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PINNACLE WEST CAPITAL CORP (PNW)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered an EPS loss of $0.04, missing consensus, while revenue of $1.032B modestly beat Street expectations; management reaffirmed 2025 EPS guidance of $4.40–$4.60 and characterized results as in line with internal plans given planned outages and O&M timing .
  • Negative drivers included higher O&M, increased D&A from plant additions, roll-off of positive pension/OPEB credits, lower other income versus the prior-year Bright Canyon sale gain, and higher interest; offsets were new rates, higher transmission revenue, LFCR adjustor, and a gain in the El Dorado investment .
  • Operationally, APS highlighted summer readiness and reliability, including AI fire-sensing cameras to enhance wildfire detection and comprehensive outage/maintenance preparations at Palo Verde and Four Corners .
  • Stock-relevant catalysts: mid-year rate case filing with formula rate proposal (aimed at reducing regulatory lag), continued large-load C&I ramp (semiconductor/data centers), and a sizable tracked CapEx/transmission pipeline supporting rate base growth .

What Went Well and What Went Wrong

What Went Well

  • New customer rates were a key positive driver (+$0.29 YoY on “operating revenue less fuel and purchased power”), alongside higher transmission revenue, LFCR adjustor, and a gain in the El Dorado investment .
  • Management reaffirmed full-year guidance and emphasized robust customer/sales growth and strong Arizona macro; “Financial results in the first quarter were in line with our expectations…” .
  • Reliability initiatives and wildfire mitigation investments, including deployment of AI fire-sensing cameras: “These cameras alert APS fire mitigation experts...When minutes matter, integration of this advanced detection technology improves firefighter rapid-response capabilities…” .

What Went Wrong

  • O&M rose due to planned outages (major Four Corners outage) and higher IT project spend; D&A increased with plant/intangibles growth; pension/OPEB positive amortization rolled off; interest costs were higher .
  • A procedural change recalibrating accrued unbilled revenues in January offset YTD sales growth by 1.9%, muting otherwise strong C&I growth in the quarter .
  • EPS missed consensus for Q1 2025; management reiterated that O&M lumpiness was contemplated in guidance, expecting normalization across the year .

Financial Results

Metric (Units)Q1 2024Q3 2024Q4 2024Q1 2025
Operating Revenues ($USD Thousands)951,712 1,768,801 1,095,408 1,032,280
EPS (Diluted, $)0.15 3.37 -0.06 -0.04
Operating Income ($USD Thousands)66,792 546,986 84,538 57,222
O&M Expense ($USD Thousands)257,578 308,061 327,251 300,109
Fuel & Purchased Power ($USD Thousands)357,864 631,382 396,148 380,071

Segment breakdown (Operating Revenues):

Category ($USD Millions)Q1 2024Q1 2025
Retail Residential433 449
Retail Business461 525
Total Retail894 974
Sales for Resale (Wholesale)27 25
Transmission for Others28 26
Other Misc. Services3 8
Total Operating Revenues952 1,032

KPIs and operations:

KPIQ1 2024Q1 2025
Total Customer Growth YoY1.8% 2.3%
Retail Sales Growth YoY (GWh, weather-normalized)5.9% 2.1%
Average Retail Customers (Total)1,390,517 1,421,957
Capacity Factor – Nuclear102%101%
Capacity Factor – Coal67%38%
Capacity Factor – Gas/Oil/Other18%28%
Planned Outage – Redhawk CC2 (Days, Q1 actual)—60
Planned Outage – Four Corners 4 (Days, Q1 actual)—72

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
EPS (Diluted)FY 2025$4.40–$4.60 (Q4 2024 PR) $4.40–$4.60 (Q1 2025 reaffirmed) Maintained
Adjusted Gross Margin ($B)FY 2025—$3.13–$3.19 Provided/Reaffirmed
Adjusted O&M ($B)FY 2025—$0.965–$0.985 Provided/Reaffirmed
Other OpEx (D&A + Taxes OI) ($B)FY 2025—$1.16–$1.18 Provided/Reaffirmed
Other Income ($B)FY 2025—$0–$0.006 Provided/Reaffirmed
Net Interest exp. net AFUDC ($B)FY 2025—$0.350–$0.370 (Total AFUDC ≈ $0.12B) Provided/Reaffirmed
Effective Tax Rate (%)FY 2025—13.25–13.75% Provided/Reaffirmed
Avg. Diluted Shares (MM)FY 2025—122.3 Provided/Reaffirmed
Net Income attrib. NCI ($MM)FY 2025—17 Provided/Reaffirmed
DividendNext payable Jun 2, 2025$0.895/sh (declared Apr 23) $0.895/sh Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Formula rates / regulatory lagWorkshop held; policy statement approved; focus on smoothing earnings File mid-year rate case including formula plan; target first formula adjustment in 2027 if case concludes in 2026 Advancing towards filing/implementation
Large-load C&I (semis/data centers)4 GW committed; >10 GW interest; strong C&I sales growth TSMC Arizona investment expansion; C&I ramp driving 5.3% growth; outlook 3–5% contribution to sales Pipeline expanding/accelerating
Wildfire mitigation / AI techVPP smart thermostats; reliability programs AI fire-sensing cameras; PSPS expansion; advanced fire modeling Tech adoption increasing
O&M cost managementPull-forward projects; 2024 O&M elevated; 2025 O&M targeted down Q1 O&M lumpy due to outages/IT; guidance unchanged; core O&M trending to plan On-plan despite timing
Transmission & generation expansion>800 MW owned projects; strategic transmission plan Multiple 230/500 kV projects; SRB pipeline; Redhawk/Sundance expansions Execution continues

Management Commentary

  • “Financial results in the first quarter were in line with our expectations…We remain optimistic that we will achieve our annual targets as customer and electricity sales growth remain robust…” — CEO Ted Geisler .
  • “We’re focused on continuing to provide top-tier reliability…We have successfully completed our major outages for the Four Corners Power Plant…Palo Verde Unit 1 is currently in planned refueling outage and expected to return to service in early May.” — CEO Ted Geisler .
  • “We are reaffirming all other guidance…featuring a mix of debt and equity sources…We are focused on maintaining solid ratings and metrics…” — CFO Andrew Cooper .
  • “The primary objectives of this next rate case will be to recover costs and investments…develop a modernized rate structure…reduce regulatory lag…” — CEO Ted Geisler .

Q&A Highlights

  • TSMC and large-load outlook: Fab 1 in full production; acceleration potential for Fab 2/3; sustained pipeline supports robust C&I sales growth beyond 2027 .
  • Formula rate timing: Traditional case based on 2024 test year, conclusion potentially by late 2026; first formula-rate adjustment targeted for 2027 to minimize lag and smooth earned ROE .
  • O&M dynamics: Q1 lumpiness from planned outages and IT project phasing; guidance contemplated this, with transition from O&M to capital for IT backbone over year .
  • Rooftop solar/usage: Residential rooftop applications trending lower amid saturation and financing costs; company tracks offsets to sales from EE/DG; underlying residential trends near flat after accrual adjustment .
  • Coal closure: Legacy coal plant (Toa) retirement remains; exploring site repurposing (potential new nuclear/gas) aligning with long-term reliability and carbon goals .

Estimates Context

MetricQ1 2024Q3 2024Q4 2024Q1 2025
EPS Consensus Mean ($)-0.006*3.484*-0.143*0.012*
EPS Actual ($)0.15 3.37 -0.06 -0.04
Revenue Consensus Mean ($USD)982,553,140*1,696,769,010*1,064,720,420*1,009,982,520*
Revenue Actual ($USD)951,712,000 1,768,801,000 1,095,408,000 1,032,280,000
  • Q1 2025: EPS missed (actual -$0.04 vs $0.01*), revenue beat ($1.032B vs $1.010B*). Q4 2024: EPS beat (actual -$0.06 vs -$0.14*), revenue beat. Q3 2024: EPS miss, revenue beat. Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • EPS miss driven by planned outages, higher O&M/D&A, and interest, but guidance reaffirmation and clear drivers support confidence in 2025 trajectory .
  • Receding lag strategy: mid-year rate case with formula rate proposal is a potential medium-term re-rating catalyst as it targets smoother, closer-to-allowed ROE earnings profile from 2027 onward .
  • Demand narrative strengthening: Arizona’s semiconductor/data center ecosystem expansion (TSMC acceleration; 4 GW committed, >10 GW interest) underpins multi-year 4–6% sales growth with 3–5% from extra-high-load C&I .
  • Rate base and capital plan support: ~$9.66B 2024–2027 APS CapEx, strategic transmission and SRB-backed generation reduce regulatory lag and buttress growth visibility .
  • Reliability and risk mitigation initiatives (AI wildfire cameras, PSPS, grid hardening) reduce operational risk amid extreme weather, supporting service quality and regulatory standing .
  • Near-term watch items: O&M normalization post-outages/IT phasing; accrual adjustments behind January’s sales accounting change; Palo Verde refueling cadence through Q2/Q4 .
  • Trading lens: Reaffirmed EPS, revenue beat, and visible regulatory path can support dips on EPS miss; updates on formula rate design, RFP awards, and TSMC timing likely to move the stock .
Estimates disclaimer: Values marked with * retrieved from S&P Global.

Additional Notes

  • 2025 EPS guidance drivers: retail customer growth 1.5–2.5%, weather-normalized sales growth 4–6% (incl. 3–5% from large C&I), increased transmission revenue, higher D&A/financing, normalization of weather, lower pension/OPEB non-service credits .
  • Non-GAAP reconciliation provided for adjusted gross margin and adjusted O&M (ex RES/DSM/CCT), aligning with guidance frameworks .