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SEMPRA (SRE)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 GAAP EPS was $1.91 and Adjusted EPS was $1.88; revenues were $3.335B. Management affirmed FY23 Adjusted EPS ($8.60–$9.20) and FY24 EPS ($9.10–$9.80), and modestly raised GAAP EPS guidance ($8.78–$9.38) .
  • Texas legislative reforms and Oncor’s capital plan support improved recovery mechanisms and potential ROE realization; management quantified DCRF benefits at ~$70–$90M annually and highlighted accretion sensitivity to incremental capex .
  • LNG platform execution advanced: Port Arthur Phase 1 construction underway with SIP’s expected 28% indirect ownership; ECA Phase 1 remains on track, and Cameron Phase 2 feed progressing with Bechtel selection .
  • Corporate action: Board declared a two-for-one stock split (distribution Aug 21, 2023), intended to broaden investor access and improve trading volume .
  • Estimate comparison unavailable due to S&P Global query limits; management tone confident, guiding to sustained growth across platforms (California, Texas, Infrastructure) .

What Went Well and What Went Wrong

What Went Well

  • Guidance strength: Affirmed FY23 Adjusted EPS ($8.60–$9.20) and FY24 EPS ($9.10–$9.80); raised FY23 GAAP EPS ($8.78–$9.38). CEO: “we're pleased to affirm both our 2023 and 2024 guidance ranges” .
  • Texas tailwinds: Enacted SB 1015, HB 2555, SB 1076, HB 5066 to reduce regulatory lag and enhance recovery. CFO: “Together, these bills are expected to improve realized ROE and facilitate additional investment” .
  • LNG progress and ownership: Port Arthur Phase 1 advancing; SIP expects 28% indirect ownership; Cameron Phase 2 moves forward with Bechtel value engineering. “Construction is underway… more than 2.7 million hours… without a lost-time incident” .

What Went Wrong

  • Adjusted EPS down YoY: Q2 2023 Adjusted EPS $1.88 vs $1.98 in Q2 2022, impacted by higher NCI at Infrastructure, lower Texas equity earnings on weather consumption, and lower asset optimization revenues .
  • Parent & Other headwinds: Higher costs primarily from lower tax benefits and increased net interest expense (partially offset by investment gains) detracted from consolidated results .
  • Mexico FX/inflation effects: Significant non-GAAP adjustments continued (e.g., $(93)M in Q2) reflecting FX/inflation on monetary positions in Mexico, reinforcing volatility in reported-to-adjusted reconciliation .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Revenue ($USD Billions)$3.455 $6.560 $3.335
GAAP EPS ($USD)$1.39 $3.07 $1.91
Adjusted EPS ($USD)$2.35 $2.92 $1.88
EBIT Margin % (IBIT/Revenue)11.3% (390/3,455) 25.5% (1,671/6,560) 24.7% (823/3,335)

Segment breakdown (Q2 2023):

SegmentRevenue ($USD Millions)EBIT ($USD Millions)Earnings to Common ($USD Millions)
SDG&E1,262 307 184
SoCalGas1,467 205 155
Sempra Texas Utilities0 (equity-method) -2 160
Sempra Infrastructure660 323 208
Parent & Other-54 -10 -104

Selected KPIs:

KPIQ2 2022Q2 2023
SDG&E + SoCalGas Gas sales (Bcf)71 80
SDG&E Total electric deliveries (millions kWh)3,829 3,771
Community Choice Aggregation & Direct Access (millions kWh)2,131 2,797
Oncor Total deliveries (millions kWh)37,829 38,056
SDG&E Total electric customer meters (thousands)1,495 1,511
Oncor Total electric customer meters (thousands)3,867 3,933

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP EPSFY 2023$8.76–$9.36 $8.78–$9.38 Raised
Adjusted EPSFY 2023$8.60–$9.20 $8.60–$9.20 Maintained
EPSFY 2024$9.10–$9.80 $9.10–$9.80 Maintained
LT EPS Growth RateLong-term6%–8% 6%–8% Maintained
Stock SplitCorporate ActionN/A2-for-1 split effective Aug 22, 2023 (record Aug 14; distribution Aug 21) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022 & Q1 2023)Current Period (Q2 2023)Trend
Electrification & load growthCAISO long-term transmission outlook (~$500M awarded; $2–3B competitive), affordability/fixed charge proceeding; ~3% load growth in SDG&E highlighted Continued focus on electrification, EV adoption (>110k EVs), 171MW utility-owned storage commissioned; CAISO awarded ~$500M, initiated ~$2.3B bidding Strengthening
Texas regulatory reformsAnticipated SB 1015 (twice-yearly DCRF) to reduce lag; Oncor updated 5-year capex to $19B Enacted SB 1015, HB 2555, SB 1076, HB 5066; management quantified DCRF ~$70–$90M; robust premise/connect growth Constructive
LNG portfolioTargeting Port Arthur Phase 1 FID Q1-2023; Cameron Phase 2 FEED advancing Port Arthur Phase 1 under construction; SIP targeting 28% ownership; Cameron Phase 2 Bechtel selected; PA2 FERC certificate expected in 1–2 months Advancing
CCS / Net-zeroHackberry CCS development; IRA incentives; hydrogen hubs (DOE) Titan CCS pore space acquired near Port Arthur; broader regional CCS and hydrogen hub participation Expanding
Affordability / Rate reformFixed charge proceeding; securitization; cost control focus Ongoing CA GRCs with focus on safety, reliability, decarbonization; briefs mid-Aug; PD expected Q2 2024, retro to Jan 1 Procedural progress

Management Commentary

  • “We’re pleased to affirm both our 2023 and 2024 guidance ranges and our projected long-term EPS growth rate of 6% to 8%.” — Jeff Martin, CEO .
  • “Several bills were recently enacted in Texas… reduce regulatory lag… improve realized ROE and facilitate additional investment.” — Trevor Mihalik, CFO .
  • “Construction is underway at the Port Arthur LNG Phase 1 project with more than 2.7 million hours of work completed, all without a lost-time incident.” — Sempra Infrastructure update .
  • “The DCRF legislation is expected to improve Oncor earnings… around $70 million to $90 million on a full year basis.” — Jeff Martin, CEO .
  • “Two-for-one stock split… intended to make Sempra’s common stock more accessible to a broader base of investors.” — Press release .

Q&A Highlights

  • Texas DCRF and capex: Management expects full-run-rate DCRF benefit in 2024, with accretion of ~$0.01 per $100M incremental Texas capex; Oncor’s plan refresh in fall with potential resiliency add-on post-rulemaking .
  • LNG execution: Cameron Phase 2 timeline extended to optimize cost/risk with Bechtel; Port Arthur Phase 2 FERC certificate expected in 1–2 months; robust offtake discussions across Europe/Asia .
  • Financing flexibility: Preference for project-level debt/equity and minority stake sales; SIP ownership at Port Arthur Phase 1 guided to 28%; capital structure optimized to enhance returns .
  • California GRCs: Hearings concluded; opening briefs mid-August; proposed decision Q2 2024 with retroactive rates to Jan 1; filings updated for inflation/labor/medical inputs .
  • Equity issuance: No immediate parent-level equity indicated; dynamic plan leveraging lowest-cost capital sources first (project/ops-level) .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable due to a query limit at the time of this analysis. As a result, explicit EPS and revenue beat/miss versus consensus cannot be provided; management affirmed FY23 and FY24 guidance and was constructive on intra-year performance .

Key Takeaways for Investors

  • Guidance intact with slight GAAP EPS raise; FY24 range reaffirmed, supporting visibility into multi-year earnings trajectory .
  • Texas is a structural growth engine; enacted reforms likely improve capital recovery and ROE, underpinning Oncor’s expanding 5-year capex plan .
  • LNG portfolio momentum (Port Arthur Phase 1, ECA Phase 1, Cameron Phase 2) enhances contracted cash flow outlook in later years; SIP’s 28% PA1 stake implies meaningful EBITDA share when fully online .
  • Near-term EPS cadence influenced by NCI and Parent & Other costs; watch FX/inflation adjustments in Mexico for GAAP-to-adjusted volatility .
  • California rate case path clear; proposed decision Q2 2024 with retroactive rates—key milestone for medium-term rate base and affordability initiatives .
  • Stock split broadens investor base/liquidity; potential incremental trading interest, though fundamental valuation driven by execution across platforms .
  • Tactical focus: Track CAISO transmission awards/bids at SDG&E, DCRF filings at Oncor (September), and FERC certificate timing for Port Arthur Phase 2 to gauge incremental capex and project de-risking .