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Avangrid, Inc. (AGR)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 GAAP EPS was $1.03 and adjusted EPS was $0.97, on operating revenues of $2.282B; Networks drove outsized strength from New York rate plan implementation and uncollectibles mitigation, while Renewables were pressured by low wind and pricing with offset from thermal operations .
  • Full-year 2023 GAAP EPS was $2.03 and adjusted EPS $2.09; management cited 18–19% YoY adjusted earnings growth excluding 2022 offshore wind gain and IRA upfront tax benefits, and declared a quarterly dividend of $0.44 (annual $1.76) .
  • 2024 adjusted EPS guidance introduced at $2.17–$2.32; management expects incremental regulated revenues (NY, ME), AFUDC from NECEC (8.5% rate), normal wind assumption, and O&M optimization; no equity issuance anticipated in 2024, which is a positive near-term stock catalyst .
  • Strategic de-risking: termination of uneconomic offshore PPAs (Commonwealth, Park City) avoided multibillion write-offs; Vineyard Wind 1 advanced with tax equity closed ($1.2B) and initial turbines operating, supporting multi-year visibility .
  • Regulatory track record remains a key narrative driver: multi-year rate plans approved in NY and ME (authorized ROE 9.2% in NY; significant rate base investments), with ongoing appeal and engagement in Connecticut .

What Went Well and What Went Wrong

What Went Well

  • Secured and implemented NY multi-year rate plan with a positive after-tax impact of $136M in Q4, including $66M make-whole to May 1 and $70M uncollectibles mitigation; CEO: “We received approvals for $9 billion investments… enabling more than $7 billion of regulated investments” .
  • Offshore wind risk managed proactively: “Successfully terminated… PPAs, avoiding billions of dollars of potential write-offs,” and closed first-ever U.S. offshore wind tax equity financing for $1.2B; management emphasized preserving future lease value .
  • Operational execution: start-up of Vineyard Wind 1 turbines with recurrent power in early January and strong thermal/asset management results acting as a natural hedge to low wind periods; CFO: thermal operations captured value when wind resource was low .

What Went Wrong

  • Renewables segment pressured by “lower wind generation output and a decrease in merchant prices,” driving a Q4 adjusted Renewables EPS contribution of -$0.02 vs +$0.21 in Q4 2022 .
  • Higher costs across depreciation, O&M, and interest with increased investment and rates; CFO flagged “higher costs… including O&M and interest costs” offsetting part of Networks gains .
  • Connecticut regulatory environment remains adversarial, with PURA decisions challenged via appeal; management warned decisions “depart[ed] without prior notice from over 25 years of… practices,” and remains focused on legal remedies .

Financial Results

Sequential and YoY Summary

MetricQ4 2022Q3 2023Q4 2023
Operating Revenues ($USD Millions)$2,158 $1,974 $2,282
GAAP EPS ($USD)$0.38 $0.15 $1.03
Adjusted EPS ($USD)$0.39 $0.27 $0.97

Segment Breakdown (Q4)

MetricQ4 2022Q4 2023
Networks Net Income ($USD Millions)$158 $362
Renewables Net Income ($USD Millions)$76 $18
Corporate Net Income ($USD Millions)-$87 $17
GAAP EPS – Networks ($USD)$0.41 $0.94
GAAP EPS – Renewables ($USD)$0.20 $0.05
GAAP EPS – Corporate ($USD)-$0.22 $0.04
Adjusted EPS – Networks ($USD)$0.41 $0.94
Adjusted EPS – Renewables ($USD)$0.21 -$0.02
Adjusted EPS – Corporate ($USD)-$0.22 $0.05

Key P&L Line Items

MetricQ4 2022Q4 2023
Operating Income ($USD Millions)$217 $450
Total Operating Expenses ($USD Millions)$1,941 $1,832
Interest Expense, net ($USD Millions)-$77 -$108
Other Income ($USD Millions)-$8 $33
Income Tax Expense ($USD Millions)$6 $8

Non-GAAP Adjustments (Q4 2023 vs Q4 2022)

Adjustment ItemQ4 2022 ($USD Millions)Q4 2023 ($USD Millions)
Mark-to-market (Renewables)-$17 -$40
Merger & transaction costs$1 $9
Offshore contract provision$24 $0
Income tax impact of adjustments-$2 $8
Adjusted Net Income$152 $374

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS ($USD)FY 2024—$2.17–$2.32 Introduced
GAAP EPS ($USD)FY 2024—$2.17–$2.32 Introduced
Authorized ROE (NY)Multi-year (3 yrs)—9.2%; equity ratio 48% Confirmed in plan
Dividend ($/share)2024$1.76 annual (2023) $0.44 quarterly declared, annual $1.76 maintained (subject to Board) Maintained
NECEC AFUDC rate2024—8.5% Clarified
Uncollectibles treatment (NY)Ongoing—Deferral to match reserve, ongoing mitigation Risk reduced

Earnings Call Themes & Trends

TopicQ2 2023 MentionsQ3 2023 MentionsQ4 2023 MentionsTrend
NY & ME rate plansFiled JP (NY); CMP multi-year approval; make-whole and cash improvements expected NY PSC approval; $136M Q4 impact; CLCPA Phase 2 >$2B Execution benefits realized; targeting authorized ROEs; ongoing incremental revenues Improving and underpinning EPS/CFO outlook
Offshore wind (PPAs, VW1)Commonwealth termination path; VW1 on track for 2023 first power PPAs terminated at minimal cost; VW1 milestones, tax equity closed; initial power by YE Confirmed turbines operating; 30% ITC secured; focus on finishing project De-risked legacy, executing VW1
NECECFavorable rulings; restart critical path; AFUDC expected Restarted; AFUDC earnings Q3/Q4 AFUDC rate 8.5%; foundations/poles progress; conductor stringing started Construction and earnings momentum
Renewables repoweringPlan to repower ~4.6 GW through 2032; PTC transferability Detailed plan forthcoming; strong thermal performance; CAISO EIM membership Industrial and financial rationale (30% production uplift; full PTCs); cadence opportunistic Strategic multi-year uplift
Financing & liquidityGreen term loan; debt issuances; transferability term sheet; liquidity 16 months $1.2B VW1 tax equity; $800M term loan; debt refinancings; no 2023 equity; liquidity 14 months Liquidity ~$3B; stable ratings; no 2024 equity needed Stable with diversified tools
CT regulatoryUI draft decision; filing exceptions PURA decision challenged; appeal filed Continued litigation; engagement with state leadership Ongoing headwind

Management Commentary

  • CEO: “We delivered 18% yearly adjusted earnings growth from our core businesses and removed legacy uncertainties… setting the stage for growth in 2024 and beyond.”
  • CFO: “Our 2024 outlook includes incremental revenues from our rate plans… additional production from 311 MW placed in service in 2023… and earnings using historical averages from thermal operations and asset management.”
  • CEO on offshore: “We will not run risks… we have two beautiful leases… we will continue to seek opportunities to sell the lease [or] partnership.”
  • CEO on repowering: “You’re going to have an increase in production… probably 30%… plus PTCs for 100% of the production… seems… a no-brainer.”

Q&A Highlights

  • Asset rotations and M&A: Management remains opportunistic on divestitures/partnerships to fund growth; no gains baked into 2024 guidance; focus is organic CapEx and returns .
  • Vineyard Wind 1 ITCs: 30% ITC secured; exploring additional IRA-enhanced credits; timing less important than project completion .
  • NECEC AFUDC: AFUDC rate disclosed at 8.5%; construction cadence accelerating with tangible progress (foundations/poles, conductor stringing) .
  • O&M and ROE targeting: O&M efficiencies targeted below inflation, supported by AMI and IT initiatives; priority to achieve authorized ROEs in major jurisdictions .
  • Credit metrics: FFO-to-debt pro forma ~14% for 2023; plan to improve with rate cash focus and project completion .

Estimates Context

  • S&P Global consensus estimates for Q4 2023 EPS and revenue were not available via our SPGI data connector for AGR at the time of this analysis (CIQ mapping missing). As a result, we cannot formally assess beat/miss vs Wall Street consensus for Q4 2023 using S&P Global data [SpgiEstimatesError from GetEstimates].

Where estimates may need to adjust:

  • The outsized Networks contribution in Q4 from NY rate plan implementation and uncollectibles mitigation ($136M after-tax) could drive upward revisions to 2024 regulated earnings run-rate assumptions, while Renewables sensitivity to wind/resource and pricing warrants balanced expectations with thermal/asset management hedging .

Key Takeaways for Investors

  • Q4 print was strong, driven by regulated networks with specific NY tailwinds and thermal operations offsetting low wind; de-risking actions (offshore PPAs) materially reduced downside risk to future EPS quality .
  • 2024 adjusted EPS guide ($2.17–$2.32) implies ~8% YoY midpoint growth, supported by rate plans, normal wind, AFUDC from NECEC, and O&M efficiencies; no equity issuance planned in 2024, which is supportive for valuation multiples .
  • Vineyard Wind 1 execution and ITC monetization provide tangible near-term milestones; completion timing variability (late 2024 vs early 2025) is immaterial to value—focus is on finishing with IRA-enhanced credits .
  • Repowering strategy (~4.6 GW through 2032) is a multi-year lever to uplift production, secure new PPAs, and monetize full-fleet PTCs—expect incremental capital deployment with attractive returns and cash benefits via transferability .
  • Regulatory trajectory is favorable in NY and ME with multi-year plans and CLCPA transmission investments (> $3B), though CT remains a litigation overhang; portfolio mix increasingly concentrated in constructive jurisdictions .
  • Credit metrics are stable with diversified financing (tax equity, transferability, green debt), sufficient liquidity (~15 months at YE) and FFO/debt on an improving path as projects enter service and rate-cash mechanisms flow through .
  • Near-term trading implications: watch for March 21 long-term outlook webcast (strategy/EPS trajectory), VW1 construction updates/ITC sizing, NECEC AFUDC accruals, and any asset rotation announcements which can affect cash needs and perceived equity overhang .