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HAWAIIAN ELECTRIC INDUSTRIES INC (HE)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 consolidated net income was $42.1 million and diluted EPS was $0.38; core EPS excluding wildfire-related items was $0.45, implying ~$0.07 EPS impact from wildfire costs .
  • Utility net income was $39.2 million, down year over year on higher O&M (wildfire, insurance, vegetation) and heat rate penalties; Bank net income improved to $20.9 million on higher NIM and a reserve release .
  • Liquidity: holding company cash $127 million and utility cash $130 million at quarter-end; a $250 million accounts receivable facility received PUC approval on June 27, 2024, adding flexibility .
  • Strategic backdrop: ~400 tort suits and ~160 insurer subrogation claims tied to Maui wildfires; no reserve recorded pending liability determination; legislative wildfire framework pushed to next session but engagement remains high .

What Went Well and What Went Wrong

What Went Well

  • ASB profitability recovered: NIM expanded and a $1.5 million reserve release improved earnings; Q1 ROE 15.6% and NIM 2.75% underscored stability after Q4 repositioning .
  • Wildfire mitigation advancing: PUC approved a 5-year $190 million grid resilience plan; 2024 capital allocated 35% ($120 million) to wildfire work; pursuing $450 million matching funds for $900 million of resilience projects .
  • Liquidity initiatives progressing: PUC scheduled decision on A/R facility for June 24 (later approved at $250 million), bolstering liquidity and operational flexibility .
  • Quote: “American Savings Bank executed well… higher net income as net interest margin and profitability benefited from the strategic balance sheet repositioning” – Scott Seu .

What Went Wrong

  • Utility O&M elevated: ~+$12 million after-tax increase, including ~$7 million wildfire-related costs and higher insurance/vegetation; heat rate penalties added ~$3 million after-tax headwind .
  • Operational issue: Hamakua Energy (biomass/CTs) outage; management expects CT-1 back in weeks; conducting root cause analysis (believed fuel-related) .
  • Ongoing legal uncertainty: ~400 lawsuits and ~160 subrogation claims; no reserve taken given indeterminate liability and damages; court dates set into late 2024 for certain cases .
  • Analyst concern: legislative relief delayed; securitization and mitigation frameworks need more detail and likely wait until 2025 session, creating interim regulatory uncertainty .

Financial Results

Consolidated Performance vs Prior Quarters and YoY

MetricQ3 2023Q4 2023Q1 2024
Total Revenues ($USD Millions)$901.9 $961.4 $897.2
Operating Income ($USD Millions)$75.1 $96.0 $76.4
Diluted EPS ($)$0.37 $0.44 $0.38
Net Income for Common ($USD Millions)$41.1 $48.8 $42.1
EBIT Margin % (Operating Income / Revenue)8.3% (calc from )10.0% (calc from )8.5% (calc from )
Net Income Margin %4.6% (calc from )5.1% (calc from )4.7% (calc from )
YoY Diluted EPS ($)——$0.38 vs $0.50 in Q1 2023

Notes: Core EPS $0.45; wildfire-related items reduced EPS by ~$0.07 .

Segment Breakdown

SegmentQ3 2023 Revenues ($MM)Q4 2023 Revenues ($MM)Q1 2024 Revenues ($MM)Q3 2023 Net Inc. ($MM)Q4 2023 Net Inc. ($MM)Q1 2024 Net Inc. ($MM)
Electric Utility$795.0 $854.1 $788.6 $43.5 $58.2 $39.2
Bank (ASB)$101.0 $102.9 $105.1 $11.4 $3.2 $20.9
Other$5.9 $4.3 $3.4 $(13.7) $(12.6) $(18.0)

KPIs

KPIQ3 2023Q4 2023Q1 2024
Utility kWh Sales (Total, millions)2,157 2,140 1,906
Utility Avg Fuel Oil Cost ($/barrel)$111.51 $132.47 $121.84
Utility ROE (12M rolling)7.9% 8.2% 7.8%
ASB Net Interest Margin (%)2.70% 2.63% 2.75%
ASB Efficiency Ratio (%)72.30% 96.42% 70.27%
ASB Tier-1 Leverage Ratio (%)7.7% 7.7% 8.0%
ASB Deposits FDIC Insured (%)77% N/A82%
ASB Cost of Funds (Avg)1.02% N/A1.17%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Utility Dividend to HEIOngoing~$30 million/qtr (through prior 3 qtrs) $13 million declared May 8, 2024 Lowered
HEI Common DividendQ1 2024$0.36/share (Q1 2023) Suspended ($0.00 declared) Lowered/Maintained suspension
Utility CapExFY 2024$320–$430 million (range) Lower end of the range (implied ~ $300 million) Lowered
A/R Financing Facility2024Pending PUC decision (scheduled June 24) Approved at $250 million (June 27, 2024) Implemented
ASB Dividend to HEIQ1 2024Paid historically (e.g., $14M in Q3 2023) No dividend paid in Q1 2024 Lowered

Earnings Call Themes & Trends

TopicQ-2 (Q3 2023)Q-1 (Q4 2023)Current (Q1 2024)Trend
Wildfire Litigation & ReservesInitial wildfire costs; core EPS reconciliation; business fundamentals remained strong Continued deferral and insurance recoveries; no reserve; lowered utility dividend to preserve liquidity ~400 tort suits, ~160 subrogation; trial dates set; no reserve (liability not probable/estimable) Ongoing, unresolved; legal clarity pending ATF report and courts
One ‘Ohana FundGovernor announced multi-phase recovery initiative —58 registrations (43 decedent, 15 injury); deadlines extended (registration to May 31, forms by July 1) Participation rising; potential litigation alternative
Legislative/RegulatoryRecovery initiatives highlighted Utility dividend reduction; liquidity focus PUC-approved $190M grid resilience plan; seeking $900M projects with $450M matching; climate advisory team formed Progress on resilience; legislative clarity deferred
Liquidity & FinancingCapital market access uncertainty noted Preserving cash via lower utility dividend; ASB healthy capital Holding $127M (HEI) and $130M (utility) cash; A/R facility approved $250M Improved liquidity buffer
ASB Strategy & NIMHigher funding costs; wildfire-related costs at ASB Balance sheet repositioning (securities sale; reduce high-cost deposits) NIM up; reserve release; ROE ~15.6%; cost of funds 117 bps Improving profitability post-repositioning
Operations (Generation)——Hamakua outage; CT-1 expected back in weeks; fuel issue suspected Near-term issue; remediation underway
Wildfire Mitigation CapEx——35% of 2024 capex ($120M) dedicated to wildfire mitigation; PSPS as last resort; AI-enabled cameras Accelerating investment focus

Management Commentary

  • “We continue to work in earnest with key stakeholders to help our community recover… Our utility is committed to making the investments needed to mitigate wildfire risk and advance important safety and resilience work.” – Scott Seu (news release) .
  • “We earned consolidated net income of $42.1 million and EPS of $0.38… excluding wildfire-related expenses, core net income and EPS were $49.3 million and $0.45 per share.” – Scott DeGhetto .
  • “Over 35% of the utility’s 2024 capital budget nearly $120 million is dedicated to wildfire mitigation work… implementing enhanced wildfire operational strategies including a public safety power shutoff program as a last resort.” – Scott Seu .
  • “As of the end of the first quarter, the holding company and the utility had $127 million and $130 million of cash on hand… we expect the [A/R] facility to provide up to $250 million of additional liquidity.” – Scott DeGhetto .

Q&A Highlights

  • Litigation causality and ATF report: Management will not speculate; will evaluate ATF findings upon release (expected before Aug 8, 2024) .
  • ASB strategic alternatives: No speculation on potential sale; reiterated prior stance .
  • One ‘Ohana phase two timeline: Ongoing discussions; supportive of non-litigation resolution options; voluntary participation preserved .
  • Legislative session outcome: Key bills advanced to conference but needed more detail (securitization, mitigation fund); climate advisory team to carry work into next session; special session uncertain .
  • Operations/CapEx: Hamakua CT-1 return in weeks; capex tracking toward lower end of $320–$430 million range; 40% of utility budget linked to wildfire work ($117 million figure cited by analyst) .
  • ASB tax basis: ~$680 million (book for tax) .
  • Claims magnitude and reserving: ~400 tort and ~160 subrogation claims; reserve not taken due to lack of probability/estimability of loss .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable at the time of analysis due to S&P Global daily request limit; therefore, we cannot provide a beat/miss comparison and recommend cross-checking when available.
  • Implications: Elevated utility O&M (wildfire, insurance, vegetation) and heat rate penalties likely pressure near-term utility earnings assumptions; ASB NIM and reserve release may support upward revisions on bank profitability mix .
MetricQ1 2024 ConsensusNote
EPS ($)UnavailableS&P Global data not accessible at query time (request limit exceeded).
Revenue ($USD Millions)UnavailableS&P Global data not accessible at query time (request limit exceeded).

Key Takeaways for Investors

  • Core EPS resiliency: Underlying EPS of $0.45 suggests operating performance remains intact despite wildfire-related headwinds; watch for O&M normalization and heat rate management .
  • Liquidity buffer improved: With $127M/$130M cash and the $250M A/R facility approval, liquidity risk is reduced; supports ongoing resilience capex and wildfire mitigation initiatives .
  • Regulatory/legislative trajectory: Expect clarity in 2025 session on securitization and wildfire framework; near-term narrative driven by resilience investments and ATF findings—key stock catalysts .
  • Bank earnings tailwind: NIM expansion and reserve release point to improved bank profitability; ASB’s strong capital (Tier-1 leverage 8.0%) provides stability .
  • Wildfire investment pivot: ~35% of 2024 capex dedicated to wildfire safety (PSPS, AI cameras, hardening); expense deferrals and insurance recoveries partially offset impacts .
  • Dividend dynamics: HEI common dividend remains suspended; utility dividend reduced to $13M to retain cash—expect income investors to remain cautious until legal/regulatory clarity improves .
  • Trading setup: Upcoming ATF report and litigation milestones, plus continued resilience funding approvals, are likely to drive volatility; positioning around regulatory outcomes and liquidity updates is key .

Appendix: Additional Data Points

  • Consolidated YoY: Q1 2024 EPS $0.38 vs $0.50 in Q1 2023; revenues $897.2M vs $928.2M; utility net income $39.2M vs $47.0M .
  • Wildfire-related Q1 impacts: Utility after-tax wildfire-related expenses net of insurance and deferrals ~$5 million; holding company ~$2.3 million; bank immaterial .
  • Utility revenue drivers: +$4M ARA, +$1M MPIR; offsets include O&M and heat rate penalties .
  • ASB deposit safety: 86% insured/collateralized; ~82% insured; cost of funds 117 bps in Q1 2024 .