Q4 2024 Earnings Summary
- AES is experiencing strong demand from customers, having signed 450 megawatts of contracts with tech customers since the last call, with no downturn in demand and an expectation of continued growth through 2027, indicating sustained growth in the renewables sector.
- AES expects significant EBITDA growth in 2026 and 2027, with growth rates in the low teens in 2026, due to core business growth and a portfolio transformation towards more contracted, renewable, and utility assets, improving both quantitative and qualitative aspects of the portfolio.
- AES is increasing cash flow and EBITDA substantially through bringing online 12 gigawatts of assets by 2027, while reducing development and administrative spending, leading to healthier financial ratios and performance better than prior expectations.
- AES is reducing its future growth in renewables post-2027, as they are spending less on creating a pipeline of potential projects 5 to 7 years out, leading to less growth in number of megawatts than their original plans.
- AES is delaying its exit from coal by retaining coal assets beyond 2027, expecting to keep roughly one-third of the $750 million EBITDA from coal operations for a period of time beyond 2027. This could expose the company to ongoing risks associated with coal.
- Near-term earnings growth may be under pressure, as the company acknowledges that 2025 guidance isn't as exciting due to remaining transformations and some items depressing year-over-year results, suggesting that significant growth may not be realized until 2026 and beyond.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue Q3 2023 vs Q3 2022 | –$193 million (–5%) | Lower revenue was driven by declines in key segments: Energy Infrastructure SBU fell by $265 million (–12%) due to lower LNG transaction contributions and Utilities SBU dropped $114 million (–11%) because of deferral of power purchase costs and adverse weather, partially offset by a 33% boost in Renewables SBU (+$176 million). |
Total Revenue Q3 2024 vs Q3 2023 | –$145 million | The reduction was primarily due to a significant drop in Energy Infrastructure revenue (from $1,861 million to $1,623 million) caused by the end of commercial operations at Warrior Run, lower margins at Southland, and outages in Mexico, with minor contributions from other segments. |
Utilities SBU Revenue Q3 2023 vs Q3 2022 | –$114 million (–11%) | The decline resulted from the deferral of previously recognized power purchase costs linked to regulatory settlements and the Electric Security Plan, compounded by milder weather affecting demand in Indiana and Ohio, though partially offset by higher transmission and rider revenues in other regions. |
Utilities SBU Revenue Q3 2024 vs Q3 2023 | +$81 million (9%) | Growth in this segment was driven by higher contributions from new projects and rate base investments at U.S. utilities, reflecting favorable regulatory and market conditions in that area. |
Corporate & Other Revenue Q3 2023 vs Q3 2022 | +$5 million (21% growth) | Although Corporate and Other Revenue increased modestly, the documents provide no detailed explanation; the rise likely stems from adjustments or improvements in corporate-level activities and eliminations. |
Corporate & Other Revenue Q3 2024 vs Q3 2023 | +$4 million (14% increase) | Similar to the prior period, the increase is attributed to potential enhancements in corporate contributions or adjustments, though the exact drivers are not elaborated in the sources. |
Energy Infrastructure SBU Q3 2023 vs Q3 2022 | –$265 million (–12%) | The decline was primarily due to lower LNG transaction contributions, compounded by unrealized foreign currency losses and a higher cost of sales that pressured the revenue figures compared to the prior year. |
Energy Infrastructure SBU Q3 2024 vs Q3 2023 | –$238 million (–13%) | Revenue dropped further as a result of the end of commercial operations at Warrior Run, lower margins at hedged merchant Southland facilities, and severe drought conditions in South America adversely impacting performance. |
Net Income Turnaround Q3 2023 vs Q3 2022 | Decrease of $155 million | Net Income was impacted by lower contributions from LNG transactions, unrealized foreign currency losses, and a substantial rise in long‐lived asset impairments (partially offset by gains from the Utilities and Renewables SBUs), reflecting a tougher operating environment compared to Q3 2022. |
Net Income Turnaround Q3 2024 vs Q3 2023 | Decrease of $81 million | The further drop in net income is largely due to weaker Energy Infrastructure performance (notably due to operational changes like the cessation at Warrior Run) and adverse weather (drought) affecting renewables, underscoring the ongoing challenges from the prior period. |
Basic EPS Q3 2023 vs Q3 2022 | Declined from $0.59 to $0.32 | EPS compression was driven by substantial unrealized foreign currency losses totaling $96 million and a jump in impairment losses (from $17 million to $145 million), along with a lower pre-tax contribution (dropping from $549 million to $332 million) that impaired the earnings performance. |
Basic EPS Q3 2024 vs Q3 2023 | Increased to $0.72 from $0.32 | The significant improvement in Basic EPS reflects higher contributions from new renewables projects, lower impairment charges, and reduced unrealized FX losses, though these gains were partly offset by continued challenges in the Energy Infrastructure SBU. |
Total Revenue Q4 2024 vs Q4 2023 | –0.2% (declined from $2.968 billion to $2.962 billion) | The marginal decline in Total Revenue is indicative of offsetting performance across segments, with modest declines balanced by improvements elsewhere, resulting in an overall small YoY change. |
Utilities SBU Revenue Q4 2024 vs Q4 2023 | +10.9% (increased from $792 million to $878 million) | This notable increase is attributable to robust rate base investments and favorable operational performance in U.S. utilities, significantly boosting this segment’s revenue. |
Corporate & Other Revenue Q4 2024 vs Q4 2023 | +33% (rose from $42 million to $56 million) | The sharp rise likely results from enhanced corporate-level activities and adjustments, though no granular details are provided, indicating an improvement in consolidation or eliminations. |
Energy Infrastructure SBU Revenue Q4 2024 vs Q4 2023 | –4.1% (fell from $1.597 billion to $1.532 billion) | A modest decline suggests more stability relative to the dramatic drops in previous periods, despite continued headwinds that slightly depressed revenue in this segment. |
Net Income Turnaround Q4 2024 vs Q4 2023 | Reversal from a loss of $643 million to a profit of $353 million | The dramatic turnaround in Net Income is driven by broad operational improvements and strategic initiatives across segments, marking a complete reversal from negative prior results. |
Basic EPS Q4 2024 vs Q4 2023 | Improved from a loss of $0.14 to $0.79 | Reflecting the robust recovery in profitability, the substantial EPS improvement is the result of enhanced earnings across segments and effective cost management, reversing last year’s losses. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2025 | $1.87 to $1.97 | $2.10 to $2.26 | raised |
Parent Free Cash Flow | FY 2025 | Approximately $1.1 billion | $1.15 billion to $1.25 billion | raised |
Adjusted EBITDA | FY 2025 | no prior guidance | $2.65 billion to $2.85 billion | no prior guidance |
Long-term Adjusted EBITDA Growth Rate | FY 2025 | no prior guidance | 5% to 7% annually through 2027 | no prior guidance |
Long-term Parent Free Cash Flow Growth Rate | FY 2025 | no prior guidance | 6% to 8% annually through 2027 | no prior guidance |
Renewables SBU Adjusted EBITDA Growth | FY 2025 | no prior guidance | 19% to 21% CAGR from the 2023 guidance midpoint through 2027 | no prior guidance |
Cost Savings | FY 2025 | no prior guidance | $150 million in FY 2025, ramping up to over $300 million in FY 2026 | no prior guidance |
Tax Attributes | FY 2025 | no prior guidance | $1.4 billion expected to be recognized in FY 2025 | no prior guidance |
Dividend Allocation | FY 2025 | no prior guidance | More than $500 million in FY 2025, reflecting a 2% increase | no prior guidance |
Capital Allocation | FY 2025 | $2.2–2.3 billion for new growth investments and $500 million for shareholder return | $1.8 billion investment in new growth and $400 million repayment of subsidiary debt | lowered |
Construction Debt Impact | FY 2025 | no prior guidance | Additional $400 million of annual adjusted EBITDA from projects coming online during/after 2027 | no prior guidance |
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Cost Savings Confidence
Q: Are the $300 M cost savings ongoing and achievable?
A: Management confirmed that the $300 million in cost savings are ongoing and not one-time. They emphasized confidence in achieving these reductions, stating that actions have already been taken across the portfolio, including the renewables business. -
Maintaining Growth with Reduced CapEx
Q: How will you hit 5–7% EBITDA growth after cutting CapEx?
A: Despite reducing CapEx, AES expects to maintain its 5% to 7% long-term EBITDA growth target. By focusing on higher-quality projects with increasing IRRs and cutting costs, they can achieve more profitable growth with fewer but larger projects. -
Renewables Growth Outlook
Q: Is the pullback in renewables CapEx temporary or permanent?
A: AES is focusing on executing its 12 GW pipeline, with 85% online by 2027. They are spending less on future projects beyond five to seven years but maintain strong demand and plan to commission 3 GW this year and 4 GW next year. -
Asset Sales and Coal Retention
Q: What assets are included in the increased sales target?
A: The asset sales target includes some coal exits and monetization of the technology portfolio. While coal assets will be retained longer than planned, the capital plan relies less on asset sales than before, providing more flexibility over time. -
Detail on Cost Reductions
Q: What examples can you give of cost reductions?
A: Cost reductions include a 10% workforce reduction, elimination of management layers, and resizing the development program to focus on executing the backlog and pursuing fewer, larger projects. These actions have already been taken, reducing execution risk. -
Credit Metrics and Moody’s Thresholds
Q: Where do you stand on debt relative to Moody’s thresholds?
A: AES ended with a 22% recourse metric, above the 20% threshold, and a 10% Moody’s metric, in line with expectations. They anticipate improving these metrics over time, reaching mid-20s on recourse and 12% on Moody’s metric by 2026. -
Engagement with Moody’s on Plan
Q: Have you discussed this plan with Moody’s?
A: Management has discussed the plan with Moody’s, noting that cash flow and EBITDA are increasing substantially due to operating assets coming online and reduced development spending. The ratios are expected to look healthy and improve beyond prior expectations. -
Renewables Investment and Coal Contribution
Q: Are renewables investments slowing, and what's coal's future impact?
A: Executing the backlog through 2027, AES sees ongoing strong demand. Post-2027, growth in megawatts will be less than original plans due to reduced pipeline investment. Approximately one-third of the anticipated $750 million coal EBITDA roll-off may continue beyond 2027. -
Interest Rates and Debt Maturities
Q: Are upcoming debt maturities derisked from interest rate changes?
A: AES has hedged nearly all interest rate exposure on upcoming refinancings. They plan to refinance maturities in July and January, typically 3 to 6 months in advance. -
Achieving EBITDA Growth Targets
Q: Can you reach 5–7% EBITDA CAGR by 2026?
A: Management expects significant EBITDA growth in 2026, in the low teens, accelerating the achievement of growth targets. Growth is driven by core businesses and cost reductions, with further growth anticipated in 2027. -
Capital Allocation and Stock Investment
Q: Will you reduce CapEx more to invest in your stock?
A: AES is confident in its current plan, providing $500 million a year to shareholders through substantial dividends. While aware of the stock price, management focuses on executing the plan to deliver good returns when the market settles. -
Regulatory Impact on Renewables Contracts
Q: Do FERC or Texas issues affect long-term renewables contracts?
A: Management does not see regulatory issues impacting their ability to contract renewables. Their pipeline is resilient, primarily on private lands, and they feel confident about avoiding regulatory impacts.