Duke Energy Corp Q1 2020 Results Fall Short of Expectations

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Duke Energy Corp Q1 2020 Results Fall Short of Expectations

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What Happened?

On 12th May, Duke Energy Corporation (NYSE: DUK) reported its first-quarter 2020 adjusted earnings of $1.14 per share. The economic slowdown had little impact on first-quarter earnings. The two primary issues affecting earnings were warm weather in January and February, which reduced power consumption, and a 10-cent adjustment in earnings to account for the impact of a 2018 regulatory settlement.

Source: Statista

So What?

Duke Energy Corporation, together with its subsidiaries, operates as an energy company in the United States. It operates through three segments: Electric Utilities and Infrastructure, Gas Utilities and Infrastructure, and Commercial renewable.

Power utilities took a 5 cent per share hit due to mild weather and a 3 cent per share hit due to operations and maintenance costs as a result of storms and other issues. Those were largely offset by increased rates in Florida and South Carolina.

The pandemic had little impact on the quarter, as its effects only began to be felt in mid-March. There will be a significant impact on Duke as there have been large reductions in industrial and commercial use in the second quarter that are expected to continue into the third quarter. While that will be partially offset by increased residential revenue as people will work from home, Duke expects COVID-19’s economic impact to result in a hit of 25 to 35 cents per share on full-year earnings.

Industrial and commercial customers who have been hit hard since late March, account for 50% of Duke’s sales across its six-state power footprint. Residential customers, while the largest single sales category system wide, account for just 33% of sales. Analysts say that utilities with large exposure to commercial and industrial customers are unlikely to see residential sales offset those weaker commercial and industrial sales.

Duke Energy reported net income of $899 million, or $1.24 per diluted share, on revenue totaling $5.12 billion in the newly completed quarter. That compares with net income of $900 million, or $1.24 a diluted share, in the same quarter last year.

Duke Energy’s total operating expenses amounted to $4,462 million in the reported quarter, down by 6.8% year over year. Operating income increased 8.4% to $1,488 million from $1,373 million in the year-ago quarter.

Adjusted earnings came in at $1.14 per share which is below the average analysts’ estimate that the company would earn $1.19 per share in the quarter.

Total operating revenues came in at $5,949 million, which declined 3.5% from $6,163 million a year ago. The Regulated electric unit’s revenues were $5,124 million (down 3.1% year over year), representing 86% of total revenues in the quarter. Revenues from the regulated natural gas business totaled $638 million, down 12.4% year over year. The Non-regulated electric and Other segment generated revenues of $187 million, which improved 24.7% year over year.

Source: Statista

Electric Utilities & Infrastructure segment’s adjusted income in the first quarter totaled $705 million, which was lower than $750 million in the year-ago quarter. Gas Utilities & Infrastructure segment’s adjusted income totaled $249 million, up from $226 million a year ago. Commercial renewable segment’s recorded an adjusted income of $57 million in the quarter under review compared with $13 million in the year-ago quarter. Other segment includes corporate interest expenses not allocated to other business units, results from Duke Energy’s captive insurance company and other investments. This segment incurred an adjusted loss of $187 million compared with a loss of $89 million in the year-ago quarter.

As of Mar 31, 2020, Duke Energy had cash & cash equivalents of $1,450 million, up from $311 million as of Dec 31, 2019. Long-term debt was $56.31 billion at the end of first-quarter 2020 compared with $54.99 billion in 2019.

During the first quarter, the company generated net cash from operating activities of $1,554 million compared with $1,239 million in the year-ago quarter.

Now What?

Duke Energy Corp. missed analysts’ expectations for first-quarter earnings, but the company says it still expects to hit its full-year earnings projections despite looming hits from the COVID-19 crisis.

To maintain full-year earnings, the company has introduced several cost-saving measures, says CFO Steve Young. They include a hiring freeze, reduced contractor costs, curtailing overtime, and more efficient scheduling plant outages. For now, those measures do not include any furloughs or layoffs at the company. The company is looking to minimize the impact on employees.

Altogether the company expects to save $350 million to $450 million this year through mitigation measures. This allows the company to maintain its earnings guidance for the full year at $5.05 to $5.45. That is also in line with current analysts’ average forecasts of $5.16 per share in full-year earnings.

Young says that the company anticipates hard hits in the second and third quarters. He says that Duke does not expect to see any recovery until August. The company currently expects that by the fall, it will be better equipped to handle any potential recovery in the disease.

In April, the volume of industrial sales fell 13% and commercial volumes dropped 10%. Residential volumes increased by 6%. The overall volumes still declined by 5%. But the results for the full quarter will reveal more. Industrial customers have plans to ramp up production by the end of this month and that will aid recovery. Full recovery is anticipated by the fourth quarter.

Duke’s earnings expectations are built this year more on the operational savings than on the speed of recovery. The company will adjust its expectations as the situation continues to unfold. But the company has high confidence in its expectations based on what is known now about the pandemic’s impact.

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