RWE AG’s share price down, posts a sharp Q2 profit decline on weak demand

The German largest electricity producer – RWE AG posted today a 62% profit decline over the second three months of the fiscal year. The company said the downbeat results were tied to the pressure on power prices in Europe, while the demand was affected by weak economic growth and subsidized renewable energies.

RWE AG revealed that it swung from a net profit of 691 million euros over the second quarter a year ago to a net loss of 89 million euros ($119 million). The company also shared a 16% fall in its sales, which reached 10.4 billion euros. As reported by Bloomberg, the numbers were calculated by subtracting first-quarter earnings from half-year results announced today.

The recurrent net income of RWE AG, used to calculate dividend, fell by 62% from 1.99 billion euros over the first six months a year ago to 739 million euros over the first half of 2014.

The situation for RWE and its home-based competitor E.ON SE has recently became more challenging, as the companies are cutting their capital spending and are seeking to sell some of their assets in order to cut expenses. Yesterday, E.ON SE reported that its underlying net profit declined by 20% from 1.91 billion euros over the same period a year ago, to 1.53 billion euros ($2.04 billion) in the first half of the current financial year.

The government, and particularly the Chancellor Angela Merkel, has shifted its focus toward subsidized renewables an an attempt to escape from nuclear energy. This has resulted in an increase in wind and solar generation and reduced power prices, which have already been hurt by slow economic growth in Europe.

One of the analysts, who works at Independent Research GmbH – Mr. Sven Diermeier commented in a telephone interview for Bloomberg: “RWE disappointed in comparison to EON. They significantly missed expectations regarding recurrent net income. I estimate they will end the year in the lower area/bottom part of the guidance.”

Currently, the company has about 40,000 megawatts of generating capacity at 50 sites across Europe. As reported by the Financial Times, RWEs Chief Executive Officer Mr. Peter Terium said in a letter to the companys shareholders: “So far, the 2014 financial year has progressed as planned. Unfortunately, ‘as planned’ in this context means that we had to stomach substantial earnings shortfalls.”

RWE AG WAS 2.3% down to trade at 28.64 euros per share by 11:15 GMT. The company has a market capitalization of 17.77 billion euros. According to the information published on the Financial Times, the 26 analysts offering 12-month price targets for RWE AG have a median target of 27.00 euros, with a high estimate of 37.00 euros and a low estimate of 21.60 euros. The median estimate represents a -7.88% decrease from the last price of 29.31 euros.