CMS Energy Corporation (CMS) Q4 2025 Earnings Call Transcript
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Overview
The earnings call summary highlights strong financial performance, strategic investments, and optimistic guidance, with raised earnings projections and a significant capital investment plan. The Q&A section reveals confidence in achieving growth targets and addressing affordability, despite minor uncertainties in data center timelines. Overall, the company's strategic initiatives, including renewable energy expansion and cost management, indicate a positive outlook. The strong earnings guidance and shareholder return plans further support a positive sentiment, although minor concerns about equity issuance and regulatory processes temper the outlook slightly.
Key Financial Performance
Adjusted Earnings Per Share (EPS) $3.61 per share for 2025, up over 8% from 2024's actual results. The increase was driven by strong performance at the utility, constructive regulatory outcomes, and robust performance at NorthStar.
Utility Investments $3.8 billion invested in 2025 to improve electric and gas systems. This was funded through operating cash flow, well-priced bond and equity financings, and tax credit transfers.
Gas Infrastructure Investment Over $1 billion invested in 2025 to replace storage and delivery infrastructure, ensuring safety and reliability.
Energy Waste Reduction Savings $1.2 billion saved for customers in 2025 through energy waste reduction programs, reducing customer bills.
Customer Utility Bills Utility bills remain roughly 3% of customers' total expenses, down 150 basis points from a decade ago, despite $24 billion in system investments over the same period.
Dividend Payout Ratio Targeting approximately 60% in 2026 and roughly 55% over the 5-year plan to retain more earnings for growth.
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Operating Highlights
Large Load Tariff: Approved in November, designed to supply energy for data centers, ensuring existing customers don't bear additional costs and supporting growth in Michigan.
20-Year Renewable Energy Plan: Approved, providing visibility and certainty for long-term investments in solar and wind, with $14 billion in customer investment opportunities over the next decade.
Data Center Expansion: Progress with data centers in Michigan, including commercial terms for one data center to be online by 2028 and advanced talks with another.
5-Year Customer Investment Plan: Increased to $24 billion, up $4 billion from the prior plan, focusing on electric generation, reliability, and gas investments.
Gas Business Operations: Invested over $1 billion in gas storage and delivery infrastructure, reducing gas prices and ensuring reliability during winter.
Operational Efficiencies: Achieved over $100 million in savings through the CE Way and digital automation, with energy waste reduction saving customers $1.2 billion in 2025.
Electric and Gas Rate Orders: Approved with constructive outcomes, supporting electric reliability and gas safety improvements.
Storm Deferral Mechanism: First-ever mechanism approved in June, providing financial flexibility for storm-related costs.
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Risk or Challenges
Regulatory Risks: The presentation contains forward-looking statements subject to risks and uncertainties, as highlighted in SEC filings. There is a risk of unfavorable outcomes in pending electric and gas rate cases, although the company expects constructive results.
Operational Risks: The company faces challenges in maintaining electric reliability and gas safety, which require significant investments. There is also a risk of increased costs due to storm activity and the need for infrastructure upgrades.
Market and Economic Risks: The company is exposed to economic uncertainties, including the elevated cost of capital environment and potential challenges in funding its $24 billion customer investment plan. Additionally, there is reliance on growth from data centers and manufacturing customers, which may not materialize as expected.
Strategic Execution Risks: The company’s ability to execute its 5-year customer investment plan, including $14 billion in renewable energy investments and $1.2 billion in electric distribution upgrades, depends on efficient workforce management and regulatory support. Delays or inefficiencies could impact financial performance.
Financial Risks: The company plans to issue $700 million in equity in 2026 and maintain a 60% dividend payout ratio, which could face challenges in the current economic environment. There is also a reliance on achieving 6%-8% EPS growth, which depends on favorable regulatory and market conditions.
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Guidance & Outlook
Revenue and Earnings Growth: For 2026, CMS Energy is raising its annual guidance to $3.83 to $3.90 per share, representing 6% to 8% growth off 2025 actual results. The company continues to guide toward the high end of this range and reaffirms its long-term guidance range of 6% to 8% growth.
Dividend Policy: CMS Energy plans to grow its dividend targeting a payout ratio of approximately 55% over time, maintaining its long-term commitment to shareholder returns.
5-Year Investment Plan: The company has outlined a $24 billion utility customer investment plan over the next five years, up $4 billion from the prior plan. This includes $2.5 billion for electric generation, $1.2 billion for electric distribution reliability, and $400 million for gas system investments. The plan supports a 10.5% rate base growth through 2030.
Renewable Energy Investments: CMS Energy has received approval for a 20-year renewable energy plan, providing $14 billion of customer investment opportunities over the next decade. The plan includes investments in solar, wind, natural gas generation, and battery storage.
Electric and Gas Rate Cases: The company expects constructive outcomes for its ongoing electric and gas rate cases, with an anticipated ROE of 9.9% or better. These cases are built on reliability improvements and maintaining affordability.
Data Center Growth: CMS Energy is progressing with agreements to serve a data center expected to be online by 2028. Advanced talks are also underway with a second data center, indicating robust growth in Michigan's service area.
Non-Utility Business Growth: Incremental earnings are expected from NorthStar Clean Energy, driven by favorable capacity pricing and renewable project completions.
Customer Affordability: CMS Energy is committed to keeping residential utility bills below the national and Midwest averages, leveraging energy waste reduction programs and operational efficiencies to maintain affordability.
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Shareholder Return Plan
Dividend Growth: CMS Energy has been growing its dividend for over 20 years, targeting a dividend payout ratio of approximately 55% over time.
2026 Dividend Policy: The company is targeting a payout ratio of approximately 60% in 2026, with plans to reduce it to roughly 55% over the course of the 5-year plan.
Equity Issuance: CMS Energy plans to issue approximately $700 million in equity in 2026 to support its increased capital plan at the utility.
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Key Q&A
Q:Can you provide an update on the data center opportunities in Michigan, including the timeline and financial implications?
A:The data center funnel has grown, with two new data centers and two large manufacturing customers added recently. Progress is being made, with a data center tariff in place and a near-final rate contract. Zoning is being finalized, and the company is confident about securing at least one data center soon.
Q:How does the 6% to 8% growth guidance align with the 10.5% rate base CAGR and other financial components?
A:The 10.5% rate base CAGR, combined with NorthStar opportunities and FCM, results in a low double-digit CAGR. However, equity issuance (3.5%) and parent refinancing costs reduce growth to 7.5%-8%. Contingencies for weather risk and lack of full decoupling also contribute to the guidance.
Q:What is the company’s confidence in achieving a 9.9% or better ROE in the current rate case?
A:The company is confident in achieving a 9.9% or better ROE, dismissing the ALJ PFD's 8.2% recommendation as an outlier. Staff's revenue deficiency aligns with the company's ask, and the commission recognizes the importance of attracting capital to Michigan.
Q:How does the 1-2 GW of data center load impact capacity needs and rate base growth?
A:The data center load is not included in the current plan. Capacity needs will be addressed with batteries and natural gas. Each GW of load requires $2.5-$5 billion in investments, which would increase the rate base CAGR beyond the current 10.5%.
Q:How is the company addressing affordability concerns amid rising energy costs?
A:The company emphasizes affordability through self-generation savings ($250M in 2025), gas storage, energy efficiency measures, and the CE Way ($100M annual savings). Michigan's energy costs are below the Midwest and national averages, and the company engages with gubernatorial candidates to propose policy solutions.
Q:What is the status of zoning for data centers in Michigan?
A:Zoning is not seen as an impediment. The company works with communities to steer data centers to pro-investment areas. Short moratoriums allow for due process, and progress is being made, as seen in Mason, Michigan, where zoning ordinances were updated to allow data centers.
Q:What is the company’s approach to settlements and rate case frequency?
A:The company is open to settlements but achieves constructive outcomes through full rate cases. Annual rate cases allow for smaller, inflation-aligned increases. Spacing out cases would require the right regulatory construct, which is not currently in place.
Q:What are the company’s equity needs and plans for hybrids or JSNs?
A:The company plans to issue $3.75 billion in equity over five years, with $700M in 2025. Junior subordinated notes (JSNs) totaling $1.5 billion are planned for later years. Equity issuance aligns with CapEx needs, which are front-loaded in the plan.
Q:How does the $24 billion CapEx plan relate to the previous $20 billion plan and the $25 billion opportunities bucket?
A:The $24 billion plan includes $4 billion from the opportunities bucket, but additional needs (e.g., IRP, data centers) have expanded the backlog. The company continues to identify new opportunities, ensuring a robust pipeline of investments.
Q:What is the company’s stance on decoupling for gas and electric businesses?
A:The company is pursuing decoupling for the gas business but not for the electric business, as it is not permitted under current legislation. Strong load growth in the electric business reduces the need for decoupling.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the financial impact and timeline for data center opportunities, citing ongoing regulatory and zoning processes. Additionally, they did not clarify the exact mix of assets affecting depreciation rates in the CapEx plan.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ATM
Commission
NorthStar
addition
agreement
area center
assumption parent
average
center load
certainty customer
commitment
contribution
delivery
detail
distribution audit
dividend
energy waste
equity issuance
financing tax
gas price
gas system
generation
incentive
interest expense
investment customer
investment gas
liability transaction
load tariff
map
need market
plan customer
ratio
road
saving
segment
service area
tier
track record
visibility certainty
waste reduction
CMS Transcript
CMS Energy Corporation (CMS) Q4 2025 Earnings Call Transcript
Positive2-5
The earnings call summary highlights strong financial performance, strategic investments, and optimistic guidance, with raised earnings projections and a significant capital investment plan. The Q&A section reveals confidence in achieving growth targets and addressing affordability, despite minor uncertainties in data center timelines. Overall, the company's strategic initiatives, including renewable energy expansion and cost management, indicate a positive outlook. The strong earnings guidance and shareholder return plans further support a positive sentiment, although minor concerns about equity issuance and regulatory processes temper the outlook slightly.
CMS Energy Corporation (CMS) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call highlights strong financial performance, strategic growth plans, and positive long-term guidance. The company is expanding its data center agreements, renewable energy investments, and has a robust capital plan. Despite some uncertainties, such as specifics on gas plant mix and CapEx timing, the reaffirmation of high-end EPS guidance and potential growth beyond the current plan suggest positive sentiment. The Q&A section indicates analyst interest in growth opportunities, reinforcing a positive outlook.
CMS Energy Corporation (CMS) Q2 2025 Earnings Call Transcript
Unknown7-31
The earnings call presents a mixed outlook. Financial performance shows improvement in EPS and net income due to favorable weather and regulatory outcomes. However, operational and strategic risks, such as grid vulnerabilities and reliance on data center growth, pose challenges. The Q&A reveals management's lack of specificity on key projects, which may concern investors. Despite positive financial results, uncertainties around strategic execution and potential cost increases due to tariffs balance the sentiment. Therefore, the stock price reaction is likely to remain neutral over the next two weeks.
CMS Energy Corporation (NYSE:CMS) Q4 2024 Earnings Call Transcript
Positive2-7
The earnings call reflects strong financial performance, with EPS and net income growth, robust guidance, and a solid dividend payout plan. The Q&A section reveals confidence in renewable projects, legislative support for growth, and constructive regulatory outcomes, although there are some vague responses. Positive catalysts include a record high revenue and reaffirmed guidance, while the ATM acquisition program may slightly temper enthusiasm. Overall, the sentiment is positive, predicting a 2% to 8% stock price increase.
CMS Report
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