The utility sector disappointed in its third-quarter results over the last two weeks with earnings and revenue miss from some of the major players in the space, including Duke Energy Corporation (DUK - Analyst Report), NextEra Energy (NEE - Analyst Report) and Dominion Resources Inc. (D - Analyst Report). However, a recovering U.S. economy, warmer-than-normal weather and ultra low interest rates helped boost the top and bottom lines of most of these companies.

The latest concern threatening the utility sector is the possibility of an interest rate hike in December by the Fed following stellar jobs report for October and the Fed Chair Janet Yellen’s affirmative stance on it. This high-yielding, capital intensive sector mostly resorts to external sources of financing to carry out its generation, distribution and transmission projects. Therefore, a rising interest rate environment certainly does not bode well for them (read: 3 Utility ETFs Suffering from Rate Hike Worries). 

Below we have highlighted the third quarter results of the aforementioned utility companies in detail.
 
Duke Energy 

Duke Energy reported adjusted earnings of $1.47 per share for the quarter that fell short of the Zacks Consensus Estimate of $1.52 by 3.3%. However, quarterly earnings rose 5% year over year on the back of warmer weather compared to the previous year. Further, robust growth in its regulated utilities business as well as the North Carolina Eastern Municipal Power Agency acquisition led to the upside.
 
Total revenue was $6,483 million, lagging the Zacks Consensus Estimate of $6,595 million by 1.7%. Nevertheless, revenues increased 1.4% on a year-over-year basis, driven mainly by rise in the company’s regulated electric unit’s revenues.
 
The company tapered its high end of the earlier 2015 earnings guidance range to $4.55−$4.65 per share from $4.55−$4.75 per share. Shares of the company declined 5.5% (as of November 9, 2015) since its earnings release on November 5.
 
NextEra Energy
 
NextEra Energy’s quarterly adjusted earnings of $1.60 per share missed the Zacks Consensus Estimate of $1.64 by 2.4%. Despite this, earnings climbed 3.2% year over year on the back of higher revenues from Florida Power & Light Company. However, operating revenues of $4,954 million surpassed the Zacks Consensus Estimate by 2.7% and increased 6.5% from the year-ago level.
 
NextEra reaffirmed its 2015 earnings guidance of $5.40–$5.70 per share and expects the figure to come in on the upper end of the range. Meanwhile, earnings per share are expected in a range of 5.85–$6.35 for 2016 and $6.60–$7.10 for 2018. Shares of the company went down nearly 5% since its earnings release on October 28.

Dominion Resources

Dominion Resources’ quarterly operating earnings of $1.03 per share lagged the Zacks Consensus Estimate of $1.06 by 2.8%. However, earnings increased 10.8% from 93 cents per share in the prior-year quarter due to normal weather and earnings from farmout transactions. The company’s operating revenues of $2,976 million also missed the Zacks Consensus Estimate of $3,181 million by 6.4% and declined about 2.4% year over year.
 
Dominion expects to earn 85 cents to 95 cents per share for the fourth-quarter 2015 compared with 84 cents per share in the year-ago period. The company reaffirmed its 2015 earnings guidance of $3.50 to $3.85 per share. Shares of the company fell 5.2% since its earnings release on November 2 (read: Forget REITs, Invest in Utility ETFs Instead?).
 
ETFs in Focus
 
The sliding stock prices of these utility companies following the dull third-quarter results have adversely impacted the performance of ETFs with significant exposure to them. Below we have highlighted three of these ETFs, which have lost around 5% in the past two weeks. Investors are advised to exercise caution before investing in these ETFs as the looming rate hike is expected to worsen their performance in the coming days ahead (read: A Beginner's Guide to Utility ETFs).
 
Utilities Select Sector SPDR (XLU - ETF report)
 
XLU is one of the most popular in the space with nearly $6.3 billion in AUM and average daily volume of roughly 12.5 million shares. The main purpose of this fund is to provide investment results that correspond to the performance of the Utilities Select Sector Index. This fund holds 29 stocks with NextEra Energy, Duke Energy and Dominion Resources holding the top three spots with a combined exposure of nearly 25% in its assets. The fund charges only 15 bps in investor fees per year and currently carries a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see all Utilities/Infrastructure ETFs here).
 
Vanguard Utilities ETF (VPU - ETF report)
 
This ETF tracks the MSCI US Investable Market Utilities 25/50 Index, measuring the performance of 81 U.S. utilities stocks as classified under the Global Industry Classification Standard. Duke Energy, NextEra Energy and Dominion Resources occupy the top three positions in the fund with a combined exposure of a little more than 20% in the fund’s assets. The fund has amassed $1.6 billion in its asset base and trades in a moderate volume of 144,000 shares per day. It is even cheaper than XLU with 12 bps in annual fees and carries a Zacks ETF Rank #3 with a Medium risk outlook.
 
iShares Dow Jones US Utilities (IDU - ETF report)
 
The fund follows the Dow Jones U.S. Utilities Sector Index, measuring the performance of 60 utility stocks in the U.S. equity market. Duke Energy, NextEra Energy and Dominion Resources are placed in the top three positions in the fund, together accounting for a share of nearly 21% of the total assets. The fund manages an asset base of around $560 million and exchanges about 182,000 shares per day. It is a bit expensive with 43 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook.