Q2 2024 Earnings Summary
- Edison International is experiencing load growth materializing faster than expected, with a 35% increase in the 10-year load growth forecast compared to just two years ago. This acceleration is driven by increased customer demand across electrification, residential housing, and commercial developments, leading to higher infrastructure investment opportunities.
- The company remains confident in achieving its 2024 EPS guidance, reaffirming that they are "very confident in our guidance" and "right on track," indicating strong financial performance and potential for earnings growth.
- Potential improvements in credit metrics through wildfire cost recoveries, where every $1 billion recovered improves credit metrics by 40 to 50 basis points, offering financial flexibility and the possibility of lower financing costs.
- Uncertainty around the recovery of legacy wildfire costs, which could impact EIX's financial position. The outcome of the legacy wildfire cost recovery application remains uncertain, and management cannot comment on potential settlements. ,
- Potential need for additional equity financing or debt to fund accelerated capital expenditures due to faster-than-expected load growth. Management indicated that financing these investments depends on timing and may require actions beyond the existing financing plan. ,
- Unresolved issues in the 2025 General Rate Case (GRC), with only 19% of O&M and 8% of capital requests settled, leaving significant portions still under debate, which could affect future rate base growth and revenues. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9% | The increase to $4,310 million was primarily driven by higher authorized CPUC revenue following rate case decisions, continued rate base growth from capital investments, and favorable market conditions that increased demand. Looking forward, ongoing wildfire mitigation cost-recovery could also support future revenue. |
Operating Income (EBIT) | +27% | Rising to $932 million largely due to higher revenues and lower wildfire-related costs compared to the prior period. Additionally, company-specific initiatives to manage operating expenses and enhanced cost recovery mechanisms contributed to stronger EBIT, which may further improve with continued operational efficiencies. |
Net Income | +67% | Jumping to $626 million, lower wildfire-related expenses from previous years played a major role. The recovery of previously incurred costs and a more favorable operational environment also helped. If wildfire events remain controlled and claims stable, net income could remain robust. |
Earnings Per Share (Basic) | +24% | Reaching $1.14 due to strong net income growth and controlled share issuance. Market conditions and effective capital management supported EPS gains. Looking ahead, any significant changes in interest rates or share count could influence EPS momentum. |
Cost of Goods Sold | +7% | Increasing to $1,234 million mainly from higher purchased power and fuel costs, partially offset by operational efficiencies. External fuel price trends and load requirements will continue to shape COGS, with further supply diversification potentially moderating cost pressures. |
Interest Expense | -14% | Dropping to $338 million owing to debt refinancing at more favorable rates and reduced reliance on shorter-term borrowings. Company-specific initiatives to optimize capital structure boosted interest savings. Continued monitoring of market rates remains critical to maintaining a lower interest burden. |
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Load Growth and Incremental Investment
Q: Is faster load growth leading to more investment through 2028?
A: Management confirms that load growth is accelerating faster than expected due to increased customer demand across residential, commercial, and industrial sectors. They are evaluating precise plans to determine how much additional infrastructure will be needed. Options to finance the incremental spending include reprioritizing capital within the GRC cycle and exploring alternative funding approaches. -
Clarification on Load Growth Expectations
Q: Is load growth higher than previously expected?
A: Management maintains that near-term load growth remains at 2% to 3%, but over a 10-year forecast, they are seeing an acceleration beyond 3%. The increase is driven by factors such as electrification and new home starts. They are closely monitoring to see if growth surpasses prior expectations. -
Involvement in Next-Gen Technologies
Q: Will you participate in CPUC's procurement for next-gen technologies?
A: Management agrees with the need for next-generation technologies like long-duration energy storage, offshore wind, and geothermal. They are evaluating the CPUC's proposal and emphasize that these technologies need to be de-risked and proven to be built on a timely and affordable basis. Effective procurement is crucial as it impacts customer bills. -
GRC Partial Settlement Progress
Q: Thoughts on key debates remaining in the GRC settlement?
A: Management is pleased that the rate base growth remains in line with their range despite intervener positions. Partial settlements have been reached, allowing focus on a narrower set of issues. They believe there is opportunity to achieve outcomes beneficial to customers and note that the proceeding is on track from a time perspective. -
Wildfire Cost Recovery and Settlement
Q: Will you settle the wildfire cost application for less than 100%?
A: Management cannot comment on potential settlements but is open to engaging with parties. They believe the team has done a strong job demonstrating prudency in their application. Procedurally, they will either file a settlement by August 7 or a case management statement outlining remaining issues. Hearings are scheduled for November or January. -
Capital Allocation Post-Wildfire Recovery
Q: How will wildfire recovery impact capital allocation and credit metrics?
A: The recovery of wildfire claims is expected to improve credit metrics, with every $1 billion equating to a 40 to 50 basis point improvement. Management plans to securitize the recovery, reallocating existing debt to rate base financing to maintain their capital structure. They will consider replacing higher-cost equity content securities with regular debt upon refinancings, while adhering to a 15% to 17% FFO to debt framework. -
Funding Additional CapEx Without Equity
Q: Can you fund additional capital without issuing equity?
A: The ability to fund additional capital without issuing equity depends on the timing of investments. Management adheres to a 15% to 17% FFO to debt financing framework, which will dictate financing plans. They may reprioritize spending within the GRC and explore other mechanisms for timely cost recovery. -
Investment in Next-Gen ERP System
Q: What's the investment magnitude for the next-gen ERP application?
A: Upon filing the application, management will detail the costs and benefits of the next-gen ERP system. The system aims to improve efficiency in financial reporting and work management. They emphasize the need to build infrastructure to meet demand while running an efficient operation, and assure that it doesn't compete with load growth investments. -
Impact of EV Growth and Federal Policy
Q: Does EV growth and federal policy affect your load forecast?
A: Management states that EV adoption is driven by California's targets, not federal policy. Federal incentives from the Inflation Reduction Act help lower transition costs for consumers. They remain focused on preserving these benefits but note that California's commitment to EVs is unwavering regardless of federal support. -
Confidence in Full Year '24 Guidance
Q: Are you trending towards the higher end of your full-year guidance?
A: Management reaffirms confidence in their full-year '24 guidance, remaining on track. They acknowledge that different quarters may have varying events but believe they are aligned with expectations. -
Interpreting Cal Advocates Filing Testimony
Q: How should we interpret only Cal Advocates filing testimony?
A: Management advises not to read too much into the initial step, noting there are opportunities for other parties to voice their views in the proceedings.
Research analysts covering EDISON INTERNATIONAL.