Duke’s 3Q’17 Earnings Impacted By Hurricane Irma; Lowers EPS Guidance For 2017

Duke Energy (NYSE:DUK), the largest U.S. power company by generation capacity, posted a mixed performance for the September quarter of 2017. While the company failed to meet the consensus expectation for revenue due to the damage caused by Hurricane Irma, it exceeded the earnings estimate by a small margin backed by increases in regulatory pricing and riders. Based on the expected recovery from the disruption caused by the hurricane, the company has narrowing its 2017 earnings guidance to $4.50 to $4.60 per share. However, the company expects to grow its earnings between 4%-6% over the next few years, based on its investment build and anticipated recovery in the markets. We have a price estimate of $75 per share for the company, which is lower than its current market price.

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Key Highlights of 3Q’17 Earnings

• Duke’s Electric Utilities and Infrastructure earnings dropped to $1 billion from $1.2 billion in the same quarter of last year. This decline was primary due to poor weather conditions caused by Hurricane Irma, higher depreciation and amortization, which was partially offset by higher revenues from increases in regulatory pricing and riders.
• The company’s Gas Utilities and Infrastructure earnings grew by almost $4 million, driven by its ongoing investment in the Atlantic Coast pipeline. While the the gas distribution earnings remained largely flat due to the warm summer months, it is anticipated to improve in the fourth quarter.
• Duke’s Commercial Renewables division continued to make losses in the third quarter, due to lower solar investment tax credit (ITC) and higher interest expense as a result of new solar project financing in the quarter.

Guidance For 4Q’17 And Beyond

• As mentioned earlier, Duke Energy narrowed its full-year adjusted earnings per share guidance to $4.50 to $4.60 per share due to the negative impact of the unfavorable weather conditions, including the damage caused by Hurricane Irma. However, the company’s cost reduction measures are likely to augment its plans to maintain a solid earnings growth for the year. Going forward, the company expects to maintain an earnings growth rate of 4%-6% on 2017 earnings until 2021 backed by its continuous and regulated investments and attractive service areas.

• Duke foresees positive trends in the US employment and wage markets to result in a continued recovery in the housing market, which will in turn drive the company’s residential growth. The single-family building permits in Florida, the Carolinas, and Tennessee remain strong and are outpacing multi-family home starts, which is likely to be beneficial for Duke.

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