The AES Corp (AES) Q1 2024 Earnings Call Transcript Highlights: Strategic Growth and Resilient ...

GuruFocus Research

4 May 2024 at 3:08 am·5-min read

Adjusted EBITDA with tax attributes: $863 million
Adjusted EBITDA: $635 million
Adjusted EPS: $0.50
2024 Adjusted EBITDA with tax attributes guidance: $3.6 billion to $4 billion
2024 Adjusted EBITDA guidance: $2.6 billion to $2.9 billion
2024 Adjusted EPS guidance: $1.87 to $1.97
New contract signings: 1.2 gigawatts since Q4 call
Backlog of signed contracts: 12.7 gigawatts
New projects added to operating portfolio: Almost 600 megawatts
2024 Parent capital allocation: $3 billion total discretionary cash
Dividend: Approximately $500 million returned to shareholders
New growth investment: Approximately $2.6 billion, 85% towards renewables and utilities

Warning! GuruFocus has detected 9 Warning Signs with AES.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

The AES Corp (NYSE:AES) reported strong Q1 2024 results with adjusted EBITDA of $863 million and adjusted EPS of $0.50, demonstrating resilience to high interest rates and inflation.
AES reaffirmed its 2024 guidance and growth rates through 2027, indicating confidence in continued strong performance.
The company signed a significant 15-year contract with Amazon for the Bellefield project, providing 2 gigawatts of combined solar and storage, marking it as the largest solar-plus-storage project in the U.S.
AES has nearly 6 gigawatts of long-term contracts with technology companies, positioning it as a major energy provider to data centers.
The company's diversified and resilient supply chain has been a key differentiator, ensuring the availability of major equipment for projects in 2024 and 2025.

Negative Points

Despite strong results, there are ongoing challenges with renewable resource variability in Panama and Brazil, impacting performance.
The company faces potential risks from international tariffs, such as the antidumping compensating tariffs, which could affect future project costs and supply chain.
AES's rapid growth in renewables requires substantial capital investment, which may pressure financial resources if not managed effectively.
Transmission constraints and regulatory issues could potentially slow down the deployment of new projects and affect operational efficiency.
While AES is expanding its utility investments, there is uncertainty about the sufficiency of current plans to meet potential large-scale demands from data centers and industrial growth.

Q & A Highlights

Q: Can you expand on your commentary about eliminating future planned equity issuance? Is that something we should view through this year, or is it more of a multiyear effort? A: Andres Ricardo Gluski Weilert, President, CEO & Director of The AES Corporation, explained that historically, AES has consistently exceeded its asset sale targets, which provides a strong foundation for the current year. He highlighted the sale of the Vietnam asset as a significant transaction awaiting government approval. Gluski emphasized AES's historical frugality with equity issuance, suggesting that depending on the progress of asset sales and growth programs, it might be possible to avoid additional equity issuance. He clarified that any potential equity issuance would not occur at current valuations and would likely be in the later years of their guidance period.

Q: With some of your peers announcing a wider framework with Microsoft, is there an opportunity for AES to engage in similar large-scale agreements with major customers like Microsoft? A: Andres Ricardo Gluski Weilert responded that AES has already established significant dealings with data centers and technology companies, having secured 6 gigawatts of projects. He noted that AES's strategy involves understanding and meeting the specific needs of these large customers, which sometimes vary. Gluski pointed out that AES's early identification of and innovation in meeting tech companies' renewable energy needs have positioned it strongly in the market. He also mentioned the importance of having a diversified international presence to meet client needs effectively.

Q: Can you discuss the potential impact of antidumping tariffs on AES's operations? A: Andres Ricardo Gluski Weilert addressed concerns about potential antidumping tariffs, stating that AES is well-prepared. He noted that AES has secured the necessary equipment for the current and following year's projects, mitigating the risk of tariff impacts. Gluski also highlighted AES's proactive approach to managing supply chain risks, which has historically allowed the company to proceed without delays or significant impacts from tariffs.

Q: Could you provide insights into the pace of renewable energy deployment and whether the current demand from data centers is sustainable? A: Andres Ricardo Gluski Weilert acknowledged the accelerating demand for data centers and the crucial role of renewable energy in meeting this demand. He emphasized that developers with advanced pipelines and supply chain capabilities would be best positioned to meet the rapid deployment schedules required by data center expansions. Gluski also highlighted the strategic value of pipelines in securing long-term growth opportunities in the renewable sector.

Q: How are transmission constraints and interconnection challenges being addressed, especially with the accelerating pace of renewable deployment? A: Andres Ricardo Gluski Weilert discussed several innovative solutions to address transmission constraints, including dynamic line rating and grid booster technologies. He explained that these technologies leverage existing infrastructure more efficiently, potentially saving billions in costs and accelerating project deployment. Gluski also mentioned regulatory challenges as a significant hurdle in fully utilizing these technologies.

Q: What are the latest developments and focus areas for AES in the hydrogen energy sector? A: Andres Ricardo Gluski Weilert provided an update on AES's major green hydrogen project in Texas, a joint venture with Air Products. He noted that the project's progress is contingent on final regulatory clarifications regarding tax credits and definitions of green hydrogen. Gluski expressed confidence in the project's advancement and highlighted its potential as the most advanced green hydrogen project in the U.S. with a real offtaker.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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