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PINNACLE WEST CAPITAL CORP (PNW)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 EPS of $1.58 and revenue of $1,358.751M were broadly in line with consensus; revenue modestly beat while EBITDA missed, largely on milder weather and higher O&M/D&A . EPS consensus was $1.5766*, revenue consensus $1,350.9M*, and EBITDA consensus $586.4M*; actuals: EPS $1.58, revenue $1,358.8M, EBITDA $552.8M* .
  • Management reaffirmed FY 2025 EPS guidance of $4.40–$4.60 and indicated confidence in ending the year in the top half of the range, supported by strong customer growth (+2.4%) and weather‑normalized sales growth (+5.2%) .
  • Strategic update: APS is the anchor shipper on a 42-inch Desert Southwest natural gas pipeline (1.5 Bcf/d design capacity), enabling new gas generation and supporting reliability for rapidly growing data center/manufacturing loads; clean energy goal updated to aspirational carbon‑neutral by 2050 .
  • Regulatory trajectory: June 13 rate case filing (requested $580M annual revenue increase; ROE 10.7%; equity layer ~52.4%) and proposed formula rate mechanism aim to reduce lag, with first formula adjustment targeted for 2027 .
  • Dividend maintained: $0.895 per share payable Sept 2, 2025 (ex/rec dates as disclosed) .

What Went Well and What Went Wrong

  • What Went Well

    • Robust demand backdrop: APS customers set an all-time record peak demand of 8,527 MW on July 9, met reliably by a diverse fleet; weather‑normalized retail sales rose 5.2% YoY and retail customer count grew 2.4% .
    • Transmission and sales tailwinds: Transmission revenues and sales/usage contributed positively YoY; management highlighted strong C&I momentum, incl. data centers and manufacturing .
    • Guidance confidence: CFO expects finishing FY in the top half of $4.40–$4.60 EPS range, citing execution and financing plan progress; EPS guidance reaffirmed .
    • Quote: “Our second-quarter financial results are in line with our annual guidance… our team continues to excel in delivering reliable service… setting a new peak [again]” — Ted Geisler .

  • What Went Wrong

    • Weather headwind vs prior year: Cooling degree‑days were 15.4% lower than Q2 2024; weather reduced YoY EPS by ~$0.15 .
    • Cost pressures: Higher O&M, higher depreciation/amortization (plant additions/intangibles), higher interest expense, and lower pension/OPEB non‑service credits pressured profitability; EBITDA missed consensus .
    • Taxes: Higher income taxes due to lower tax credits vs prior year added further drag .
    • Analyst concern: Regulatory lag through 2026 before formula rate adjustments in 2027; management described steps to mitigate lag but acknowledged timing .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Operating Revenues ($USD Millions)$1,308.994 $1,032.280 $1,358.751
Operating Income ($USD Millions)$313.747 $57.222 $307.552
EBIT Margin %24.0% 5.5% 22.7%
Net Income Attributable to Common ($USD Millions)$203.805 $(4.644) $192.564
Diluted EPS ($USD)$1.76 $(0.04) $1.58

Estimates vs Actuals (Q2 2025):

MetricConsensus*ActualSurprise
Revenue ($USD Millions)$1,350.928*$1,358.751 +$7.823 (+0.6%) — Beat
EPS ($USD)$1.5766*$1.58 +$0.0034 (+0.2%) — In line
EBITDA ($USD Millions)$586.355*$552.818*−$33.537 (−5.7%) — Miss

Segment/Revenue Composition:

Operating Revenues ($USD Millions)Q2 2024Q2 2025
Retail Residential$658 $652
Retail Business$610 $654
Sales for Resale (Wholesale)$10 $18
Transmission for Others$28 $32
Other Miscellaneous Services$3 $3
Total Operating Revenues$1,309 $1,359

Key KPIs:

KPIQ2 2024Q2 2025Notes
Weather‑Normalized Retail Sales Growth YoY (%)5.5% 5.2% Solid C&I contribution
Average Retail Customers1,394,048 1,428,060 +2.4% YoY
Record Peak Demand (MW)8,210 (Aug 2024) 8,527 (Jul 9, 2025) New all‑time peak
Cooling Degree‑Days648 548 −15.4% YoY weather headwind
Transmission for Others ($USD Millions)$28 $32 YoY tailwind

Notes: *Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (May 1)Current Guidance (Aug 6)Change
EPS (weather‑normalized)FY 2025$4.40 – $4.60 $4.40 – $4.60 Maintained
Adjusted Gross Margin ($B)FY 2025$3.13 – $3.19 $3.13 – $3.19 Maintained
Adjusted O&M ($B)FY 2025$0.965 – $0.985 $0.965 – $0.985 Maintained
Other OpEx (D&A + Taxes) ($B)FY 2025$1.16 – $1.18 $1.16 – $1.18 Maintained
Other Income ($M)FY 2025$0 – $6 $0 – $6 Maintained
Net Interest (net of AFUDC) ($M)FY 2025$350 – $370 (AFUDC ~ $120M) $350 – $370 (AFUDC ~ $120M) Maintained
Effective Tax Rate (%)FY 202513.25 – 13.75 13.25 – 13.75 Maintained
Avg Diluted Shares (M)FY 2025122.3 122.3 Maintained
Core O&M ($M)FY 2025$910 – $920 $910 – $920 Maintained
Planned Outages ($M)FY 2025$150 – $160 $150 – $160 Maintained
RES/DSM ($M)FY 2025$55 – $65 $55 – $65 Maintained
Dividend per ShareNext Payment—$0.895 (payable Sept 2, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Clean Energy Goal100% clean/carbon‑free by 2050 highlighted; strong Palo Verde performance (93.7% CF) Updated aspirational goal to carbon‑neutral by 2050; removed interim targets to focus on reliability/affordability Reframed targets for near‑term reliability
Natural Gas Pipeline & GenerationNot discussed in Q4 PR; Q1 slides focused on SRB projects (Agave BESS, Ironwood, Sundance, Redhawk) APS anchor shipper on 42" pipeline (1.5 Bcf/d); enables new gas generation capacity aligned to load growth Major reliability enabler; long‑term capacity
Transmission ExpansionStrategic plan noted; multiple lines in siting with late‑decade ISD Local run‑rate up to $300–$400M; larger regional projects expected later in decade Accelerating capex trajectory
Regulatory Lag & Formula RatesACC policy statement adopted Dec 2024; planning SRB to reduce lag 6/13 rate case filed; first formula rate adjustment targeted for 2027 to reduce lag Path to timely recovery
Wildfire Mitigation & TechnologyAI fire‑sensing cameras deployed; expanded PSPS and modeling Continued comprehensive program; HB2201 signed to define mitigation standards Strengthened framework
Data Center/Manufacturing Growth2024 WN sales +5.7%; big C&I pipeline ~4.5 GW committed EHFL load; ~20 GW uncommitted queue; strong C&I sales +8% in Q2 Demand visibility expanding
Distribution InvestmentsOngoing resiliency; upgrades to maintain top‑quartile reliability Distribution capex tied to record customer additions; automation/visibility investments Scaling with growth

Management Commentary

  • “While our second‑quarter financial results were within our expectations, they were lower than the same period in 2024 due in large part to cooler weather… 15.4% fewer cooling degree‑days” — Ted Geisler .
  • “We are reiterating all other aspects of guidance… we expect that we will end the year in the top half of our full‑year EPS range of $4.40 to $4.60” — Andrew Cooper .
  • “APS is the anchor shipper… design capacity 1.5 Bcf/day… [pipeline] a critical strategic commitment… foundational for new generation and transmission to power the state’s growth” — Ted Geisler .
  • “We filed a rate case on June 13… 10.7% ROE… 52.4% equity layer… proposed formula rate mechanism [to] improve timely recovery and smooth bill impacts” — Ted Geisler .

Q&A Highlights

  • Pipeline scope and optionality: APS contracted substantial pipeline capacity with rights to flex up; intended to serve both committed (~4.5 GW) and uncommitted (~20 GW) queues; prudent even without uncommitted load given reliability needs .
  • Transmission capex cadence: Local run‑rate has doubled vs five years ago; larger regional projects are lumpy and accelerate toward decade‑end; more detail expected on Q3 call .
  • Regulatory lag path: 2026 GRC still based on 2024 test year (lag remains); first formula rate adjustment targeted for Sep 2027, providing relief; 2028 could be first full year under updated costs .
  • Distribution investment upside: Growth/resiliency driving continued distribution capex, automation, and redundancy to maintain top‑quartile reliability .
  • Non‑core earnings contributions: Eldorado/SAI gains contributed tailwinds but are not part of core utility strategy .
  • 2026 guidance timing: Management expects to provide 2026 EPS guidance at Q3 call, given procedural schedule .

Estimates Context

  • Q2 2025 printed in line: EPS $1.58 vs consensus $1.5766* and revenue $1,358.8M vs $1,350.9M*; EBITDA missed ($552.8M* vs $586.4M*) on cost pressures and lower pension/OPEB credits .
  • Where estimates may need to adjust: Near‑term EBITDA/O&M assumptions should reflect higher O&M timing (planned outages) and elevated D&A from plant additions; transmission revenue and sales growth help offset. FY EPS trajectory skewing to top half per CFO .
  • Note: All consensus values marked with * are from S&P Global.

Key Takeaways for Investors

  • Near‑term: Print was neutral/slightly positive on revenue vs consensus, but EBITDA miss and cooler weather tempered upside; stock likely reacts more to narrative catalysts (pipeline anchor‑shipper, top‑half EPS commentary) than to the small headline variances .
  • Medium‑term growth: Strong visibility into C&I/data center demand and robust customer additions underpin 4–6% weather‑normalized sales growth trajectory through 2027 .
  • Reliability capex upshift: Transmission/distribution run‑rates rising, with larger regional projects later in decade; expect increasing capex disclosures and rate base growth .
  • Regulatory path: 2026 rate case and proposed formula rate mechanism are central to reducing lag; first formula adjustment targeted for 2027—key for valuation and multiple expansion .
  • Funding/Balance sheet: Financing plan executed ($800M bonds in Q2); equity program in place; credit metrics targeted to maintain solid IG ratings .
  • Nuclear cornerstone: Palo Verde remains a low‑cost, carbon‑free base load asset supporting reliability as clean energy goal shifts to carbon‑neutral by 2050 .
  • Watch items: O&M execution vs guidance, timing of pipeline/generation announcements, ACC proceedings on formula rates/rate design for large loads, and EPS cadence toward top‑half of FY guidance .
S&P Global disclaimer: Consensus and EBITDA figures marked with * are retrieved from S&P Global.