Yahoo Finance CMS Energy Corporation (NYSE:CMS) Q1 2024 Earnings Call Transcript
CMS Energy Corporation (NYSE:CMS) Q1 2024 Earnings Call Transcript April 25, 2024
CMS Energy Corporation beats earnings expectations. Reported EPS is $0.97, expectations were $0.94. CMS Energy Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning everyone, and welcome to the CMS Energy 2024 First Quarter Results. The earnings news release issued earlier today and the presentation used in this webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. After the presentation, we will conduct a question-and-answer session, and instructions will be provided at that time. [Operator Instructions]. Just a reminder there will be a rebroadcast of this conference call today beginning at 12:00 p.m. Eastern Time running through May 2. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I would like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations.
Jason Shore: Thank you Drew. Good morning everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer; and Rejji Hayes Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrick.
Garrick Rochow: Thank you Jason, and thank you everyone for joining us today. CMS Energy, 21 years of consistent industry-leading results. And what sets us apart is our performance and it starts with our investment thesis. It is how we prioritize and focus our work to deliver the service our customers deserve in the financial outcomes you expect. As we look ahead, we see ample investment opportunity over the long-term, as we lead the clean energy transformation and deliver the critical work needed to improve the reliability and resiliency of our electric and gas systems. This important work is supported by legislation and a constructive regulatory environment, which provides confidence in making required investments to strengthen our system and prepare for a clean energy future.
We plan ahead through our electric reliability road map, natural gas delivery plan and our upcoming renewable energy plan, which all provide visibility and transparency and the work will deliver to keep our systems safe, sound and clean. At CMS Energy, we work both sides of the equation. We make important investments in our systems and we work to keep bills affordable. Our CE Way lean operating system helps us improve our performance, increase productivity and take costs out of the business. And we are hard at work to grow Michigan through economic development ensuring Michigan thrives well into the future. These efforts are important and help us keep customers' bills affordable. At CMS Energy, we make our investment thesis work year-after-year and it continues to set us apart in the industry delivering results for all our stakeholders.
Today, I'm going to share three focus areas that have me excited about our future and give us confidence in our outlook. First, our electric distribution system. As our world becomes more dependent on electricity for business growth, technology advancements, devices and vehicles, our system needs to be stronger, smarter and more resilient for our customers. But our vast electric distribution system is aging. It needs to be modernized and strengthened for increasingly severe weather. Over the past five years, we have seen some of the highest wind speeds on record in more frequent storm activity. We have responded to this need through our electric reliability road map. Currently a five-year $7 billion plan to improve performance and harden our system for the future.
The plan utilizes best practices from across the industry, including designing the system with stronger pull, undergrounding, sectionalizing in further automation. And given the size of our distribution system, 90,000 miles of line, nearly 1200 substations, and a historically lower investment per mile compared to peers, we see a long runway of needed investment. We've incorporated roughly half of the incremental $3 billion, you see on slide 4, into our current capital plan and you'll start to see this investment show up in our next electric rate case, which we'll file in the second quarter. These important investments will mean fewer in shorter outages for our customers, and we are already seeing meaningful improvements in the investments made over the last few years.
The second focus area, I want to share is our continued leadership of the transformation to clean energy in the industry. In the past, I have shared our approved plans to eliminate coal in 2025, reduce carbon, grow energy efficiency and build out renewables in pursuit of our net zero target, and cleaner air for our customers and our planet. In late 2023, much of our clean energy targets were bolstered by Michigan's new Clean Energy law. This law is unique in the industry and is good for all stakeholders. It provides us with the opportunity to further reduce our carbon footprint while maintaining resource adequacy, affordable customer builds and delivering for our investors. On the right side of the slide, you'll see the opportunities ahead as we prepare to meet Michigan's new clean energy law.
It supports an accelerated plan with the decarbonization of our system, with an enhanced financial compensation mechanism, which provides a roughly 9% return on clean purchase power agreements. In addition, there's an increased incentive on energy efficiency as we target 60% renewables by 2035 and 100% clean energy by 2040. And it gives us important flexibility, as we think through how to best meet our customers' needs with renewables across the broad MISO footprint. This mechanism, the flexibility in the law, helps us balance customer affordability as we work through this transition. For our customers, all this means stronger, more resilient and cleaner energy. For our investors, an exciting and robust investment runway well into the future.
Now, let's work the other side of this investment equation. The third focus area that I want to share today, how we are helping Michigan grow and thrive, which is good for our company and our customers. Growth across our service territory is good for Michigan, helps keep bills affordable for our customers and provides headroom to the investments, I just referenced. And I couldn't be more excited about the growth we need in our state. Michigan has a strong fiber network, access to fresh water, temperate climate, energy-ready site, and attractive energy rate. In February, we secured a contract with a large data center in the heart of our service territory. The majority of the 230 megawatts of new load is expected to be online by 2026. This is nice load growth.
And I'm even more excited about the manufacturing load growth we are seeing in Michigan, which is a differentiator for us. Our statewide leadership project such as Gotion, Hemlock Semiconductor, Ford and many others, continues to drive new and expanding load in our service territory. These projects bring significant jobs, supply chain, commercial growth, housing starts and broad Michigan investment. The ancillary benefit of manufacturing growth are good for all customers, can bolster our confidence in our plan for 2024 and beyond. Our customers thrive when Michigan thrives. And I'm proud of the diversity and quality of new load our leadership is working to bring to the state. Now, let's get into the numbers. In the first quarter, we reported adjusted earnings per share of $0.97.
Although, we experienced a warmer-than-normal winter, the healthy set of countermeasures we deployed in 2023 and as well as our active use of the CE Way continued to benefit us in 2024. We remain confident in this year's guidance and long-term outlook and are reaffirming all our financial objectives. Our full year guidance remains at $3.29 to $3.35 per share with continued confidence toward the high end. Longer term, we continue to guide to the high end of our adjusted EPS growth range of 6% to 8%, which implies and includes 7% up to 8%. With that, I'll hand the call over to Rejji.
Rejji Hayes: Thank you, Garrick, and good morning, everyone. On slide 7, you'll see our standard waterfall chart, which illustrates the key drivers impacting our financial performance for the quarter and our year-to-go expectation. For clarification purposes, all of the variance analysis herein are in comparison to 2023, both on a first quarter and nine months to go basis. In summary, through the first quarter of 2024, we delivered adjusted net income of $288 million or $0.97 per share, which compares favorably to the comparable period in 2023 largely due to higher weather-normalized sales and lower service restoration costs of utility, partially offset by mild weather. To elaborate on the impact of weather, we experienced another warm winter in Michigan during the first quarter, which had the second lowest number of heating degree days in the past 25 years.
The warm winter weather resulted in $0.06 per share of negative variance, which appears modest on the surface given the historically low number of heating degree days. However, it's important to note that last year's winter was also quite warm. Rate relief net of investment-related expenses resulted in $0.05 per share of positive variance due to constructive outcomes achieved in our most recent electric rate case and last year's gas rate case settlement coupled with residual benefits from our 2023 electric rate case settlement approved last January. From a cost performance perspective our financials in the first quarter of 2024 were positively impacted by lower operating and maintenance or O&M expenses primarily attributable to lower service restoration costs than we experienced last year.
Also as Garrick noted, we continue to see benefits from select cost reduction initiatives implemented in 2023, which have offset modest inflationary trends we've experienced in various cost categories such as wages as planned and we anticipate this trend to continue over the remainder of the year. And our catch-all category represented by the final bucket in the actual section of the chart, you'll notice a healthy pickup of $0.19 per share largely driven by weather normalized sales which contributed almost half of said positive variance particularly in our residential and commercial customer classes. It's worth noting that the leap year impacts comparability with 2023 for weather-normalized sales, but even absent the effects of the leap year our residential weather-normalized sales up about 0.5% and our commercial customer class was up almost 2.5% versus the prior year, which highlights the continued solid performance of our higher-margin customer classes.
Looking ahead, we plan for normal weather as always which equates to $0.22 per share of positive variance for the remaining nine months of the year given the mild temperatures experienced for virtually all of 2023. From a regulatory perspective, we're assuming $0.18 per share of positive variance which is largely driven by the constructive electric rate order received from the commission in early March. We are also assuming a supportive outcome in our pending gas rate case. On the cost side we anticipate lower overall O&M expense at the utility driven by the usual cost performance fueled by the CE Way and last year's voluntary separation program among other 2023 cost reduction initiatives that continue to bear fruit. We also assumed lower service restoration costs given last year's record level of storm activity in our service territory.
In aggregate, we expect these items to drive $0.09 per share of positive variance for the remaining nine months of the year. Lastly in ultimate bar, on the right-hand side, you'll note a significant negative variance which largely consists of the absence of select onetime countermeasures from last year and the usual conservative assumptions around weather-normalized sales and non-utility performance among other items. In aggregate, these assumptions equate to $0.52 to $0.58 per share of negative variance. Slide 8 offers the latest updates on our regulatory-forward calendar. As you'll note in the top section, we plan to file a Renewable Energy Plan or REP by mid-November, which will highlight our strategy for complying with the various renewable energy targets associated with Michigan's new clean energy law.
We are excited by the prospects of the new law which will support our net zero carbon by 2040 goal and look forward to socializing our filing with key stakeholders in the coming months. Once filed the commission will have 300 days to issue an order, which will likely be in the third quarter of 2025. Therefore, as mentioned during our fourth quarter call you should expect that to the five-year plan that will roll out in the first quarter of 2026 will incorporate a greater portion of the financial impacts of the REP. Moving on to our general rate case filings. You can expect our next electric rate case to be filed in late May to early June time frame. This filing will incorporate some of the initial spend we have outlined in our five-year electric reliability road map that Garrick touched on earlier.
Given the 10-month stipulated period for rate cases in Michigan, we would expect to receive an order from the commission in the first quarter of 2025 and thus the related financial impact. Lastly, we anticipate an order in our pending gas rate case by mid-October absent a settlement. While we don't always include a balance sheet update on our formal presentation it is worth noting that Moody's and Fitch reaffirmed our credit ratings in March and April respectively, as noted at the bottom of the table on Slide 9. Longer-term we continue to target solid investment-grade credit ratings and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. And with that I'll hand it back to Garrick for his final remarks before the Q&A session.
Garrick Rochow: Thank you, Rejji. Our simple investment thesis is how we run our business and provides us with confidence for a strong outlook this year and beyond. 21 years of consistent industry-leading financial performance, 21 proof point, regardless of conditions no excuses just results. With that Drew, please open the lines for Q&A.
Operator: Thank you very much, Garrick. [Operator Instructions] Our first question today comes from Shahriar Pourreza from Guggenheim Partners. Your line is now open. Please go ahead.
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