ENTERGY CORP /DE/ (ETR) Q4 2018 Earnings Summary

Executive Summary

Q4 performance was mixed: ETR adjusted EPS was $0.70 and operational EPS $0.60; Utility operational EPS rose sharply YoY to $1.91 (from $0.74) but EWC swung to a loss (-$0.87), driving consolidated softness. Operating cash flow was $526M, down $385M YoY primarily from returning unprotected excess ADIT to customers.
Entergy introduced a simpler ETR adjusted EPS measure and guided FY19 to $5.10–$5.50 (midpoint $5.30), consistent with prior framework except for a ~$0.20 uplift from a lower effective tax rate; long-term growth target reaffirmed at 5–7%.
Regulatory and strategic execution remained constructive: Texas rate case approved, Arkansas FRP settlement approved; first AMI meters installed with 1M activations planned in 2019; Vermont Yankee sale closed (Jan 11, 2019) as the company advances to a pure-play utility.
Key 2019 drivers: ~1% weather‑adjusted sales growth (industrial ~2.8%), non‑fuel O&M ~~+$2.7B (~~+3% YoY), ~$0.35 dilution from settling forward equity, and effective tax rate ~22.5–23%.
Near-term stock catalysts: sustained execution on rate mechanisms and AMI/grid modernization roll-out, EWC cash positivity 2019–2022, and clarity on SERI/FERC matters and Indian Point sale timeline.

What Went Well and What Went Wrong

What Went Well
- Utility strength: UP&O adjusted EPS rose to $0.51 in 4Q (vs $0.48 YoY), with Utility operational EPS at $1.91 (vs $0.74), supported by lower non‑fuel O&M (nuclear) and favorable base rate actions. “We are reporting strong results for another successful year.”
- Constructive regulatory progress: Texas base rate case approved; Arkansas FRP partial settlement approved; clarity across jurisdictions improves plan execution.
- Strategic transition: Vermont Yankee sale completed (Jan 11, 2019); agreements in place to sell Pilgrim and Palisades; EWC de‑risked (e.g., NDT equity exposure reduced) with expected positive net cash to Parent through 2022.
What Went Wrong
- EWC drag: EWC operational EPS fell by $1.22 YoY in Q4 on lower NDT returns and lower nuclear volumes; EWC headwinds offset Utility gains.
- Cash flow optics: Q4 operating cash flow declined to $526M (down $385M YoY) due primarily to accelerated return of unprotected excess ADIT to customers.
- Credit metrics below target (temporarily): Operational FFO/debt at 12.0% (15.3% ex‑ADIT giveback) with commitment to ≥15% by 2020; incremental depreciation/interest from capex elevate expense cadence near term.

Financial Results

Quarterly EPS (ETR Adjusted) trend

Metric	Q2 2018	Q3 2018	Q4 2018
ETR Adjusted EPS ($)	1.42	2.35	0.70

Q4 YoY EPS (Consolidated)

Metric	Q4 2017	Q4 2018
As-reported EPS ($)	-2.66	-0.36
Operational EPS ($)	0.76	0.60
UP&O Adjusted EPS ($)	0.48	0.51

Q4 YoY Segment EPS (Operational)

Segment	Q4 2017 ($/sh)	Q4 2018 ($/sh)
Utility	0.74	1.91
Parent & Other	-0.33	-0.44
EWC	0.35	-0.87
Total	0.76	0.60

Operating Cash Flow

Metric	Q2 2018	Q3 2018	Q4 2018
Operating Cash Flow ($M)	523	780	526

Key Balance Sheet/CF Metrics (LTM)

Metric	Value
Operational FFO-to-debt	12.0%
Operational FFO-to-debt (ex‑ADIT giveback)	15.3%
Parent debt-to-total debt	22.6%

Note: Results reflect non-GAAP adjustments, including items related to EWC exit; see Regulation G reconciliations in the slides.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
ETR Adjusted EPS	FY2019	Prior framework midpoint effectively ~$0.20 lower due to higher tax rate	$5.10–$5.50 (mid $5.30)	Introduced new measure; midpoint uplift reflects lower effective tax rate
Long-term EPS growth	2019–2021	5–7%	5–7%	Maintained
Effective tax rate	2019; 2021	n/a	~22.5% (2019); slightly higher in 2021; assumptions ~23%	Clarified
Sales growth (weather‑adjusted)	2019	n/a	~1% total; industrial ~2.8%	Set
Non‑fuel O&M	2019	n/a	≈$2.7B (~+3% YoY)	Set
Share count/dilution	2019	n/a	≈$0.35 dilution from equity forward settlement	Set
St. Charles recovery timing	Mid‑2019	n/a	Begins when in service mid‑year	Set
Dividend	Ongoing	n/a	4th consecutive raise in 2018; expect trend to continue (Board approval)	Positive signal
Utility capex mix	2019–2021	Preliminary plan	Modest increase vs preliminary, primarily distribution automation and MISO transmission upgrades	Raised modestly

Earnings Call Themes & Trends

Topic	Q2 2018 (Q-2)	Q3 2018 (Q-1)	Q4 2018 (Current)	Trend
EWC exit/decommissioning	Announced Pilgrim & Palisades sales; VY decommissioning steps progressing	VY license transfer approved; targeting VY transaction close YE18	VY sale closed (Jan 11, 2019); de‑risked NDT; expect EWC positive net cash 2019–2022	Accelerating and de‑risking
Regulatory progress	Broad tax reform refunds/constructive filings; minimal rate impact	Texas settlement; Arkansas FRP settlement; NO rate case refiling	Texas rate case approved; Arkansas FRP resolved; NO ongoing	Constructive cadence
AMI/grid modernization	New customer offerings post‑AMI highlighted	—	First meters installed; 1M planned activations in 2019	Execution ramping
Load/industrial growth	—	Stronger resi/commercial; outlook unchanged	2019 guide: ~1% total; industrial ~2.8%	Stable to positive
Metrics simplification	—	Evaluating shift to simpler EPS measure	ETR adjusted EPS introduced; 2019 guide $5.10–$5.50	Simplified framework
Grand Gulf NRC status	Expect transition to Column 1 by month-end	—	Expect formal exit with NRC next week; no significant issues	Improving oversight
Credit metrics	FFO/debt 15.4%; targets reaffirmed	FFO/debt 13.1%; parent debt ≤25% targeted	Operational FFO/debt 12.0% (15.3% ex‑ADIT); target ≥15% by 2020	Path to targets

Management Commentary

“We are reporting strong results for another successful year… consolidated operational earnings came in above our guidance range.” – CEO Leo Denault.
“We are moving to a single, simpler measure… initiating our new Entergy adjusted EPS guidance… $5.10 to $5.50.” – CFO Andrew Marsh.
“We will install approximately 3 million automated meters… plans to activate 1 million new meters in 2019.” – CEO Leo Denault.
“We expect EWC to provide positive net cash to parent from 2019 through 2022.” – CFO Andrew Marsh.
“Texas rate case… approved… Arkansas… partial settlement… new rates now effective.” – CEO Leo Denault.

Q&A Highlights

Effective tax rate and new metric: The ~$0.10 structural benefit tied to protected excess ADIT/AFUDC is sustainable; weather will no longer be normalized in results, though impacts will be disclosed.
Capex cadence: Utility capex is running higher than prior preliminary plan, mainly distribution automation and MISO transmission upgrades.
Credit/leverage: Rating agencies comfortable with FFO/debt path back to ≥15% by 2020 given rapid ADIT giveback; levers available if needed.
Texas generation rider: Pursuing enabling legislation to reduce regulatory lag on generation investment.
Indian Point/Sale timing: Working toward a post‑shutdown transaction; aim to have a transaction signed/announced by year‑end to enter regulatory process.

Estimates Context

Wall Street consensus estimates (S&P Global) for Q4 2018 EPS and revenue were not available due to data access limits during this session; as a result, we cannot quantify beats/misses versus consensus. Values would be retrieved from S&P Global when available.

Key Takeaways for Investors

Utility earnings power is inflecting positively: UP&O adjusted EPS improved YoY in Q4, with Utility operational EPS up strongly; regulatory execution remains constructive.
ETR adjusted framework simplifies the story and focuses on the core utility, with 2019 midpoint $5.30 and 5–7% growth trajectory intact.
Cash metrics are temporarily diluted by ADIT refunds but normalize by 2020; parent debt discipline maintained (22.6% of total).
EWC exit is progressing with lower risk (NDT de‑risking, VY close), and expected cash positivity through 2022 provides additional flexibility.
2019 operational levers: ~1% sales growth (industrial ~2.8%), mid‑year St. Charles in‑service, ~~$2.7B non‑fuel O&M to support grid modernization/IT/cyber, and share dilution (~~$0.35) already framed.
Policy/regulatory watch items: Texas generation rider legislation, SERI/FERC ROE and sale‑leaseback proceedings, and New Orleans rate case.
Execution on AMI and grid investments, plus clarity on Indian Point transaction timing, are likely near‑term narrative drivers.