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BH

BLACK HILLS CORP /SD/ (BKH)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 diluted EPS was $0.33, down slightly year over year from $0.35 as new rates and rider recovery plus lower O&M largely offset mild weather and the absence of a prior-year tax benefit; 2024 EPS guidance was reaffirmed at $3.80–$4.00 .
  • Segment operating income improved at Gas Utilities (Q2 +$5.3M YoY) while Electric Utilities were flat; consolidated operating income rose to $70.6M from $63.5M YoY on disciplined cost control .
  • Strategic highlights: Meta’s $800M AI data center to be powered under BKH’s Large Power Contract Service tariff beginning in 2026; management reiterated expectations that hyperscale/data center customers could exceed 10% of total EPS by 2028, using a capital‑light energy procurement model .
  • Liquidity and capital markets: $450M 6.00% notes issued in May to refinance August 2024 maturity; ATM equity issuance year‑to‑date reached 1.4M shares ($73M), with full‑year plan of $170–$190M; dividend of $0.65 declared (54 consecutive years of increases) .

What Went Well and What Went Wrong

What Went Well

  • New rates and rider recovery plus customer growth drove higher margins; management quantified Q2 drivers at +$0.13 from new rates/riders and +$0.03 from growth/usage, with O&M reduced by $0.04 per share YoY through cost discipline .
  • Strategic growth: Meta selected BKH’s Wyoming territory for a 715k sq ft AI data center; management expects data center earnings to exceed 10% of EPS by 2028, supported by the LPCS tariff and capital‑light model: “We’re excited to support their new project… we expect to begin serving Meta’s initial demand in 2026” .
  • Regulatory cadence advancing as planned: rate reviews filed for Iowa Gas ($21M) and Colorado Electric ($37M); Arkansas Gas in final stages; Ready Wyoming 260‑mile transmission project construction remains on schedule .

What Went Wrong

  • Weather headwinds and outages: mild weather reduced Q2 EPS by $0.07 vs normal and $0.04 vs Q2 2023; unplanned outages at Wygen I and Pueblo units weighed on Electric Utility margin .
  • Prior‑year tax benefit created tougher comparisons: effective tax rate rose to 13.0% in Q2 2024 vs (29.8)% in Q2 2023 due to the absence of the prior year $8.2M Nebraska tax rate decrease benefit .
  • Lower gas sales volumes (Distribution Dth) and strong insurance cost inflation: Gas Distribution volumes fell to 12.6M Dth (Q2), while higher insurance expenses affected O&M .

Financial Results

Consolidated Results vs Prior Periods

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$591.7 $726.4 $402.6
Operating Income ($USD Millions)$136.5 $193.3 $70.6
Net Income Available to Common ($USD Millions)$79.6 $127.9 $22.8
Diluted EPS ($)$1.17 $1.87 $0.33

Q2 2024 Actual vs Wall Street Consensus

MetricActual Q2 2024Consensus Q2 2024
Diluted EPS ($)$0.33 N/A (S&P Global consensus unavailable today)
Revenue ($USD Millions)$402.6 N/A (S&P Global consensus unavailable today)

Note: S&P Global consensus data was unavailable at the time of this analysis due to API limits; comparisons to Street estimates could not be completed.

Segment Breakdown Across Quarters

SegmentQ4 2023 Revenue ($M)Q4 2023 Op Inc ($M)Q1 2024 Revenue ($M)Q1 2024 Op Inc ($M)Q2 2024 Revenue ($M)Q2 2024 Op Inc ($M)
Electric Utilities$215.9 $58.1 $222.2 $64.6 $205.1 $46.3
Gas Utilities$380.3 $81.0 $508.7 $130.8 $202.0 $23.0
Corporate & Other$(4.5) $(2.6) $(4.5) $(2.1) $(4.5) $1.3

Segment Margins (Non-GAAP) and Drivers

MetricQ4 2023Q1 2024Q2 2024
Electric Utility Margin ($M, non-GAAP)$163.0 $167.4 $159.2
Gas Utility Margin ($M, non-GAAP)$199.9 $246.8 $140.7
Key Q2 Drivers (Electric)——Weather +$2.4; New rates +$2.3; Growth +$1.8; Integrated Generation outages $(4.4)
Key Q2 Drivers (Gas)——New rates +$9.1; Growth +$0.9; Weather $(6.2); MtM $(0.5)

KPIs

KPIQ2 2023Q2 2024
Electric Retail Sales (GWh)1,340.8 1,424.8
Total Regulated Electric (GWh)1,582.5 1,726.6
Contracted Gen Availability – Coal (%)92.0% 75.5%
Wind Capacity Factor (%)34.4% 36.9%
Gas Distribution Volumes (Dth, mm)13.1 12.6
Gas Total Quantities Sold (Dth, mm)47.3 47.1
Heating Degree Days (Gas)674 (−10% vs normal) 587 (−20% vs normal)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPS (Diluted)FY 2024$3.80–$4.00 (Q1 reaffirmed) $3.80–$4.00 Maintained
ATM Equity IssuanceFY 2024$170–$190M $170–$190M Maintained
Production Tax CreditsFY 2024~$18M ~$18M Maintained
Dividend (Quarterly)Q3 2024$0.65 (prior trajectory) $0.65 payable Sept 1, 2024 Maintained
Colorado Electric Rate Review2025 EffectiveNARequesting $37M new annual revenue; ROE 10.5%; 53% equity; new rates 1Q25 New filing (execution update)
Iowa Gas Rate Review2025 EffectiveNARequesting $21M new annual revenue; ROE 10.5%; 51% equity; interim rates May 11, 2024 Maintained schedule
Arkansas Gas Rate Review4Q 2024 EffectiveNARequesting $44M new annual revenue; ROE 10.5%; 48% equity Final stages

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
Hyperscale/data centersEmphasized capital‑light model; serving Microsoft/blockchain; potential EPS contribution Meta AI data center announced; begin serving 2026; >10% EPS by 2028 expected Strengthening growth driver
Regulatory cadenceMultiple rate reviews; improving recovery timing CO Electric ($37M), IA Gas ($21M) filed; AR Gas in final stages Continued execution
Wildfire mitigationOngoing safety focus (background) Disclosed comprehensive Wildfire Mitigation Plan; formalizing PSPS by 1H 2025 Enhanced disclosures
Clean Energy Plan (CO)400 MW renewables portfolio proposed Additional cost details filed; propose 100 MW solar PPA replacing 150 MW wind PPA; awaiting decision Active regulatory refinement
Transmission (Ready Wyoming)Commenced construction; multi‑segment timeline On target; first segment in service later 2024; full in‑service by YE 2025 On schedule
Credit quality & financingRatings affirmed; capital plan increased Debt issuance ($450M May), strong liquidity; ATM issuance ongoing; BBB+ affirmed Stable/improving metrics
Weather/macroWeather headwinds continued Q2 EPS −$0.07 vs normal; insurance inflation persists Persistent headwind

Management Commentary

  • “We’re on track to deliver on our earnings guidance range of $3.80 to $4 per share… confidence in achieving our long‑term EPS growth target of 4% to 6%” — CEO Linn Evans .
  • “We realized $0.13 of higher margins from new rates in rider recovery… and $0.03 of customer growth and usage… delivered lower O&M of $0.04 per share compared to Q2 2023” — CFO Kimberly Nooney .
  • “We’re excited to support [Meta’s] new project… we expect to begin serving Meta’s initial demand in 2026” — CEO Linn Evans .
  • “We remain confident in our long‑term growth trajectory… invest an average of more than $800 million per year… $1.3 billion in capital investment in 2026” — CEO Linn Evans .

Q&A Highlights

  • Data center EPS contribution: Management reiterated expectation that data center/hyperscale customers could exceed 10% of total EPS by 2028, supported by the LPCS tariff and capital‑light procurement, and highlighted potential incremental transmission/generation investments as loads evolve .
  • Procurement flexibility: Management affirmed an “all‑of‑the‑above” approach, including potential long‑term contracted capacity outside traditional vertically integrated constructs to serve evolving industrial loads .
  • Regulatory cadence: Load growth is analyzed both inclusive/exclusive of data centers in integrated resource plans to align tariffs and rate reviews with system needs .

Estimates Context

  • Street consensus comparisons were not available at the time of analysis due to S&P Global API limits; actual Q2 EPS was $0.33 and revenue $402.6M, with guidance reaffirmed at $3.80–$4.00 for FY 2024 .
  • With mild weather and outage impacts now quantified, estimates may need to reflect: (i) ongoing insurance cost inflation; (ii) timing of regulatory outcomes (AR Gas, IA Gas, CO Electric); and (iii) incremental data center margins as Meta ramps beginning 2026 .

Key Takeaways for Investors

  • Near‑term: Q2 results were resilient despite weather/tax headwinds; reaffirmed FY EPS guidance supports stability into H2; watch upcoming regulatory milestones (AR 4Q24, CO 1Q25, IA early 2025) as potential catalysts for margin recovery and reduced lag .
  • Cost discipline: O&M management is delivering tangible EPS benefits amid insurance inflation; sustained execution is key to offset exogenous weather and outage variability .
  • Growth optionality: Meta’s AI data center and broader hyperscale pipeline underpin EPS mix shift toward capital‑light margins by 2026–2028; transmission build (Ready Wyoming) enhances capacity and market access, potentially enabling incremental investments .
  • Balance sheet: Recent $450M notes and staged ATM issuances de‑risk 2024 maturities; BBB+ affirmed; liquidity remains strong — supportive of ongoing capex plan .
  • Dividend: $0.65 quarterly dividend and 54‑year increase streak remain intact; dividend growth expected to track earnings growth over time .
  • Watch weather sensitivity: Degree days and contracted availability remain key variables; outage normalization and insurance trends could drive variance vs run rate .
  • Thesis: Medium‑term EPS CAGR of 4%–6% credible given regulatory cadence, base capex, and hyperscale load growth, albeit contingent on timely rate case outcomes and execution on resource plans in CO/SD .