24 cents per share. Revenue was $3.37 billion, down from $3.46 billion.

Analysts polled by FactSet expected earnings of 21 cents per share on revenue of $3.36 billion

Results were helped by strong performance in Duke's international operations. The company operates hydro-electric power plants in Brazil. Heavy rains increased output from the plants and the company renewed and renegotiated power contracts at higher prices.

"It shows the benefit of having a portfolio of assets," said Duke CEO Jim Rogers in an interview.

Paul Franzen, an analyst at Edward Jones was encouraged by Duke's overall performance but says investors would have preferred to see the company's core U.S. businesses perform better.

"We would prefer to see the utility be the strength," he said. "That is what has done well by shareholders over time."

Duke, which is based in Charlotte, N.C., serves 4 million electric and gas customers in the Carolinas, Kentucky, Indiana and Ohio. Temperatures in the fall and early winter were mild across much of the nation, reducing demand for electricity for heating. At the same time, maintenance costs rose as a result of storm damage, including from an unusual storm that hit the eastern seaboard in late October.

Duke was helped, though, by higher power prices. It's being allowed to charge customers more in its regulated territories in the Carolinas as it builds new power plants and electric infrastructure.

The year-earlier results included a gain from the sale of a fiber optic division of the company. In the 2011 quarter, Duke incurred costs associated with its proposed merger with in-state rival Progress Energy.

For the full year, Duke Energy Corp. earned $1.71 billion on revenue of $14.53 billion. That's up from last year's net income of $1.32 billion on revenue of $14.27 billion.

Adjusted for the effects of weather, Duke's electricity demand for the year rose 0.2 per cent, less than the 1 per cent rise the company had projected, according to Lynn Good, Duke's CFO. She said demand from industrial customers was relatively strong, but residential demand slowed because fewer new homes were built and existing customers cut back their use.

Good said her industrial customers tell her they expect growth to be modest in 2012.

Rogers said the company now believes that strong economic growth won't return until 2015 or 2016, two years later than the company had originally hoped. "It tells you the recovery is very anemic," he said.

Duke is seeking to buy Progress Energy Inc. in a deal that would create the largest U.S. utility. The companies had hoped to close the deal by the end of last year, but the Federal Energy Regulatory Commission has twice withheld approval over concerns that the combined company will have too much pricing power.

Duke and Progress are in the process of changing their merger plan and reapplying for approval. Rogers said he expects to file the new application in the next week.

"We're hoping the third time is the charm," Rogers said.

Progress Energy said Thursday that it lost $76 million in the fourth quarter, down from a profit of $125 million a year earlier. On a per share basis, the company lost 25 cents, down from net income of 42 cents per share a year earlier.

Progress is paying a nearly $300 million refund to Florida customers. That reduced earnings by 60 cents a share, the company said.

Progress also suffered from mild temperatures in the quarter, especially in Florida. There were 71 per cent fewer heating degree days, an industry measure used to gauge weather effects, and 5 per cent fewer cooling degree days.

Franzen said investors shouldn't be disappointed by Progress's results. The Florida refund was expected and weather — not poor operational performance — accounted for the weaker earnings.

Shares in both Duke and Progress rose slightly more than 1 per cent in morning trading.

Jonathan Fahey can be reached at .