Yahoo Finance Pinnacle West Capital Corp (PNW) (Q1 2024) Earnings Call Transcript Highlights: A Strong Start ...
Earnings Per Share (EPS): Q1 2024 EPS of $0.15, improved from a loss of $0.03 in Q1 2023.
Revenue Impact: Positive impact from the sale of Bright Canyon Energy and new rate implementations from March 8.
Customer Growth: Reported at 1.8% for the quarter, aligning with guidance of 1.5% to 2.5%.
Weather-Normalized Sales Growth: Achieved 5.9% in Q1, driven by robust C&I growth.
Interest Expense: Increased due to higher interest rates and debt balances.
Depreciation and Amortization: Increased due to IT projects going into service.
O&M Expenses: Slight drag compared to Q1 2023, affected by delays in maintenance work.
Capital Expenditure: Plans in place to support infrastructure demands from growing customer base.
Equity Offering: Completed approximately $750 million in a forward sale to support capital structure.
Credit Ratings: Outlook revised from negative to stable by major rating agencies.
Guidance Reaffirmation: Reaffirmed previous guidance for the fiscal year.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Pinnacle West Capital Corp reported an improvement in earnings, achieving $0.15 per share in Q1 2024 compared to a loss of $0.03 per share in Q1 2023.
Successful implementation of new rates from the recent rate case on March 8, contributing positively to revenue.
Robust customer and sales growth, with a 1.8% increase in customer growth and 5.9% weather-normalized sales growth for the quarter.
Strong operational preparedness for the upcoming summer, including a comprehensive wildfire mitigation strategy and maintenance of thermal units.
Positive regulatory developments with the commission focusing on addressing regulatory lag, potentially reducing future earnings volatility.
Negative Points
Milder weather in Q1 2024 compared to the exceptionally cold start in 2023, resulting in a $0.07 per share year-over-year drag.
Increased interest expense, depreciation, and amortization costs partially offsetting the positive impacts from new rates and sales growth.
Delays in procuring essential materials needed for planned maintenance work at power plants, shifting some costs from Q1 to Q2.
Higher debt balances contributing to increased interest expenses, influenced by rising interest rates.
Ongoing challenges with regulatory lag, despite recent positive developments, still impacting the timing and predictability of earnings.
Q & A Highlights
Q: Can you discuss your latest thoughts on SRB capital deployment and its potential acceleration in the coming years? A: Andrew D. Cooper, Senior VP & CFO of Pinnacle West Capital Corporation, explained that the company is currently negotiating projects from a 1,000-megawatt RFP in 2023, which includes a diverse set of fuels. The capital expenditure for the next three years includes some probability-weighted capital related to these projects. The SRB allows for a substantial reduction in the lag for beginning to recover on investments, providing a significant opportunity for future projects.
Q: How has the recent equity deal influenced your thinking on the remaining clinical capital of $400 million? A: Andrew D. Cooper noted the equity deal was crucial for maintaining a balanced, healthy capital structure. Looking forward, the company will consider various markets to meet the additional $400 million financing need, potentially using an ATM as it aligns well with capital deployment. The focus remains on maintaining a balanced capital structure and being judicious about the amount of parent company debt.
Q: Can you provide insights into the sales growth driven by data centers and expectations through 2026 and beyond? A: Andrew D. Cooper highlighted that the 5.9% sales growth for the quarter was driven by large high load factor C&I customers, including data centers and the semiconductor ecosystem. The growth from manufacturing, particularly Taiwan Semiconductor, is expected to significantly contribute in the latter part of the forecast period, with data centers and advanced manufacturing expected to contribute roughly half each over the decade.
Q: What is the current status and expected timeline of the regulatory lag docket? A: Jeffrey B. Guldner, Chairman, President & CEO, mentioned that the next key milestone is the June open meeting where the commission will discuss the process and timeline further. The focus is on creating a smoother, more predictable regulatory environment, potentially through mechanisms like formula rates or forward test years.
Q: How do you plan to address the $400 million of additional equity needed for incremental CapEx? A: Andrew D. Cooper stated that the company would continue to evaluate all available markets to maintain a balanced capital structure. This includes modest equity contributions paired with retained earnings and possibly modest parent company debt, ensuring a balanced approach to financing future capital needs.
Q: Could you discuss the impact of rooftop solar installations on residential sales growth and the LFCR mechanism? A: Jeffrey B. Guldner indicated that there isn't a significant earnings sensitivity to changes in rooftop solar installations. The company continues to monitor trends in distributed generation and electric vehicles, which are expected to offset some residential sales growth, continuing a trend of modest increases in this area.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
