13 May 2020

Duke Energy Seems to Know How to Power Ahead

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What’s happening: Although Duke Energy Corp reported downbeat results for the first quarter on Tuesday, investors seem resilient.

What happened: The Charlotte, North Carolina-based company misses expectations for both revenues and earnings. Management said, however, that the coronavirus pandemic had only a limited impact on its business in the quarter.

Investors evaluated the reasons for Duke Energy’s weak performance in the first quarter and the outlook issued by management. The stock rose heading into the results and gave back the gains after the release. However, there was no additional pressure due to the downbeat results and the stock closed trading on Tuesday with a 0.3% gain.

How were the results: Duke Energy reported a decline in revenues for the latest quarter, while earnings remained flat.

  • Net income came in at $899 million, or $1.24 per share, versus $900 million, or $1.24 per share, in the same quarter last year.
  • Revenues slipped to $5.949 billion, from $6.163 billion, and missed the consensus estimate of $6.329 billion.
  • Adjusted earnings were reported at $1.14 per share, short of expectations of $1.19 per share.

Why it matters: Duke Energy said that the coronavirus pandemic did not have a meaningful impact on the quarterly results. Rather, the company cited unusually warm weather and higher maintenance costs following storms as the reasons for missing expectations.

As the coronavirus lockdowns intensified in April, Duke Energy witnessed a decline in commercial and industrial electricity usage. This will impact its second-quarter results. On the other hand, residential electricity consumption has increased, with millions staying indoors and working from home. This trend is expected to partially offset the industrial and commercial decline

Duke Energy expects the pandemic to hurt its full-year earnings by 25-35 cents per share. The company is already gearing up for this, with planned project savings of between $350 million and $450 million.

At a time when most companies have shied away from issuing a forecast due to the current crisis, Duke Energy has expressed confidence of being able to meet its 2020 outlook, assuming the economy begins recovering in the latter half of the year. The company projected adjusted earnings of $5.05-$5.45 per share.

Management announced various cost-saving initiatives to achieve the earnings forecast, including restricting overtime, cutting contractor costs and reducing other employee expenses. The company has not announced any furloughs as it aims to minimise the crisis impact on its workers.

What to watch: Investors expect Duke Energy to witness an upturn in industrial and commercial power consumption, with many states easing lockdown restrictions. Residential volumes will probably continue to support the company’s overall growth in the upcoming quarters.

The Markets Today

     

US stocks will be in focus today, ahead of the producer price index data scheduled for release later in the day.

Context: US stocks closed lower on Tuesday, amid investor concerns around a second wave of infections. South Korea and China have already reported some cases of this. As restrictions are eased in the US and people return to work, there are chances of a surge in new COVID-19 cases.

Details: Over the weekend, around six people tested positive for COVID-19 in Wuhan, China, where the virus initially emerged. The Hubei province had not recorded any new cases for the past month.

Geopolitical tensions also dampened market sentiment yesterday, following reports that the Trump administration is considering delisting Chinese companies from US stock exchanges.

Economic data continued to highlight the dark side of the pandemic-related lockdowns, with the US reporting its steepest monthly decline in consumer prices since 1957. The country’s core consumer prices were down by 0.4% in April, versus expectations of a 0.2% decline. The Federal government also recorded a budget deficit of $737.9 billion for April, versus a surplus of $160 billion in the same month last year.

The Nasdaq 100 snapped the trend of gains over the past six consecutive sessions and declined 2.06% to end the day at 9002.55 on Tuesday. The Dow fell 457.21 points to settle at 23764.78, while the S&P 500 was down by 2.05% at 2870.12.

Shares of GrubHub spiked around 29% after reports of Uber Technologies being interested in acquiring the food-delivery firm. Tilray’s stock fell around 8%, after the company posted a wider-than-expected quarterly loss.

In commodity news, WTI (West Texas Intermediate) crude for June rose 8% to end at $25.78 a barrel on the NYMEX (New York Mercantile Exchange), while May gold gained 0.5%, to settle at $1,704.40 an ounce.

What to watch: Investors continue to monitor the COVID-19 cases, with the total number of infections exceeding 4,262,790 globally. The number of positive COVID-19 cases in the US has surpassed 1,369,960 with around 82,380 deaths.

Markets await the producer price report from the US. Producer prices for final demand, which declined 0.2% in March, are expected to fall 0.5% in April.

Other Markets: European indices were trading lower at 9:00 am GMT, with the FTSE 100, German 30 and Italy’s FTSE MIB down by 1%, 1.3% and 1.2%, respectively.

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What else to watch today

     

Russia’s total vehicle sales and foreign exchange reserves, Brazil’s retail sales as well as the US MBA mortgage applications and EIA’s crude oil stocks change.

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