The first wave of utility earnings releases is completing this week and we are gearing up for the next onslaught of earnings early next week. Nearly 37% of the S&P 500 members are expected to release their earnings this week. The utility sector is expected to perform better than the S&P 500. Utility earnings are estimated to improve 6.0% in the first quarter on a 0.9% improvement in total revenues. In contrast, the S&P 500 average earnings are expected to be down 8.0% on a 1.0% drop in total revenues.
Among the 16 sectors in our coverage universe, the energy sector is expected to be the worst performer. Earnings from the energy sector are expected to be down 114.5% year over year on a 31.8% drop in revenues. Overall earnings are expected to be negative for 8 more sectors excluding energy.
However, we do have good news for the remaining 7 sectors with the largest earnings growth expected to come from the auto sector (up 31.4%), followed by construction (14.9%) and utilities. For further details on earnings releases kindly consult our Earnings Trend report.
The majority of utility earnings in the first quarter will to some extent be affected by warmer-than-expected winter temperatures. However, a steadily declining unemployment rate, low interest rate scenario and the sector’s perceived defensive attributes place the utilities in a better position than most of the other S&P 500 index members.
With this positive expectation, let’s zero in on some utilities which are scheduled to report first-quarter earnings early next week.
Edison International EIX, a Zacks Rank #2 stock, is set to report first-quarter 2016 results after the market closes on May 2. Last quarter, Edison International recorded a positive earnings surprise of 46.67% Edison International presents a lower risk profile compared to its peers, with a strong portfolio of regulated utility assets and well-managed merchant energy operations. However, a milder-than-usual winter could hurt first-quarter sales (read more: What's in Store for Edison International in Q1 Earnings?).
The above chart indicates that Edison International delivered positive earnings surprises in each of the last four quarters. The average positive earnings surprise was 27.73%.
NiSource Inc. NI, a Zacks Rank #2 (Buy) stock, will release first-quarter 2016 financial results before the market opens on May 3, 2016. In the prior quarter, this electric and natural gas utility reported a positive earnings surprise of 3.33%. New gas rates approved in Pennsylvania and Massachusetts will help NiSource to generate additional revenues of nearly $65 million in 2016 from 2015 levels. However, we believe the warmer-than-expected average temperature in the first quarter to adversely impact demand for electricity and natural gas (read more: What’s in Store for NiSource This Earnings Season?).