Executive Summary

Q4 2017 reported diluted EPS was $2.99, driven by a $2.56/share tax reform benefit; on a guidance basis excluding tax reform, EPS was $0.33 vs $0.26 in Q4 2016 and $0.38 in Q3 2017, reflecting YoY improvement but sequential decline; management issued 2018 EPS guidance of $1.50–$1.60 and targeted 5–7% EPS growth in 2019–2020 .
Consolidated revenues rose to $2.64B (+26.8% YoY), with Energy Services operating income surging to $67M from $9M on higher throughput and mark-to-market timing, while Electric T&D declined modestly and Natural Gas Distribution rose; consolidated operating income increased to $296M from $243M .
Guidance catalysts: 2018 EPS midpoint implies ~6% growth from $1.37 guidance-basis 2017 excluding tax reform, plus ~$0.10 tailwind from lower effective tax rate; rate base CAGR projected ~8.3% through 2022 supported by ~$1.7B 2018 capex and robust regulatory recovery mechanisms .
Balance sheet strengthened by tax-related equity uplift; adjusted FFO/debt was ~24% in 2017, expected to decline ~300 bps in 2018 due to tax cash flow impacts yet remain within target metrics; dividend increased 4% to $0.2775 quarterly with payout ratio ~72% on 2018 midpoint .

What Went Well and What Went Wrong

What Went Well
- “2017 was a strong year… guidance basis EPS without tax reform surpassed our EPS guidance range” with 18% YoY increase; Energy Services delivered strong results and Enable Midstream exceeded net income guidance .
- Natural Gas Distribution operating income rose to $328M (+8.2% YoY) on rate relief, customer growth, and favorable labor/benefit accounting; added >30,000 customers in 2017 .
- Rate base growth outlook improved (~8.3% CAGR through 2022); Houston Electric’s 5-year capex plan of $4.8B includes the $250M Bailey–Jones Creek project endorsed by ERCOT, supporting resiliency and capacity .
What Went Wrong
- Electric T&D segment operating income declined YoY (Q4 $121M vs $130M) due to lower equity return and higher O&M/depreciation; TDU operating income fell slightly YoY (full year $535M vs $537M) despite customer growth .
- Sequential EPS (guidance basis ex-tax) fell to $0.33 from $0.38 in Q3, reflecting lower equity returns, lower usage, and higher O&M, partly normalized by mechanisms with inherent lag .
- Tax reform reduces near-term cash flows (lower tax shield and amortization timing of excess deferred taxes), likely reducing adjusted FFO/debt by ~300 bps in 2018; management expects to remain within target credit metrics .

Financial Results

EPS Comparison (quarterly)

Metric	Q2 2017	Q3 2017	Q4 2017
Diluted EPS (GAAP, $)	$0.31	$0.39	$2.99
Diluted EPS (Guidance basis, $)	$0.29	$0.38	$2.89
Diluted EPS (Guidance basis excl. Tax Reform, $)	—	—	$0.33

Q4 Revenue and Operating Income YoY

Metric	Q4 2016	Q4 2017
Utility Revenues ($MM)	$1,437	$1,602
Non-Utility Revenues ($MM)	$644	$1,036
Total Revenues ($MM)	$2,081	$2,638
Operating Income ($MM)	$243	$296
Net Income ($MM)	$101	$1,296
Diluted EPS ($)	$0.23	$2.99
Diluted EPS (Guidance basis, $)	$0.26	$2.89
Diluted EPS (Guidance basis excl. Tax Reform, $)	$0.26	$0.33

Segment Operating Income (Q4)

Segment	Q4 2016 ($MM)	Q4 2017 ($MM)
Electric Transmission & Distribution (Total)	$130	$121
– TDU	$109	$104
– Bond Companies	$21	$17
Natural Gas Distribution	$101	$108
Energy Services	$9	$67
Other Operations	$3	$0
Total Operating Income	$243	$296

KPIs

KPI	Q4 2016	Q4 2017
Electric MWH Delivered (Total)	19,990,319	20,680,236
Electric Residential MWH Delivered	6,159,687	6,191,591
Electric Metered Customers (Total, end of period)	2,403,340	2,444,299
Natural Gas Throughput (Total Bcf)	113	129
Natural Gas Customers (Total, end of period)	3,439,344	3,469,791

Non-GAAP and adjustments: Q4 2017 included $0.09/share mark-to-market gains in Energy Services and $0.01 ZENS-related adjustments in arriving at guidance basis EPS, and a $2.56/share benefit from tax reform; YoY reconciliation tables furnished in EX-99.1 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EPS (Guidance basis)	FY2018	“Upper end of 4–6% growth” indication	$1.50–$1.60 per share	Raised to explicit range
EPS LT Growth Target	2019–2020	Not specified	5–7% YoY each year	Established target
Effective Tax Rate	FY2017 vs FY2018	~36% (2017)	~21% (2018, incl. state and EDIT amortization)	Lowered materially
Capex Plan	FY2017	~$1.5B (2017 actual)	~$1.7B planned in 2018	Increased
Rate Base CAGR	2018–2022	Not previously quantified	~8.3% CAGR through 2022	Formalized
Dividend	Dec 2017 declaration	Prior quarterly dividend $0.2675 (4% annual increases in ’15–’17)	Raised to $0.2775 quarterly (+4% YoY); payout ratio ~72% on 2018 midpoint	Raised, payout ratio improved
FFO/Total Debt	FY2017 vs FY2018	~24% in 2017	~300 bps decline expected in 2018 from tax cash flow impacts; still >20%	Lower near term

Earnings Call Themes & Trends

Topic	Q2 2017	Q3 2017	Q4 2017	Trend
Tax reform impact	Effective tax rate ~36%; cash tax payer; exploring acceleration strategies	Prepared for TCJA; still 36% full-year	$2.56/share one-time benefit; 2018 ETR ~21%; near-term cash flow lower; +$0.10 EPS tailwind	Increasing visibility; execution plans by jurisdiction
Enable Midstream monetization	Process active; spin dropped; potential non-cash exchange or gradual sales; constraints from market liquidity	Late-stage discussions; 2018 growth view assumes Enable public guidance; focus on reducing exposure over time	No 2018 sale required; plan to reduce over multi-years; $0.46/share EPS contribution at Enable midpoint	Shift to patient, market-driven monetization
Capex and rate base	$1.5B 2017 capex; upward bias to 5-year capex; reliability/hardening	Upward shift likely; Freeport $250M; ERCOT/PUCT filings; robust mechanisms	2018 capex ~$1.7B; rate base CAGR ~8.3%; T&D plan $4.8B; NGD plan $3.2B	Increasing, with strong recovery mechanisms
Regulatory mechanisms	TX DCRF limit removed; frequent TCOS; NGD interim rates and FRP/BDA/EECR	DCRF filing in Apr; TCOS after Brazos; NGD rate cases/interim	TX filings (AMS refund, EECRF bonus, DCRF, TCOS); NGD docket timelines across states	Consistent cadence, minimizing lag
Dividend & payout	4% annual raises; no equity issuance expected	Dividend trajectory and retention to fund capex	13th consecutive raise; payout ratio down to ~72% (2018 midpoint)	Sustainable increases with improving coverage

Management Commentary

CEO: “2017 was a strong year… $1.37 per share [guidance basis excluding tax]… above the top end of the $1.25–$1.33 guidance range” and highlighted >70k utility customer adds, grid resilience in Harvey, and accretive CES acquisition .
CFO: Provided detailed reconciliation—Q4 reported EPS $2.99; guidance basis $2.89; subtract $2.56 tax benefit to $0.33; noted 2018 effective tax rate ~21% and anticipated ~300 bps FFO/debt decline from tax cash impacts while maintaining credit strength .
Strategy: 2018 EPS guidance $1.50–$1.60; targeting 5–7% EPS growth in 2019–2020; capex plans support ~8.3% rate base CAGR; equity issuance not anticipated in 2018 .

Q&A Highlights

Enable monetization cadence and credit metrics: No 2018 sale required; future unit sales will be market- and use-of-proceeds driven to strengthen balance sheet and utilities investment; private placements capped at 5% to one buyer .
Capex drivers: Load growth and the $250M Bailey–Jones Creek project drive increased electric capex in 2018–2021; majority spend in 2020 for the project .
Regulatory lag: Mechanisms (TCOS, DCRF) keep lag to ~6–12 months for capital; O&M growth assumed to align with residential sales growth .
Tax/cash taxes: Cash tax rate to approximate or be below 21% provision in forecast; not a full cash taxpayer over next 4–5 years .
Dividend policy and payout: Board reviews quarterly; intent to grow dividend, acknowledging lower growth than EPS to retain capital for utility investment .

Estimates Context

Wall Street consensus (S&P Global) for Q4 2017 EPS and revenue was not retrievable at this time due to access limitations; consequently, we cannot quantify a beat/miss vs consensus for the quarter. Values from S&P Global were unavailable.
Management’s 2018 guidance midpoint implies ~6% growth off $1.37 guidance-basis 2017 EPS excluding tax reform, plus ~$0.10 EPS uplift from lower tax rate, suggesting upward estimate revisions in unregulated segments may be warranted .

Key Takeaways for Investors

Underlying Q4 performance (ex-tax reform) was solid YoY ($0.33 vs $0.26), but sequentially softer vs Q3 ($0.38), mainly from lower equity returns and higher O&M/depreciation; watch utility margin trajectory as mechanisms catch up .
2018 EPS guidance ($1.50–$1.60) and 5–7% growth targets for 2019–2020 are underpinned by robust capex and rate base CAGR (~8.3%); regulatory frameworks remain favorable across TX and gas jurisdictions .
Tax reform is a near-term cash flow headwind but a P&L tailwind (~$0.10 EPS in 2018); balance sheet strengthened by tax-related equity uplift, with adjusted FFO/debt expected >20% despite ~300 bps decline .
Energy Services’ outsized Q4 contribution (OI $67M) benefited from mark-to-market timing and throughput; model 2018 CES OI at $55–$65M per management, with less volatility as timing normalizes .
Enable monetization remains a medium-term lever; 2018 plan does not require sales; expect opportunistic multi-year reduction with sensitivity to capital markets—maintain flexibility in modeling midstream EPS contribution ($0.46/share at Enable midpoint) .
Dividend policy consistent 4% raises; payout ratio trending to ~72% at 2018 midpoint; incremental utility growth funded without common equity issuance in 2018 .
Trading implications: Near-term sentiment supported by explicit 2018 EPS guide and dividend increase; monitor regulatory filings (TCOS/DCRF, NGD cases) and CES mark-to-market to gauge quarterly volatility and potential catalysts .

CENTERPOINT ENERGY INC (CNP)·Q4 2017 Earnings Summary