So far, we have witnessed Q3 results of more than 50% of the S&P 500 members from the Zacks Utilities sector. Another cohort of major utility stocks, including Dominion Energy D, PNM Resources PNM, Duke Energy DUK and PPL Corp. PPL, is set to announce earnings on Nov 4.
Factors Likely to Influence Q3 Utility Results
The Zacks Utilities sector is expected to have benefited from a revival of demand in the commercial and industrial groups of customers. An improvement in economic conditions after the pandemic has been generating fresh demand for utility services.
Domestic-focused companies operating in the sector are focused on cost management and implementation of energy-efficiency programs. New rates and customer additions have been creating fresh demand as well as assisting the utilities.
Investment in strengthening the infrastructure has been allowing utilities to provide services even during extreme conditions, leading to stable earnings. Domestic-focused operations also insulate the utilities from the adverse impact of currency fluctuation.
A clear transition is evident in the Utilities space, with companies operating in this space gradually moving toward clean sources of fuel to produce electricity and lower emission. The stringent regulations related to emissions and the high cost of conventional fuel and government incentives on the usage of clean fuel are also leading the utilities to focus more on clean energy sources. Many utilities have already pledged to provide 100% electricity from clean sources in the next few decades.
Utilities need massive funds to upgrade, maintain and expand their infrastructure and operations and are capital-intensive. The performance of the utilities is likely to have been adversely impacted by the increase in interest rates from near-zero levels. The increase in borrowing costs and the possibility of more interest rate hikes this year may have further pushed up capital servicing expenses and adversely impacted earnings.
Per the updated outlook of the National Oceanic and Atmospheric Administration, the July-September 2022 average contiguous U.S. temperature was 73.0°F, 2.8°F above average. The above-average temperature during the summer months is likely to have created a higher demand for water and electricity for cooling purposes, benefiting the utilities.
Total Q3 earnings of Utility stocks are expected to decline 8.4% year over year, while revenues are likely to improve 7.9%.
For more details on quarterly releases, you can go through our latest Earnings Outlook.
Utilities’ Earnings in Focus
Let’s take a look at three utility companies that are scheduled to report third-quarter 2022 earnings on Nov 4 and find out how things have shaped up prior to the announcements.
Dominion Energy delivered a four-quarter average earnings surprise of 0.97%. Favorable weather conditions in its service territories are expected to have boosted demand and contributed to earnings in the third quarter.
However, higher interest expenses and share dilution are expected to have adversely impacted earnings in the third quarter (read more: What’s in Store for Dominion Energy in Q3 Earnings?).
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dominion Energy has an Earnings ESP of -0.12% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
PNM Resources delivered a four-quarter average earnings surprise of 18.25%. The Zacks Consensus Estimate for the company’s third-quarter earnings, pegged at $1.29, implies a 5.8% decline from the year-ago quarter’s reported figure.
The company holds a long-term earnings growth rate of 4.2%. PNM Resources has an Earnings ESP of 0.00% and Zacks Rank #4 (Sell).
Duke Energy delivered a four-quarter average earnings surprise of 0.97%. Customer growth, coupled with positive rate case outcomes across various regions, is anticipated to have favorably impacted Duke Energy’s third-quarter revenues.
However, the impacts of hurricane Ian might have damaged Duke Energy’s infrastructure during the third quarter, thereby pushing up its operating expenses. This, in turn, must have dragged down the company’s Q3 earnings.
Duke Energy currently has an Earnings ESP of -0.41% and Zacks Rank #3 (read more: Duke Energy to Post Q3 Earnings: What’s in the Cards?).
PPL Corp. delivered a four-quarter negative average earnings surprise of 5.86%. The ongoing economic development in the company’s service territories, the increase in electric sales volume in Pennsylvania and Kentucky, and the addition of Rhode Island Energy are likely to have boosted third-quarter earnings.
Reduction in the long-term debt balance and the resultant decline in interest expenses is expected to have boosted margins in the third quarter.
PPL currently has an Earnings ESP of 0.00% and Zacks Rank #2 (read more: PPL Gears Up to Report Q3 Earnings: What’s in the Offing?).
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.