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CE

CENTERPOINT ENERGY INC (CNP)·Q4 2016 Earnings Summary

Executive Summary

  • Q4 2016: Revenue rose 16% YoY to $2.081B; GAAP EPS was $0.23 and guidance-basis EPS was $0.26 (vs $0.27 in Q4’15), as utilities grew while Energy Services saw mark-to-market losses and CNP incurred a $22M pretax make‑whole charge tied to debt redemption .
  • Utilities delivered solid operating income (+19% YoY in Electric T&D; +4% in Natural Gas Distribution), supported by rate relief and customer growth; Energy Services operating income fell YoY, largely on mark‑to‑market .
  • 2017 guidance reaffirmed: $1.25–$1.33 EPS with $0.93–$0.97 from utilities and $0.31–$0.37 from midstream; management targets upper end of 4–6% EPS growth in 2018 from utility capex/rate relief, Energy Services accretion, Enable contribution, lower interest, and a slightly lower tax rate .
  • Catalysts: resolution of Enable ownership review by the Q2 earnings call timing, incremental Texas DCRF/TCOS filings, and delivery of $1.5B 2017 capex plan; renewed dividend growth (+4% to $0.2675 quarterly) underscores income profile .

What Went Well and What Went Wrong

  • What Went Well

    • Strong utility execution: “2016 was a strong year… EPS grew more than 5% on a guidance basis” and utilities delivered $0.88 guidance-basis EPS (+11% YoY) on customer growth and rate relief .
    • Electric T&D and Gas Distribution operating income up YoY on rate relief and customer additions; Electric TDU +30% YoY in Q4 operating income; Gas Distribution +4% YoY .
    • Strategic expansion of Energy Services: Continuum integration completed and Atmos Energy Marketing (AEM) closed in Jan-2017; segment projected to contribute $45–$55M 2017 operating income, accretive to earnings .

  • What Went Wrong

    • Energy Services mark‑to‑market headwind: Q4 included a $3M mark‑to‑market loss (vs $1M gain in Q4’15), trimming guidance-basis EPS by ~$0.01 .
    • Make‑whole debt redemption cost: $22M pretax ($0.03 after‑tax) charge in Q4 to retire 6.50% 2018 notes; near‑term drag for longer‑term interest savings .
    • Midstream variability: 2016 midstream mark‑to‑market losses vs 2015 gains and a tax adjustment (including Louisiana) reduced YoY contribution (net -$0.09 EPS impact vs 2015) .

Financial Results

Consolidated results (USD Millions, except per-share)

MetricQ4 2015Q3 2016Q4 2016
Revenue$1,791 $1,889 $2,081
Operating Income$226 $284 $243
Net Income (GAAP)$(509) $179 $101
Diluted EPS (GAAP)$(1.18) $0.41 $0.23
Adjusted Diluted EPS (guidance basis)$0.27 $0.41 $0.26

Segment operating income (USD Millions)

Segment OIQ4 2015Q4 2016
Electric T&D – TDU$84 $109
Electric T&D – Bond Companies$25 $21
Total Electric T&D$109 $130
Natural Gas Distribution$97 $101
Energy Services$13 $9
Other Operations$7 $3
Total$226 $243

EPS decomposition (guidance basis)

ComponentQ4 2015Q4 2016
Utility Operations$0.20 $0.20
Midstream Investments (ex-impairment)$0.07 $0.06
Consolidated (guidance basis)$0.27 $0.26

Key performance indicators

KPIQ4 2015Q4 2016
Electric Total MWh Delivered18,812,439 19,990,319
Electric Metered Customers (Total)2,348,517 2,403,340
Electric CDD (% of 10-yr avg)118% 200%
Electric HDD (% of 10-yr avg)61% 25%
Gas Residential Throughput (Bcf)43 47
Gas Total Customers3,403,766 3,439,344
Energy Services Throughput (Bcf)159 207
Energy Services Customers18,099 30,332

Notes: Q3 2016 included for sequential context; Q4 2015 reflects large midstream impairments impacting GAAP EPS .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS (guidance basis)FY 2017$1.25–$1.33 (Jan 6, 2017) $1.25–$1.33 (reiterated Feb 28) Maintained
Utility Ops EPSFY 2017$0.93–$0.97 $0.93–$0.97 Maintained
Midstream EPSFY 2017$0.31–$0.37 $0.31–$0.37 Maintained
Energy Services OIFY 2017$45–$55M (implied) $45–$55M Maintained
Effective Tax RateFY 2017~36% (forward) ~36% Maintained
Interest ExpenseFY 2017Savings vs 2016 (implied) +$10–$20M net income benefit Clarified
Capital SpendingFY 2017$1.5B ~$1.5B Maintained
DividendCurrent run-rate$0.2575/qtr (Q4’16 declared) $0.2675/qtr (+4%) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2016)Current Period (Q4 2016)Trend
Enable Midstream ownership reviewROFO issued; evaluating sale/spin; tax leakage challenges on cash sale Decision path to be clarified by timing of Q2 results call; cash sale tax leakage remains a headwind; ROFO procedural Continued evaluation; timeline set
Regulatory/rate relief (TX DCRF/TCOS; NG jurisdictions)DCRF $45M effective Sep’16; TCOS filed; strong 2016 NG rate relief across MN/AR/MS/TX Additional TCOS filed Dec’16; further filings planned in 2017; NG rate mechanisms continue Ongoing, supportive
Customer growth & capex~2% electric and ~1% gas growth; capex driving rate base growth 2% electric growth forecast; $1.5B 2017 capex; multi‑year plans ($4.1B electric; $2.7B gas 2017–2021) Sustained growth
Energy Services expansionContinuum integrated; 2017 OI guide $45–$55M; AEM announced AEM closed; modestly accretive; 2017 OI $45–$55M affirmed Scaling continues
Tax reform implications2016 ETR 37% (LA law change); forward ~36% Potential 20% corp rate/100% expensing/interest disallowance scenario accretive to EPS; cash taxes lower; regulated DTLs reclass to regulatory liabilities Potential tailwind; regulatory flow‑through
Balance sheet/interestRefinancings reduce interest; >$600M 6%+ debt retired in 2016; no equity planned Q4 make‑whole ($22M pretax) to retire 6.5% 2018 notes; 2017 interest savings expected; no equity anticipated Lower interest tailwind

Management Commentary

  • “2016 was a strong year for CenterPoint… EPS grew more than 5% on a guidance basis… Our utility operations contributed over 11% earnings growth” — Scott Prochazka, CEO .
  • “We are reiterating our 2017 full year guidance range of $1.25–$1.33… $0.93–$0.97 from utility operations and $0.31–$0.37 from midstream” — Bill Rogers, CFO .
  • “Energy Services will contribute $45–$55 million in operating income in 2017… acquisition of AEM is expected to be modestly accretive” — Joe McGoldrick, Gas Division .
  • “We anticipate capturing additional interest expense savings providing $10–$20 million of net income benefit” — Bill Rogers, CFO .
  • “We expect to clarify which path we are on [Enable stake] by the second quarter earnings call” — Scott Prochazka, CEO .

Q&A Highlights

  • Enable decision timing and quality: Management expects to clarify the sale/spin/retain path by the Q2 results call; cash sale tax leakage remains a key constraint; ROFO process with OGE is procedural .
  • Returns and Texas DCRF: CNP anticipates filing DCRF in 2017; earned ROEs expected within 25–100 bps below allowed depending on entity .
  • Energy Services in 2017 guidance: Guidance includes full impact of Continuum integration and AEM; AEM modestly accretive .
  • Debt strategy: Management will redeem/refinance high‑coupon opco debt when NPV‑positive; Q4 redemption charge was all cash .
  • Minnesota decoupling: Mechanism performing as intended, supporting results amid mild weather; ~$25M true‑up approved .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2016 EPS and revenue was unavailable due to data access limits during this review. As a reference point, CNP reported GAAP EPS of $0.23 and guidance-basis EPS of $0.26 on revenue of $2.081B for Q4 2016 .
  • Without consensus figures, we cannot characterize a beat/miss vs estimates for Q4 2016 at this time (S&P Global consensus unavailable).

Key Takeaways for Investors

  • Utilities are the anchor: rate relief and customer growth drove solid YoY operating income gains in Electric T&D and Gas Distribution; 2017 utility EPS guide $0.93–$0.97 underpins stability .
  • 2017/2018 growth levers are credible: Energy Services accretion ($45–$55M OI), Enable’s forecast contribution, lower interest ($10–$20M net income), and slightly lower ETR support the 2017 guide and a push toward the upper end of 4–6% in 2018 .
  • Midstream overhang: Enable ownership review remains a swing factor; decision by the Q2 results call could be a stock catalyst; cash sale tax leakage likely steers toward spin/stock-structured alternatives or retain .
  • Balance sheet actions improve run‑rate: Retiring high‑coupon debt (despite Q4 charge) plus 2017 refinancing lowers interest expense; no equity issuance anticipated in 2017/2018 .
  • Regulatory cadence is favorable: Continued use of TX DCRF/TCOS and multi‑jurisdiction gas mechanisms (FRP/GRIP/RSP/CIP/decoupling) enhance recovery and visibility .
  • Watch weather normalization and mark‑to‑market: Energy Services’ MTM and mild weather can add noise intra‑quarter; guidance basis strips timing effects and remains the preferred lens .
  • Dividend growth intact: Quarterly dividend raised 4% to $0.2675; payout ratio projected to decline on earnings growth, reinforcing total return appeal .

Additional Data References

  • Consolidated financial statements and segment details for Q4 2016 and Q4 2015 .
  • Q3 2016 press and financials for sequential trend .
  • Q2 2016 press and financials for two‑quarter trend .
  • January 6, 2017 guidance press release .