Sandy’s Impact on the Bottom Line

Now that the storm has passed and public officials are assessing the damage it caused, investors should start assessing the possible damage to their portfolios. In addition to the storm causing a number of deaths, property damage, and major power outages across the East Coast, the New York Stock Exchange was shut down for two days. Now that trading has resumed, let's take a look at three specific companies which either have been or will be affected by the storm, and determine what investors could expect Hurricane Sandy's impact to be on their earnings and share prices.

First, power companies such as Dominion Resources (NYSE: D  ) or Consolidated Edison (NYSE: ED  ) are likely to see some negative impact on earnings related to Sandy. But unlike during Hurricane Irene, when Dominion had more than 1 million customers without power, this storm has left the company slightly better off. Dominion estimates only 100,000 customers lost electricity during Sandy. But New Jersey-based Public Service Enterprise Group (NYSE: PEG  )  wasn't so lucky. New Jersey was directly in the center of Sandy's path and one of the hardest hit states; it reported that more than 2 million customers were without power. PEG is New Jersey's largest utility company; it  reported having 1.4 million customers without power.  

Using Dominion as a model, when Hurricane Irene hit in August of 2011, the company didn't really see a big effect on it's stock price during the days after the storm. But the company took a $121 million hit on earnings in that quarter which was directly related to the storm. PEG is actually trading higher today, but investors may not be pushing the stock higher if losses related to the storm put a hurting on earnings per share. 

While the electric utility companies can have profits hurt by storms and natural disasters, other utilities can benefit from these events. After a hurricane such as Sandy homes are left trashed. Think back to any of the number of images you have seen the past few days and try and picture what made them all look so terrible. It was all the debris lying on the roads or floating in the water. Trash still can be seen laying all over the landscape in many of the storm-affected states. This bodes well for the trash utility companies like Republic Services (NYSE: RSG  ) and Waste Management (NYSE: WM  ) which now have the potential to see increased profits from this storm. Don't take my word for it; Waste Management actually says this in their 10-Q filing:

Additionally, certain destructive weather conditions that tend to occur during the second half of the year, such as hurricanes that most often impact our Southern Group, can actually increase our revenues in the areas affected. While weather-related and other "one-time" occurrences can boost revenues through additional work, as a result of significant start-up costs and other factors, such revenue sometimes generates earnings at comparatively lower margins.

As with the electric utility companies, Waste Management may not see an immediate impact on its stock price this week, but when quarterly results come out, the increased revenue from Hurricane Sandy should show up, helping the company boost its organic earnings growth. This is something all investors love seeing and that should result in a higher share price. One last thing to remember though is that investors shouldn't expect these one-time increases every quarter, or even every year, and this storm could make it harder for the company to increase year-over-year earnings in 2013. 

Finally, the grocery business gets a lot of attention from both customers and investors before as well as after big storms. When the forecasters begin talking about destructive weather patterns forming, customers become fearful. They soon head out to the local grocery store so they can stock up on bottled water and non-perishable goods which will allow their families to survive a number of day's cooped up inside their homes. Some investors tend to believe that these huge shopping events boost revenue for the groceries, but as the CFO of Kroger (NYSE: KR  ) recently told CNBC, those huge shopping trips are then followed by a number of days in which the stores are essentially without customers. Over the period of 15 days or so, the spending irregularities caused by these events even out, and for all intents and purposes, revenue looks as if the event never took place.

Matt Thalman has no positions in the stocks mentioned above. The Motley Fool owns shares of Waste Management. Motley Fool newsletter services recommend Dominion Resources, Republic Services, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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