Duke Energy: color on quarter

Mike Zaccardi, CFA, CMT

One of the key Utilities sector companies to watch is Duke Energy (DUK). Duke is the third biggest holding in the XLU Select Sector SPDR ETF, behind NextEra’s 16% weight and Dominion’s 8%. Duke is a big player in the Midwest, Mid-Atlantic and Southeast regions.

Duke reported earnings earlier this week – and it was a loss. Duke Energy’s Q2 resulted in an EPS drop of $1.13 per share while revenue was $5.42 billion. In the same quarter last year, Duke reported a profit of $1.12 per share. Why the sudden turn to the red-side? Blame it on the failed Atlantic Coast Pipeline project.

Losses related to the ACP totaled $1.63 billion during the second quarter. Back out those expenses, and EPS would have registered $1.08, just slightly below last year’s profit. I detailed how Duke and Dominion abandoned the ACP earlier this year. Warren Buffett’s Berkshire Hathaway was glad to lift the assets from the two utilities’ balance sheets.

Revenue also missed analysts’ expectations of $5.85 billion, so it was not a strong quarter for the utility. Why the poor top-line figure? Blame it on the rain – or the weather, in general. COVID-19 may have played a role in weaker industrial demand as well. CEO Lynn Good did note that Q2’s COVID impact was not as great as first thought, however.

Looking ahead, Duke is confident it can deliver on its earnings guidance during the second half of the year, though results may be on the lower-end of the target range according to the CEO. COVID’s impacts are expected to be $0.25 to $0.35 while the cancellation of ACP may ding earnings by $0.13 during 2H 2020. As for the weather, $0.16 of Q2’s loss can be traced to poor weather events like cooler than normal conditions.

For investors, the company was sure to point out that dividends have been on the increase for 14 straight years, and management expects that trend to continue. Couple 4.6% long-term annual dividend growth with a targeted EPS growth rate range of 4-6%, and management hopes that more stable and better times are ahead.

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Image source: Duke Energy