Duke Energy (NYSE: DUK) reported slightly lower earnings for its first quarter as it was hit by a downturn in revenues from its industrial customers. Despite a number of factors still working through the economic system, the company maintained an earnings target that's essentially flat for 2009. Although major electric utilities have been good dividend plays, their stocks have also reflected these recession blues. How should investors view them? (For more on utilities, read The Industry Handbook: The Utilities Industry.)

IN PICTURES: 10 Ways To Prepare For Nature's Worst

Flat Earnings for Now

Duke, a multi-utility company with a large electric component, reported adjusted diluted earnings per share of 28 cents versus 35 cents for last year's first quarter, while maintaining its target adjusted EPS of 1.20 for 2009. This EPS would essentially match last year's earnings. While the stock is trading in the mid-range of its 52-week highs and lows at $13.49, with a current dividend yield of 6.7%, the company finds itself facing the same near-term slumber in the economy as many other major electric providers.

Southern Co. (NYSE: SO) reported similar earnings down slightly to 42 cents a share from 47 cents in last year's first quarter, excluding extraordinary charges. Revenue was flat at $3.67 billion compared to $3.68 billion from the first quarter a year ago. Southern's report reads much the same as Duke Energy's does, with lower sales in the industrial-commercial segments, an obligatory homage to the global recession. The company still has a contract with the Shaw Group (NYSE: SGR) to build two new nuclear plants, an indicator of what's in store for capital expenditures, perhaps even looking out beyond the recession. Southern Company, like Duke Energy, is still regarded as a strong, solid electric utility. (See our related article, Guard Your Portfolio With Defensive Stocks.)

Copycat Earnings in a Rocky Recession
PPL Corp. (NYSE: PPL), an electric producer that serves Pennsylvania, the U.K. and Latin America, reported earnings (excluding charges) down slightly to 64 cents from 69 cents per share in last year's first quarter. Meanwhile, Constellation Energy Group (NYSE: CEG) announced a dividend cut in the face of recent losses, an alarming move for income investors who often seek safe haven in electric and gas utility stocks during a recession. Constellation's current yield is down to 3.7% and Moody's came out with a negative outlook on PPL due to heavily increased expenditures next year. Another discouraging development occurred recently as well-known electric utility First Energy Corp. (NYSE: FE) was forced to lower its rates in Ohio in a unique price auction, which may negatively impact future earnings. (For more, see 6 Ways To Save On Your Utility Bill.)

Bright Spots
On the other hand, First Energy Corp., the Ohio-Pennsylvania-New Jersey electric giant, reported on May 5th first quarter non-GAAP basic diluted earnings of $1.01 per share versus 87 cents non-GAAP basic diluted earnings per share last year. While this excluded both a large regulatory charge and other charges totaling 63 cents per share, the company emphasized its strong financial position. Its revenue for the quarter was $3.32 billion versus $3.28 billion for the year-over-year quarter, an impressive feat considering First Energy's service area is in the heavily affected rustbelt Midwest, which includes many auto-industry related businesses.

PPL has strong elements going for it too, with its income largely impacted by currency exchange rates and its total revenue rising from $1.53 billion for the quarter to $2.36 billion. The company also reaffirmed guidance for this year of $1.60-$1.90 EPS with a whopping projected increase to $3.60-$4.20 next year.

Electric on Hold
Duke Energy, though it isn't projecting the same rapid growth or bounce back from the recession as PPL, is still a strong company long-term. With the recession moving through the economy like a profit-eating shark, the flat earnings and slow growth (or no growth) of some of the electric utilities is to be expected. Also, when the economy picks up even tepidly again, investors will move into other stocks regarded as non-recession plays. Many have already moved out of electric utilities, leaving long-term income and value investors only.

The Bottom Line
Monitor the underlying business strength (or lack thereof) for Duke Energy and some of the others. Concentrate on the higher quality electric utilities such as Duke, Southern and First Energy, and you can still pick up a decent yield along with the promise of future growth, which should still happen at some bargain prices in the next several months. (For more, read Utilitiy Funds: A Bright Choce In Bear And Bull Markets.)

Filed Under: ,
Tickers in this Article: DUK, SO, SGR, PPL, CEG, FE

comments powered by Disqus

Trading Center