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CMS ENERGY CORP (CMS)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 adjusted and reported EPS were $0.84, up from $0.61 (adjusted) and $0.60 (reported) in Q3 2023, driven by constructive rate relief, favorable September weather, cost efficiencies, and strong performance at NorthStar Clean Energy .
  • Operating revenue rose to $1.743B vs $1.673B in Q3 2023; sequentially, revenue increased vs Q2 2024 ($1.607B) and was below Q1’s seasonal high ($2.176B) .
  • CMS reaffirmed FY2024 adjusted EPS guidance of $3.29–$3.35 and introduced FY2025 adjusted EPS guidance of $3.52–$3.58, maintaining confidence toward the high end of both ranges .
  • Strategic tailwinds include Michigan’s clean energy law (FCM ~9% on PPAs), a $7B electric Reliability Roadmap, and robust economic development (manufacturing and data centers), supporting 6%–8% long-term EPS growth compounded off actuals .
  • Potential stock catalysts: REP filing and approvals, progress on storm restoration tracker in the electric rate case, continued DIG capacity pricing strength (reverse inquiry “5–6 handles” $/kW-month), and execution on reliability investments .

What Went Well and What Went Wrong

What Went Well

  • EPS growth: Adjusted EPS of $0.84 vs $0.61 last year; YTD adjusted EPS $2.47 vs $2.06, supported by rate relief and NorthStar performance .
  • Reliability and cost execution: Lower restoration cost per interruption (down >10% YoY) despite ~10% higher outage volume; faster restoration pace; CE Way cost discipline .
  • Strategic tailwinds: Clean energy law enabling ~9% FCM on PPAs and flexibility to own/contract, plus economic development pipeline (>6 GW; ~60% manufacturing) bolstering load outlook .

Management quotes:

  • “We are reaffirming…2024 guidance…initiating…2025…well positioned…toward the high end…” .
  • “This law is great…earning a financial compensation mechanism approximately 9% on a power purchase agreement.” .
  • “Over 700 megawatts of signed contracts in 24 months…pipeline…over 6 gigawatts…60% manufacturing.” .

What Went Wrong

  • Elevated insurance and IT costs required incremental Q4 funding, offsetting some year-to-date favorability; nonutility performance modeled conservatively for Q4 (negative variance $0.25–$0.31) .
  • Staff not supportive of proposed storm restoration tracker; company likely to seek full adjudication for best customer outcome .
  • Estimates comparison unavailable via S&P Global due to data access limits, constraining beat/miss analysis vs Street for Q3 [GetEstimates error noted].

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Operating Revenue ($USD Billions)$1.673 $2.176 $1.607 $1.743
Operating Income ($USD Millions)$271 $412 $283 $367
Net Income Available to Common ($USD Millions)$174 $285 $195 $251
Diluted EPS (Reported) ($)$0.60 $0.96 $0.65 $0.84
Diluted EPS (Adjusted) ($)$0.61 $0.97 $0.66 $0.84

Non-GAAP reconciliation highlights:

  • Q3 2024 adjusted EPS equals reported ($0.84); Q3 2023 adjusted EPS ($0.61) reflects voluntary separation program impact .

YTD cash flow and balance sheet snapshot:

  • YTD operating cash flow: $1,967MM (9M 2024) vs $1,904MM (9M 2023) .
  • Cash and equivalents including restricted: $467MM at 9/30/24 vs $184MM at 9/30/23 .
  • Total assets $34.817B, common equity $7.887B at 9/30/24 .

Segment breakdown / KPIs:

  • Segment revenue detail not disclosed in Q3 press release/8-K; utility and NorthStar contributions discussed qualitatively in call .
  • Reliability KPI: faster restoration and lower unit costs year-to-date; specific restoration 24-hour metric improvement discussed in prior quarter call (95% vs 90% in 2023) for context of trend .

Estimates vs actuals:

  • S&P Global consensus estimates for Q3 2024 were unavailable due to access limits; thus beat/miss vs Street cannot be presented (values unavailable via S&P Global).

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2024$3.29–$3.35 $3.29–$3.35 Maintained
Adjusted EPSFY 2025—$3.52–$3.58 Introduced (High-end bias)
Dividend per share (common)Q4 2024—$0.515 quarterly Declared
Long-term adjusted EPS growthMulti-year6%–8% (toward high end) 6%–8% (toward high end) Maintained
Utility capital plan2024–2028$15.5B prior vintage $17B (up $1.5B from prior) Raised

Regulatory/process milestones:

  • Electric rate case: company rebuttal at $277MM revenue, 10.25% ROE, 50.75% equity ratio; staff at $170MM, 9.5% ROE, 49.9% equity ratio; potential adjudicated order targeted March 2025 .
  • REP filing expected November 2024; order expected by Mar. 31, 2025 (per presentation calendar) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Clean energy law & FCMHighlighted enhanced FCM (~9%), incentives; modest PPAs embedded in plan Reinforced ~9% FCM; flexibility to own/contract; REP to detail incremental renewables beyond 2021 IRP Constructive tailwind intensifying
Reliability Roadmap5-year $7B plan; initial spend embedded in filings Proactive investments (undergrounding, automation, poles); Liberty audit supports investments Execution ramping
Economic development (manufacturing/data centers)Secured 230 MW data center; manufacturing projects (Gotion, Hemlock, Ford) >700 MW signed last 24 months; >6 GW pipeline (~60% manufacturing); Switch +230 MW example Load outlook improving
Storm mechanism / PBRPBR narrowing to symmetric metrics; implementation several cases out Proposing storm restoration tracker (50/50 share); staff not supportive; likely adjudication Policy shaping ongoing
NorthStar/DIG capacityOpen margin strategy; strong Zone 7 technicals Reverse inquiry at “5–6 handles” $/kW-month; layering bilateral contracts Pricing strength sustained
Storage & IRAStorage to feature more in 2026 IRP; cautious on federal policy Expect significant storage needs; IRA repeal viewed low probability; comply with law even at higher cost Planning clarity improving
EV/AI grid visibility—DOE GRIP: ~$20MM award; 18,000 AI modules to meters; $20MM match; partnerships (Utilidata/NVIDIA) Tech-enabled grid advancing

Management Commentary

  • “We continue to make needed investments…burying wires, installing sensors…build a smarter and stronger grid…well positioned to deliver for all stakeholders in 2024 and beyond.” — CEO Garrick Rochow .
  • “Michigan’s clean energy law…earning a financial compensation mechanism approximately 9% on a power purchase agreement…flexibility to either own the assets or utilize a power purchase agreement.” — CEO Garrick Rochow .
  • “Adjusted net income of $736 million or $2.47 per share…due to higher rate relief…solid performance at NorthStar…warm September.” — CFO Rejji Hayes .
  • “We continue to target mid-teens FFO to debt…maintaining solid investment-grade credit ratings.” — CFO Rejji Hayes .
  • “We are seeing a manufacturing renaissance…Over 700 megawatts of signed contracts in 24 months…pipeline…over 6 gigawatts.” — CEO Garrick Rochow .

Q&A Highlights

  • Data center load and tariffs: CMS has infrastructure and can onboard quickly (e.g., Switch +230 MW by 2026); ex parte move to GPD rate approved; exploring dedicated rate to avoid residential subsidization; timing over 6–12 months .
  • Storm tracker mechanics: Proposed 5-year average with 50/50 share of variance; staff not supportive; may require commission order; staff at $170MM/9.5% ROE vs CMS $277MM/10.25% ROE .
  • DIG/NorthStar: Capacity prices seeing “5–6 handles” $/kW-month; strategy to layer bilateral contracts; note planned outages and non-linearity .
  • CapEx pacing and financing: Upward pressure on $17B plan but paced via approvals and load materialization; rule-of-thumb 35–40% equity funding per $1 of utility CapEx, tempered by strong OCF and tax credit monetization ($0.5B over 5 years, likely increasing) .
  • Storage/IRA: Storage mainly addressed in 2026 IRP; IRA repeal viewed low probability; compliance required regardless .

Estimates Context

  • Street consensus (S&P Global) for Q3 2024 EPS/revenue was unavailable due to SPGI access limits during retrieval; as a result, we cannot present beat/miss vs consensus for the quarter [functions.GetEstimates error].
  • CMS’s reaffirmed FY2024 and introduced FY2025 guidance suggest confidence in trajectory; any future estimate revisions will likely reflect stronger rate relief, improved reliability execution, and NorthStar/DIG pricing tailwinds .

Key Takeaways for Investors

  • Quarterly execution remains solid: EPS up YoY, revenue up YoY, and YTD adjusted EPS tracking toward the high end of guidance, supported by rate relief, favorable Q3 weather, and operational cost discipline .
  • Legislative/regulatory tailwinds (clean energy law, FCM ~9% on PPAs, REP/IRP cycle) create multi-decade investment runway; REP decision expected by Mar. 2025, IRP in 2026, implying staged capital deployment .
  • Reliability investment is central: $7B plan and Liberty audit support proactive spend (undergrounding, automation) to reduce outage size/duration and future operating costs—an important narrative for valuation and rate outcomes .
  • Non-utility upside persists: DIG capacity pricing strength and layered bilateral contracts remain accretive; watch updates on open margin and pricing in the Q4 plan refresh .
  • Near-term watch items: Electric rate case outcome (storm tracker mechanism, ROE/equity ratio), REP filing details (renewable mix, PPA vs ownership), and DOE-backed EV/AI grid-edge deployment .
  • Dividend continuity: $0.515 quarterly declared; with high-end growth bias and regulatory clarity, income plus growth profile remains intact .
  • Trading implications: Expect sensitivity to regulatory headlines (storm mechanism, REP approvals) and load growth disclosures; strong Q4 guide rebase practice may be a positive setup if operational trends continue .