Duke Energy Corp (DUK) Earnings: Is Bigger Better for This Dividend Stock?

Duke Energy Corp (NYSE:DUK) reported earnings this week, beating sales estimates but underwhelming on earnings. Duke’s 2012 merger made it the nation’s largest utility by assets, but this quarter’s report is causing some investors to question whether bigger is always better for dividend stocks. Here’s what you need to know.

Number crunching
Duke Energy Corp (NYSE:DUK)sales clocked in at $5.9 billion for Q1 2013, beating analyst estimates by 3%. Compared with its pre-Progress merger Q1 2012 sales, these newest numbers reflect a 62.5% spike.

But even as sales soared, Duke’s bottom line left investors wanting more. Adjusted EPS came in at $1.02, $0.09 less than 2012’s first quarter and $0.02 below analyst estimates.

Looking ahead, Duke Energy Corp (NYSE:DUK) reaffirmed its 2013 guidance of $4.20 to $4.45 and expects to retain its “dividend stock” title with a 2% compound annualized growth rate.

Diving into Duke
Duke Energy operates a diverse array of businesses, from unregulated and regulated subsidiaries in the U.S. to generation businesses across Central and South America.

Its July 2012 Progress Energy merger had the largest effect on domestic regulated utilities, with adjusted EPS up $0.44 this quarter. Progress Energy utilities added $0.35, while favorable weather, rates, and wholesale revenues made up the rest of the increase.

Duke Energy Corp (NYSE:DUK)’s sales match up with its merger expectations of a 61% increase, and its new utilities have already provided sustainable sales in the face of a tough quarter for unregulated markets. Exelon Corporation (NYSE:EXC) merged with Constellation last March, but its latest earnings report shows that its 44% sales increase didn’t live up to expectations of a 73% spike.

Although expected, Duke Energy Corp (NYSE:DUK)’s commercial power earnings fell $0.03 on a per-share basis, primarily because of falling sales for its Midwest generation fleet. With gas and coal making up major pieces of its capacity pie, adjusted income fell from $30 million in Q1 2012 to just $6 million for this quarter.

Source: Duke Energy 2012 Sustainability Report

Duke’s international division felt a $0.06 squeeze from unfavorable exchange rates and low commodity prices for a Saudi Arabian methanol investment, and low rainfall dried up its Brazil hydro profits. NextEra Energy, Inc. (NYSE:NEE) sold off its last hydro assets in March to “further [optimize our] generation portfolio and concentrate [our] resources.” Although Duke isn’t pulling out today, CEO Jim Rogers once again assured investors that Duke Energy Corp (NYSE:DUK) “will continue to monitor the reservoir levels.”