Constellation Energy Corporation (CEG) Q3 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary shows strong financial performance with raised earnings guidance, increased gross margin, and significant nuclear generation. Positive shareholder actions like authorized share buybacks add value. The Q&A section highlighted management's focus on speed to market and robust transmission capabilities, although some responses were vague. Adjusting for strong earnings and optimistic guidance, the overall sentiment is positive, likely leading to a stock price increase of 2% to 8%.

Key Financial Performance

GAAP Earnings $3.82 per share, an increase of $0.61 year-over-year.

Adjusted Operating Earnings $2.74 per share, an increase of $0.61 year-over-year.

Adjusted Operating Earnings Guidance Raised to a range of $8.00 to $8.40 per share, with a midpoint of $8.20, which is $0.60 above the original guidance midpoint.

Nuclear Generation Produced over 41 million megawatt hours with a capacity factor of 95%.

O&M Expenses Higher due to strong earnings results and increased employee compensation.

Enhanced Gross Margin Increased by $275 million due to strong performance from the commercial team.

Share Buybacks Approximately $1 billion of share buybacks currently authorized.

Unallocated Capital for 2024-2025 $1.8 billion available.

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Operating Highlights

CORe+ and CFE products: Since 2020, the CORe+ business has grown significantly, adding 2,800 megawatts of wind and solar to the system, helping meet customer energy and sustainability goals.

Crane Clean Energy Center: The restart of the Crane Clean Energy Center is a powerful symbol of the rebirth of nuclear energy and confirms the demand for clean and reliable electricity.

Market Positioning in PJM: Constellation is positioned to support the data economy with abundant baseload power and is actively pursuing colocation opportunities.

Capacity Market: PJM's capacity market is expected to deliver new capacity and drive customer demand response, with indications of an additional 5 to 6 gigawatts of load in the next auction.

Nuclear Performance: In Q3, Constellation produced over 41 million megawatt hours of carbon-free generation with a capacity factor of 95%.

Refueling Outage Performance: The company completed two refueling outages in Q3, each lasting less than 18 days on average, significantly below industry averages.

Strategic Growth: Constellation aims for at least 13% compounded growth through 2030, supported by nuclear production tax credits and a strong investment-grade balance sheet.

Colocation Strategy: The company is pursuing regulatory clarity and commercial strategies for colocation to support AI development and energy needs.

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Risk or Challenges

FERC Ruling Impact: The recent FERC ruling rejecting Talen's ISA is viewed as narrow and not final. Constellation believes that further regulatory clarity is needed to support colocation in competitive markets, which is essential for AI development.

Capacity Market Challenges: Constellation has faced challenges in getting the capacity market moving, with delays in auctions impacting price signals. They emphasize the need for a functioning capacity market to incentivize demand response and competitive supply options.

Regulatory Uncertainty: There is uncertainty regarding how FERC will proceed following the recent ruling. Constellation is prepared to drive the agenda for regulatory clarity but is waiting to see how PJM and FERC respond.

Supply Chain and Infrastructure: The company acknowledges the need for robust transmission infrastructure to support energy delivery to data centers, which is critical for meeting growing demand.

Economic Factors: The demand for clean and reliable energy is increasing due to the data economy, electrification, and onshoring, which presents both opportunities and challenges for Constellation.

Competitive Pressures: Constellation faces competitive pressures in the energy market, particularly in securing contracts with hyperscalers and other customers, which requires agility and responsiveness to market demands.

Operational Risks: The company anticipates operational challenges in 2026 due to more refueling outages and longer durations, which could impact electricity production and operational expenses.

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Guidance & Outlook

Adjusted Operating Earnings Guidance: Raised and narrowed adjusted operating earnings guidance for the full year to $8.00 to $8.40 per share, with a midpoint of $8.20 per share, which is $0.60 above the original guidance midpoint.

Nuclear Production Tax Credit: The company expects to grow its base EPS by at least 13% through 2030, supported by the nuclear production tax credit.

Crane Clean Energy Center: The restart of the Crane Clean Energy Center is a significant milestone, symbolizing the rebirth of nuclear energy and confirming the demand for clean and reliable electricity.

Colocation Opportunities: Constellation is actively pursuing colocation opportunities and is positioned to support data center development across PJM.

Nuclear Generation Capacity: The company has at least 1,000 megawatts of additional nuclear generation that could be brought on to the grid through uprates.

Commercial Strategies: Constellation is focused on executing transactions and supporting data center development anywhere in PJM.

GAAP Earnings: Reported GAAP earnings of $3.82 per share for the third quarter.

Free Cash Flow: Strong free cash flows are expected to continue to be used for growth.

Capacity Market: The company expects the PJM capacity market to deliver new capacity and drive customer demand response.

O&M Costs: Higher O&M costs are anticipated due to strong earnings results and stock compensation.

Future Earnings Guidance: The company will roll forward its earnings guidance to include 2026 in the next quarterly call.

Share Buybacks: Constellation has approximately $1 billion of share buybacks authorized by the Board.

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Shareholder Return Plan

Share Buyback Program: Constellation Energy has approximately $1 billion of share buybacks currently authorized by the Board.

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Key Q&A

Q:Just wanted to come back to post FERC here and thoughts. Just wondering if Constellation were to pursue more front-of-the-meter deals, how do you think that, I guess, impacts value creation and speed to market relative to, I guess, behind the meter solutions here?

A:Yes, Jeremy, our foot is on the accelerator pressed all the way down on deals, whether they're front or behind the meter. And so we're pursuing both. Speed to market is very clearly the most important thing for customers. And so that's going to depend on the transmission configuration in different places and certain places are going to be frankly, more attractive to others for the data economy customers and we're going to follow them where they need to go.

Q:Just wondering any other thoughts that you could share there as far as what could be done on the state level?

A:Yes, that's the irony of it. I have no -- look, I've talked to every governor in states from which we operate clean energy centers. And I could assure you that they all want to get this economy going, they understand that it's important for national security but it's also critically important for economic development in their states.

Q:I appreciate sort of the color you're giving around sort of the markets and stuff. But maybe just if you could speak a little more to the transmission capacity within the ComEd and PECO zones around your plants as you see it.

A:Yes. Look, sure, I think both from a temporal standpoint, a long-term standpoint, we happen to operate in markets that have fairly robust transmission capabilities, right? When you think about the ComEd zone, as an example, it has probably the most robust export capabilities of any zone within PJM.

Q:What do you see as kind of a realistic timeline? I had a conference on Friday, could be a new chair next year with the election tomorrow. I guess what is the fastest this could get resolved at this point?

A:Yes. Look, I probably would agree with you that there's not a quick fix. But by that, I mean, it's not going to happen tomorrow but there are a lot of parties interested in moving this forward.

Q:Could you just talk more to that because that -- it seems like a little different than at least the things that we've seen so far structurally. So I'd like to give more color on how that would work.

A:Yes, sure, Steve. Let me do it kind of backwards. I think we've seen historically; we have lots of megawatts show up of demand response when the price signals within PJM are consistent and sufficiently robust for commercial industrial customers like ours to pull back energy consumption during peak out.

Q:In the event that you wanted to shift to co-located structures that are more, I guess, front of the meter. Could you give us a sense of just the timeline that delay that, that would cause in your kind of key regions relative to being able to do it behind the meter?

A:Yes. Look, I don't know, Steve. It will probably require some more study process but I think we've got -- it's going to depend on what the transmission is around the site, how long that study process will be.

Q:How do you think about being able to come to market with whatever it is, whether it's a behind meter type arrangement or some sort of portfolio in front of the meter type deal?

A:Look, I think Friday is just what I said. I think it's a narrow ruling by 3 commissioners. I'm not even sure that's the ruling we would have seen if the 2 commissioners didn't recuse themselves.

Q:What are you thinking there about potential major market changes or like subsidized new generation or reregulation just some of these broader approaches that have started to pick up in PGM discussions?

A:Yes, I'd give you the same answer I gave you last quarter. I don't think that's realistic. I don't think it's lost on governors or stakeholders that we've had one auction and we've now delayed the second auction.

Q:If we are shifting towards front of the meter, I'm also kind of acknowledging that every T&D operator has increased their visibility to the gigawatts that they're seeing on the grid, their queues are becoming more valuable and just -- do you see that impacting the overall front-of-the-meter charge?

A:Yes. Nick, I haven't changed my view on what they should be. I think if they're charged for when they use the grid, I think the ranges I gave you before are the -- still the same ranges.

Q:Do you see yourself leaning on the buyback more this year now that we've moved past this Crane announcement?

A:Yes, Nick. So just to give kind of our cadence now, right, as we provide a pretty comprehensive update on our financials on the fourth quarter earnings call.

Q:On the FERC decision, you shared -- you mentioned the decision being narrow. Just do you expect FERC to start a process or some sort of a docket following the technical session on Friday or does something has to be initiated by you or your peer IPPs?

A:Yes. Look, I think that's one of the things we still don't know, right? Because there's not clarity on where FERC goes but we could drive the agenda here if we're unsatisfied with progress and we know that.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer regarding the timeline for resolving the FERC decision and the potential for major market changes, indicating that it is too early to determine the next steps and that there is no quick fix.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

CEG Transcript

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