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01/11 03:17
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal mixed sentiments. While the company demonstrates confidence in achieving EPS growth and has plans for wildfire mitigation and capital allocation, uncertainties remain. The Q&A highlights unclear timelines for liability estimates and EPS growth beyond 2025. Despite positive elements like EV adoption driving growth and regulatory clarity, the lack of explicit guidance and potential financial charges balance out the positives, resulting in a neutral sentiment.
Third Quarter Core Earnings Per Share (EPS) $2.34 compared to $1.51 a year ago, representing a significant increase. However, this comparison is not meaningful due to a true-up for the 2025 General Rate Case final decision, retroactive to January 1.
2025 Core EPS Guidance Narrowed to $5.95 to $6.20, reflecting year-to-date performance and potential costs for early refinancing activities later in the year.
2025 Base Revenue Authorized at $9.7 billion, supporting investments in wildfire mitigation, safety, reliability, and upgrades for increased load growth.
Capital Expenditures (2025-2028) Projected at $28 billion to $29 billion, incorporating investments in infrastructure replacement, electrification, and system resiliency.
Rate Base Growth (2025-2028) Projected at 7% to 8%, after incorporating expected wildfire mitigation capital expenditures.
Wildfire-Related Cost Recovery Approximately $1.6 billion authorized for recovery through the TKM Settlement and $2 billion through the Woolsey fire settlement, subject to CPUC approval.
System Average Rate Growth Expected to grow at an inflation-like level of 2% to 3% CAGR through 2028.
Load Growth Near-term CAGR of up to 3%, driven by EV adoption, new housing developments, and increases in commercial and industrial consumption.
Wildfire Recovery Compensation Program: SCE will launch a voluntary program to provide direct payments to individuals and businesses impacted by the Eaton Fire, aiming to resolve claims quickly and minimize costs.
Load Growth: SCE anticipates a near-term load growth CAGR of up to 3% and projects electricity sales to nearly double over the next two decades, driven by EV adoption, new housing developments, and increased commercial and industrial consumption.
Wildfire Mitigation: SCE has deployed over 6,800 miles of covered conductor and plans to harden 90% of its distribution lines in high fire risk areas by year-end. The 2025 General Rate Case authorizes further investments in wildfire mitigation, including 1,650 miles of covered conductor and 212 miles of targeted undergrounding.
Regulatory Approvals: SCE received approval for the TKM Settlement ($1.6 billion recovery) and reached a settlement in the Woolsey fire proceeding ($2 billion recovery). The 2025 General Rate Case authorizes $9.7 billion in base revenue and significant investments in safety and reliability.
Legislative Support: California's SB 254 establishes an $18 billion continuation account for wildfire risk management and allows securitization of wildfire claims payments. It also initiates a second phase to evaluate long-term reforms for equitable risk and cost allocation.
Financial Strategy: EIX plans to avoid equity issuance through efficient financing, including securitization proceeds from wildfire settlements. The company reaffirmed its 5%-7% core EPS growth target through 2028.
Wildfire Risks: The company faces significant risks from wildfires, including potential liabilities from the Eaton Fire. Investigations suggest SCE equipment may have been associated with the ignition. While the Wildfire Fund provides some financial backstop, the company has entered settlements and launched compensation programs to address claims, which could impact financial stability.
Regulatory and Legislative Uncertainty: Although SB 254 provides a framework for wildfire cost recovery and liability caps, the long-term sustainability of this model is uncertain. The second phase of SB 254, due in April 2026, will evaluate broader reforms, leaving future regulatory outcomes unclear.
Financial Exposure from Settlements: SCE has reached settlements for past wildfire liabilities, including the Woolsey Fire, but these recoveries only cover a portion of the total costs. The company still faces financial exposure, and the outcomes of pending regulatory approvals could affect its credit metrics and financial flexibility.
Operational Challenges in Wildfire Mitigation: The company is investing heavily in wildfire mitigation measures, such as covered conductors and undergrounding lines. However, these efforts are capital-intensive and may not fully eliminate ignition risks, posing ongoing operational and financial challenges.
Credit Rating and Financing Risks: S&P downgraded the company by one notch, citing concerns over wildfire liabilities and financial stability. Although other agencies have maintained stable outlooks, the downgrade could increase borrowing costs and impact future financing plans.
Load Growth and Infrastructure Demands: While load growth is expected to increase due to electrification and new developments, meeting this demand requires substantial infrastructure investments. These projects are costly and could strain financial resources if not managed effectively.
2025 Core EPS Guidance: Narrowed to $5.95 to $6.20, reflecting year-to-date performance and outlook for the remainder of the year, including potential refinancing costs.
Core EPS Growth Target: Reaffirmed at 5% to 7% through 2028, with 2028 core EPS projected at $6.74 to $7.14.
Capital Plan: Four-year capital plan of $28 billion to $29 billion, focusing on infrastructure replacement, electrification, and system resiliency.
Rate Base Growth: Projected at 7% to 8% through 2028, incorporating wildfire mitigation capital expenditures.
Load Growth: Near-term load growth CAGR of up to 3%, with long-term electricity sales expected to nearly double over the next two decades.
Wildfire Mitigation Investments: Authorized installation of 1,650 miles of covered conductor and 212 miles of targeted undergrounding for wildfire mitigation.
Financing Strategy: No equity issuance required through 2028, supported by securitization proceeds from TKM and Woolsey settlements.
Legislative and Regulatory Developments: SB 254 provides a framework for wildfire cost recovery and securitization, enhancing financial stability and supporting future investments.
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The earnings call summary and Q&A reveal mixed sentiments. While the company demonstrates confidence in achieving EPS growth and has plans for wildfire mitigation and capital allocation, uncertainties remain. The Q&A highlights unclear timelines for liability estimates and EPS growth beyond 2025. Despite positive elements like EV adoption driving growth and regulatory clarity, the lack of explicit guidance and potential financial charges balance out the positives, resulting in a neutral sentiment.
The earnings call summary presents a mixed outlook. While there are positive elements like strong long-term EPS growth guidance and proactive wildfire mitigation strategies, concerns arise from regulatory challenges and potential financial impacts of securitization and wildfire fund contributions. The Q&A section reveals management's cautious stance on regulatory issues and lack of clear answers on key risks, which tempers the overall sentiment. The absence of a market cap limits the ability to gauge stock reaction magnitude, but the balanced positives and negatives suggest a neutral stock price movement.
The earnings call presents a mixed outlook. Positive elements include above-guidance EPS, robust wildfire mitigation investments, and a strong dividend declaration. However, concerns arise from potential liabilities related to wildfires, increased interest expenses, and legislative uncertainties. The Q&A reveals management's cautious stance on liability estimations and fund access, adding to investor uncertainty. The absence of a share repurchase program and the lack of clarity on wildfire legislation further neutralize the sentiment. Overall, the mixed signals and uncertainties result in a neutral prediction for stock price movement.
The earnings call reveals potential material losses from the Eaton Fire, regulatory uncertainties, and significant capital expenditure risks. While financial metrics showed growth, the lack of a share repurchase program and unresolved liabilities from the fire weigh negatively. The Q&A further highlights management's cautious stance on liabilities and regulatory outcomes, adding to investor concerns. Despite optimistic EPS guidance, the uncertainty and potential financial implications from the fire and regulatory challenges suggest a negative stock price reaction.
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