FirstEnergy Corp. (FE) Q4 2024 Earnings Conference Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents several positive factors: increased capital investments, dividend growth, and a strong ROE. Despite some uncertainties, the company maintains a solid growth outlook with a 6-8% CAGR and improved credit ratings. The Q&A reveals management's confidence in achieving the upper range of growth targets, and the recent regulatory settlement supports future revenue growth. Although some responses lacked clarity, the overall sentiment is positive, with optimistic guidance and strategic initiatives likely to boost the stock price.
Key Financial Performance
GAAP Earnings per Share $1.70 per share, no year-over-year change mentioned.
Operating Earnings per Share $2.63 per share, an increase from $2.56 per share in 2023, attributed to new rates and investments in regulated businesses, despite headwinds from lower sales volumes and storm activity.
Net Annual Revenue Increase from Rate Cases Approximately $450 million, due to approved rate cases in four states over the past 18 months.
Pennsylvania Base Rate Case Settlement $225 million, effective January 1, 2025, contributing to revenue growth.
Capital Investments in 2024 $4.5 billion, an increase of more than 20% compared to 2023, surpassing the original plan by 5%.
Dividend Declarations $1.70 per share, an increase of just over 6% compared to 2023.
Core Earnings per Share $2.37 per share in 2024, with a guidance range of $2.40 to $2.60 for 2025, representing a growth of 5.5% at the midpoint.
Return on Equity (ROE) 9.4% for 2024, compared to 8.8% in 2023.
FFO to Total Debt 14% in 2024, impacted by unique payments, with a 150 basis point negative impact from SEC and OOCIC settlement payments.
Debt Issuance in 2024 $2.1 billion total, with a weighted average interest rate of 5.1%.
Pension Obligations Removed from Balance Sheet Approximately $1.4 billion, reducing funding risk.
Compounded Annual Growth Rate of Core Earnings (2025-2029) 6% to 8%.
Total Capital Investment Program (2025-2029) $28 billion, with annual investments increasing from $5 billion in 2025 to $6.4 billion in 2029.
Rate Base Growth in Standalone Transmission Segment 10% year-over-year.
Rate Base Growth in Integrated Business 24% year-over-year.
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Operating Highlights
Data Center Demand Growth: Through 2029, the plan includes 2.6 gigawatts of data center demand that is active or contracted, with a growth pipeline of just over 5.5 gigawatts, resulting in an incremental $350 million to the base capital program.
Capital Investment: In 2024, FirstEnergy invested $4.5 billion in its system, surpassing the original plan by 5% and increasing over 20% compared to 2023.
O&M Discipline: The company is focused on financial discipline, including supply chain optimization and reducing reliance on contractors, with planned O&M in 2025 expected to be flat to 2023 and 2024 levels.
Leadership Changes: A new leadership team has been established, with 24 individuals placed in critical roles at the Vice President level and above, focusing on operational excellence and accountability.
Core Earnings Reporting: Beginning in 2025, FirstEnergy will report core earnings, excluding volatile contributions from pension and Signal Peak, to better reflect the performance of its regulated utilities.
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Risk or Challenges
Regulatory Risks: The company faces regulatory challenges, particularly in Ohio, where the withdrawal of the ESP-5 plan has reverted operations back to ESP-4 without revenue increases for distribution capital recovery. This could impact future revenue generation.
Economic Factors: Higher than anticipated financing costs, including increased interest rates, have negatively impacted earnings forecasts for 2025. The yield on the 10-year treasury has increased about 100 basis points since early October.
Operational Challenges: The company experienced lower sales volumes due to mild weather conditions and an unusual amount of storm activity that did not meet regulatory deferral requirements, impacting overall revenue.
Supply Chain Issues: There is a focus on reducing reliance on contractors and optimizing the supply chain to drive efficiencies, indicating potential challenges in managing operational costs.
Investment Risks: The company plans to invest $5 billion in regulated properties for 2025, but the financial discipline required to manage these investments amidst regulatory and operational challenges poses a risk.
Pension and Commodity Volatility: The volatility in earnings contributions from the Signal Peak investment and pension plan has been significant, leading to a decision to report core earnings to mitigate this risk.
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Guidance & Outlook
Core Earnings Guidance for 2025: Core earnings per share guidance range of $2.40 to $2.60, representing a 5.5% growth from 2024 core earnings of $2.37.
Capital Investment Plan: Energize365 capital investment program of $28 billion through 2029, with annual investments increasing from $5 billion in 2025 to $6.4 billion in 2029.
Regulatory Outcomes: Approved Pennsylvania base rate case resulting in a net annual revenue increase of $225 million effective January 1, 2025.
O&M Expenses: 2025 planned O&M expenses are flat to 2023 and 2024 levels, except for increases related to Pennsylvania's reliability improvements.
Debt Financing: 2025 debt financing plan includes approximately $3.6 billion, with $2 billion as new money requirements.
2025 Revenue Expectations: Anticipated annual dividend declarations totaling $1.78 per share in 2025, with a payout ratio of 60% to 70% of core earnings.
Investment Growth Rate: Forecasted core earnings compounded annual growth rate of 6% to 8% through 2029.
CapEx Plan: Investment of $5 billion in regulated properties in 2025, an increase of approximately 11% over 2024.
Return on Equity: Consolidated return on equity of 9.4% on a rate base of $25.9 billion for 2024.
Data Center Demand: Plan includes 2.6 gigawatts of active or contracted data center demand through 2029, with potential incremental $350 million to the capital program.
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Shareholder Return Plan
2024 Dividend Declaration: Totaling $1.70 per share, an increase of just over 6% versus those declared in 2023.
2025 Dividend Declaration Guidance: Anticipated annual dividend declarations totaling $1.78 per share.
Shareholder Return Plan: The company is committed to a payout ratio of 60% to 70% of core earnings over the planning period.
Core Earnings Guidance for 2025: Core earnings per share guidance range of $2.40 to $2.60, with a midpoint of $2.50, representing 5.5% growth from 2024.
Investment Plan: Energize365 $28 billion investment program through 2029, with a compounded annual growth rate of 6% to 8%.
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Key Q&A
Q:Can you guys hear me?
A:Yes, we can hear you.
Q:Just trying to get a sense on how much of the tail risks you're highlighting are timing related? What you're now assuming on interest rates, so could that become a tailwind? How much of the O&M pressure is PA related? And just, I guess, where are you within the 6% to 8% off the lower '25 base assuming what we know today?
A:We do anticipate being in that 6% to 8% range beginning '25 through to '26 and for the full range that we've talked about. As a management team, we will be disappointed if we don't end in the upper end of that range. Much of the O&M change can be described as the increase that we received in the Pennsylvania base rate case settlement.
Q:How could the findings play into ESP-6?
A:There are things that will move from the base rate case to the ESP and back and forth, and we need to reconcile those, and we anticipate doing that shortly in an upcoming filing.
Q:Can you just talk about the path to getting that back towards the 14% target for the planning period?
A:If you think about where we were for 2024, you just kind of strip out some of those unique items that aren't in our plan for 2025.
Q:Are there any assumptions on those projects that are reflected in the current plan? Or would you expect those to fall outside of the scope of the current planning period?
A:We anticipate that our share of those projects will be about $675 million. About $625 million of that is going to be an FET and the remainder of that is going to be in our owned operating companies.
Q:What are your thoughts on just being able to maybe settle some of these issues with staff?
A:We always like to settle cases where we have the opportunity to do that. The way our cases have been going recently, there's been no regulatory overhang, but I anticipate this one will be fully adjudicated.
Q:If you're going to be higher in the range, just why isn't this a 7% to 8% CAGR?
A:The traditional things that you would expect that would impact utilities earnings, right? Regulatory outcomes, ability to get recovery load all the traditional things that you would expect.
Q:As we think about your targeted consolidated earned ROE of 9.5% to 10%, is that the level you're assuming in this 6% to 8% core EPS CAGR?
A:In the forecast period, we are assuming that we're going to earn on a consolidated basis, somewhere in that 9.5% to 10%.
Q:Could you just give us an update of kind of where you ended the year on like funded status of the pension?
A:We ended the year at about 84% funded.
Q:Is there any other schedule to the case at this point? Or is that just the rest of the schedule?
A:We don't have a procedural schedule yet in the case, and we need to respond to the report 30 days from when it was issued.
Q:Can you please talk a little bit about demand trends?
A:We saw some trends in Pennsylvania that they have an energy efficiency program there.
Q:Any thoughts on how we should think about dividend growth going forward relative to the 6% to 8% earnings?
A:I anticipate that the board may want to take full advantage of the full range they have, but are comfortable with where we're coming in, in '24 and where we anticipate coming in at '25.
Q:Do you have the ability to move maybe things that you were looking to collect through the ESP back into the general rate case?
A:Of course, we would try to do that.
Q:Review of Unclear Management Responses
A:Management's response lacked clarity on the specific timing and details regarding the reconciliation of findings from the audit report to ESP-6, as well as the procedural schedule for the rate case.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
DCR
OM discipline
Ohio Commission
Ohio company
Pennsylvania Commission
Pennsylvania increase
Sagot
Securities
Slide
Taylor
accountability
auditor
commission
core rate
culture
declaration share
dividend declaration
employee
excellence
focus
foundation
headwind
increase investment
infrastructure investment
investment grade
investment rate
issue
legacy
member
milestone
model decision
pension Signal
proceeding
program capital
program investment
result rate
return investment
role
success
term objective
vision future
FE Transcript
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FirstEnergy Corp. (FE) Q4 2024 Earnings Conference Call Transcript
Positive2-27
The earnings call presents several positive factors: increased capital investments, dividend growth, and a strong ROE. Despite some uncertainties, the company maintains a solid growth outlook with a 6-8% CAGR and improved credit ratings. The Q&A reveals management's confidence in achieving the upper range of growth targets, and the recent regulatory settlement supports future revenue growth. Although some responses lacked clarity, the overall sentiment is positive, with optimistic guidance and strategic initiatives likely to boost the stock price.
FE Slides
FE Report
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