ENTERGY CORP /DE/ (ETR) Q4 2016 Earnings Summary

Executive Summary

• Q4 2016 was dominated by the finalization of Entergy’s merchant exit and a large non‑cash impairment tied to Indian Point, producing an as‑reported loss of $(9.88) EPS while operational EPS was $0.31 .
• Management initiated FY 2017 guidance: consolidated operational EPS $4.75–$5.35 and Utility, Parent & Other (UPO) adjusted EPS $4.25–$4.55, with retail sales growth ~1.4% and nonfuel O&M ~$2.6B; EWC operational EPS midpoint $0.65 and average energy+capacity revenue just over $50/MWh .
• Strategic catalyst: settlement to shut Indian Point Units 2/3 (2020/2021) and the associated $2.4B pre‑tax impairment ($1.5B after tax), completing plans to exit the merchant nuclear fleet and focus on regulated growth .
• Cash generation remained solid: operating cash flow was ~$750M in Q4; billed retail sales grew +0.8% (weather‑adjusted), supporting UPO trends despite EWC headwinds .

What Went Well and What Went Wrong

What Went Well

• Executed merchant exit plan and repositioning to “pure‑play utility”; CEO: “we completed our plan to exit the merchant power business and transition to a pure play utility,” with UPO adjusted EPS up >40% YoY .
• Grid modernization and growth pipeline: filings for advanced metering, approvals/progress on St. Charles CCGT and other generation/transmission investments underpin medium‑term earnings trajectory .
• Guidance confidence: Initiated 2017 ranges and reaffirmed 3‑year UPO outlook targeting 5–7% growth (with lumpiness) from regulated investments and rate actions .

What Went Wrong

• Large Q4 impairment tied to Indian Point accelerated merchant wind‑down; $2.4B pre‑tax ($1.5B after‑tax) charge drove GAAP loss (EPS $(9.88)) .
• EWC profitability pressure: operational loss of $(0.04) EPS in Q4 on lower prices/volume and higher decommissioning expense; 2017 EWC midpoint only $0.65 EPS .
• Cost headwinds: 2017 nonfuel O&M projected at ~$2.6B (+$0.45/share vs. 2016) largely due to higher nuclear spending; potential tax reform could push UPO toward low end of range .

Financial Results

Notes: S&P Global consensus/financials were unavailable during retrieval; revenue and Q4 consensus from Zacks/Yahoo Finance as cited above.

Segment EPS breakdown (Q4 2016):

KPIs (operational):

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “2016 was a pivotal year…we completed our plan to exit the merchant power business and transition to a pure play utility…our utility, parent and other adjusted earnings reflected over 40% growth year over year” .
• CFO: “As‑reported loss of $9.88 included special items totaling $10.19 related to the decision to sell or close each of EWC’s nuclear plants…on an operational view, consolidated earnings were $0.31 per share” .
• CEO on cash/EWC path: “our expectation through 2021 is…about flat from a cash flow perspective…2017 will probably be a negative cash flow year because we have three refueling outages” .

Q&A Highlights

• Tax reform sensitivity: UPO EPS impact from a 35%→20% rate cut estimated $0.10–$0.15; excess ADIT and DTA revaluation ($580M total, ~$180M utility) would be non‑cash and manageable for customers; potential loss of interest deductibility would bias UPO toward low end of guidance .
• EWC cash profile: aiming for cash neutrality by 2021; near‑term negative in 2017 due to refueling and severance/retention; decommissioning trust mark‑to‑market in 2018 should increase reported trust income .
• Arkansas FRP recovery: nuclear‑related costs currently in rates; Commission reviewing, but recovery continues; future filings will true‑up .
• Nuclear improvement plan: costs and operational progress “on plan”; focus on achieving industry standards and recovering prudent spend through existing constructs .

Estimates Context

• S&P Global consensus data was unavailable during retrieval; therefore, comparisons below use widely cited third‑party consensus (Zacks/Yahoo Finance).
• Q4 2016 EPS: Operational actual $0.31 vs. Zacks consensus $0.11 — Beat .
• Q4 2016 Revenue: Actual $2,648.5M vs. Zacks consensus $2,937M — Miss .
• Guidance: Management initiated 2017 ranges and detailed drivers (sales, O&M, EWC price deck), implying near‑term estimate revisions to incorporate higher nuclear O&M and tax reform scenarios .

Key Takeaways for Investors

• The narrative pivot to a regulated “pure‑play utility” is complete; impairment clarifies merchant exit timing and should reduce earnings volatility going forward .
• UPO growth drivers (rate actions, generation/transmission build, AMI) remain intact; expect lumpiness in 2017–2018 with normalization by 2019 per outlook .
• Near‑term headwinds: higher nuclear O&M (~$2.6B 2017 nonfuel O&M), EWC refueling cadence, and potential tax reform impacts to EPS mix (manageable cash effect at utility) .
• Cash flows resilient: ~$750M Q4 operating cash flow; target EWC cash neutrality by 2021 excluding potential NDT top‑offs .
• Watch regulatory execution (FRP resets, true‑ups, MISO approvals) and AMI deployment pace as catalysts for rate base growth and earnings visibility .
• Estimate frameworks likely adjust for the operational beat/miss pattern (EPS beat, revenue miss) and for tax reform sensitivities disclosed by management .

Appendix: Indian Point 8‑K (Exhibit 99.1) Highlights

• Settlement terms: Unit 2 shut by Apr 30, 2020; Unit 3 by Apr 30, 2021; NY to withdraw license renewal objections and issue required environmental permits; Entergy to provide $15M to community/environment initiatives .
• Financial impact: $2.4B pre‑tax ($1.5B after‑tax) impairment in Q4; additional ~$180M (Indian Point) and ~$310M (six‑plant total) severance/retention through 2021; expected free cash flow impact approximately neutral through end of operations .