Why is the Origin share price tumbling 15% today?

The company has scrapped its financial year 2023 guidance.

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Key points

  • The Origin share price is tumbling this morning after the company updated its outlook for financial year 2022 and financial year 2023
  • The energy company has dropped its energy markets business' expected financial year 2022 earnings by around $140 million but boosted those of its integrated gas segment by up to $200 million
  • It also binned its energy markets' previous financial year 2023 guidance 

The Origin Energy Ltd (ASX: ORG) share price is plunging on Wednesday after the company updated its guidance for this financial year and next.

The company’s expected earnings for financial year 2022 from its energy markets business have dropped significantly – offset by higher expected earnings from its integrated gas segment. Origin also binned its energy markets’ financial year 2023 guidance.

At the time of writing, the Origin share price is $6.12, 10.66% lower than its previous close. That’s a recovery from its low of $5.81 earlier today, a 15% plunge.

Let’s take a closer look at what’s weighing on the S&P/ASX 200 Index (ASX: XJO) energy producer and retailer’s stock today.

Origin scraps financial year 2023 guidance

Extreme volatility in energy markets forced Origin to update its guidance to the detriment of its share price today.

The volatility has been driven by global energy supply and security concerns, made worse by Russia’s invasion of Ukraine.

Internationally, the company has faced unprecedented increases in energy commodity prices while domestic coal plant outages and high coal and gas prices have bolstered wholesale electricity prices.

In the face of such challenges, the company believes its financial year 2022 underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) will be around the mid-point of its original guidance range of $1,950 to $2,250 million.

That figure has been weighed down by the company’s energy markets business.

It’s struggled as coal supply challenges have impacted its Eraring Power Station. Such challenges have worsened in recent weeks and are expected to continue in financial year 2023.

As a result, Origin now expects its energy markets’ underlying EBITDA to be between $310 million and $460 million. Previously, it was tipped to bring in between $450 million and $600 million of earnings.

Meanwhile, the company’s integrated gas and corporate’s underlying EBITDA guidance has been raised by up to $200 million. It’s now expected to bring in between $1,700 million and $1,800 million.

Australia Pacific LNG‘s cash distribution to Origin, including an oil hedging loss, is expected to be around $300 million higher than previously predicted due to higher oil and gas prices. The distribution is tipped to reach $1.4 billion this financial year.

Finally, Origin has scrapped its energy markets’ financial year 2023 guidance.

However, it plans to continue with its $250 million on-market buy-back over the coming months. So far, it has snapped up $185 million worth of its own shares.

Origin share price snapshot

Today’s tumble hasn’t been enough to tip the Origin share price into the long-term red.

Currently, the stock is 9% higher than it was at the start of 2022. It has also gained 46% since this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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