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Duke Energy’s 1Q16 Earnings: Weather and Sale of Midwest Assets

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Duke Energy met EPS estimates

Duke Energy (DUK) reported earnings of $1.01 per share in 1Q16 against $1.22 per share in 1Q15, a 17% fall. Lower earnings were caused mainly by mild weather and the sale of the company’s Midwest generation business last year. The sale to Dynegy (DYN) was completed in April 2015.

Duke Energy management reaffirmed its earnings guidance of $4.50–$4.70 per share for 2016. It’s targeting just above 4% earnings growth in 2016 over 2015. Normal weather expectations for the rest of the year may support its earnings growth in the coming quarters.

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Earnings drivers

Duke Energy’s Regulated Utility segment reported a fall in earnings due to mild weather. But surprisingly, its International Energy and Commercial Power segment showed significant improvement. We’ll look at this segmental performance in more detail in the next part of the series. Operating expenses were nearly 7% lower in 1Q16 compared to 1Q15. This was mainly due to lower fuel costs and purchased power expenses.

Duke Energy estimates that its regulatory return on equity could meet or exceed its 2015 levels by nearly 10% in all its operational states. It stated in its first quarter 2016 earnings presentation that a 100 basis point change in earned return on equity could translate to a $0.40 change in its per share earnings. A change of 100 basis points in interest rates in the United States (SPY) could also drive Duke’s earnings to change by $0.07.

ETF exposure

Duke Energy forms about 2% of the Global X SuperDividend US ETF (DIV). Southern Company (SO), Ameren (AEE), and Entergy (ETR) account for nearly 2% of DIV.

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