Why is the Origin (ASX:ORG) share price tanking today?

The Origin share price has fallen over 7% today following release of the company’s revised outlook. Here are some announcement highlights.

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The Origin Energy Ltd (ASX: ORG) share price is down by 7.06% to $4.61 at the time of writing.

The downward spiral was set off by the release of Origin’s revised operating conditions and guidance for FY2021.

Here’s a few things we learned from the announcement.

Origin expects gross profits to be down

Origin expects FY2021 electricity gross profit to be down $250–290 million year-over-year. The previous guidance predicted a $170–220 million reduction.

The company puts this loss to lower wholesale prices, payment of a non-recoverable $40 million increase in network costs and the impact of mild summer conditions.

The natural gas gross profit is also expected to be down $200–250 million year-over-year. This has been raised from the original $100–150 million estimate.

Origin advised that the decline of the natural gas gross profit was influenced by lower sales and the roll off of legacy sales contracts that totalled $70 million.

The company believes that improved LPG and community energy services will partially offset electricity and gas gross profit losses.

Origin share price slides in tough operating environment

In addition to revised guidance, the company also commented on the current business environment.

Origin lists the influences of the coronavirus and weather patterns brought by La Niña as having had a material effect on the business.

The company expects the presently challenging operating conditions of energy markets to persist in FY2022.

Origin downgraded its underlying earnings (including electricity and gas) to the $1–1.14 billion range. Its initial guidance estimated between $1.15–1.3 billion.

Commenting on Origin’s position, CEO Frank Calabria said:

Origin has two leading businesses with high quality assets and resources. We remain very focused on maximising value from the existing businesses and pursuing growth in customer value and low carbon solutions, which puts Origin in an ideal position to lead, and capture value, from the energy transition.

Regardless of the downgrades, Origin believes that its retail business is still on track to meet its $100 million FY2021 cost out target. The company stated that operations are performing well with strong cash flow generation.

The Origin share price has lost over 37% during the last 12 months.

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Motley Fool contributor Gretchen Kennedy owns shares of Origin Energy Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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