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SEMPRA (SRE)·Q3 2023 Earnings Summary

Executive Summary

  • Solid quarter with adjusted EPS of $1.08 and GAAP EPS of $1.14; management expects to be at or above the high-end of FY23 adjusted EPS guidance ($4.30–$4.60) and updated FY23 GAAP EPS guidance to $4.44–$4.74 .
  • Strategic outlook strengthened: management plans a 10%–20% increase to the current five‑year $40B capital plan, anchored by regulated utilities and primarily driven by Oncor in Texas .
  • Texas legislative/regulatory tailwinds (HB 2555 resiliency mechanism; SB 1015 second DCRF) expected to reduce regulatory lag; Oncor’s second annual DCRF could add ~$70–$90M to earnings at full run‑rate (2024), supporting higher capex deployment .
  • LNG pipeline advancing: Port Arthur Phase 2 received FERC approval; Cameron Phase 2 moving through value engineering with a 2024 FID target; e‑natural gas MOU and hydrogen hubs (CA and Gulf Coast) add optionality to the low‑carbon portfolio .

What Went Well and What Went Wrong

  • What Went Well

    • “Expecting 10% to 20% increase above current five-year $40 billion capital plan,” with increases primarily anchored by regulated utilities, particularly Oncor; positions Sempra for sustained rate base growth .
    • LNG milestones: Port Arthur LNG Phase 2 received FERC approval; commercial momentum building; Phase 1 construction on schedule; 2024 FID target for Cameron Phase 2 after cost optimization with Bechtel .
    • California cost of capital mechanism triggered; management expects ~70 bps ROE increase at SDG&E and SoCalGas from Jan 1, 2024, subject to CPUC approval, supporting earnings power into 2024 .

  • What Went Wrong

    • Consolidated revenues fell 7.8% YoY in Q3 ($3.334B vs $3.617B) on lower utility energy costs and electric revenues; however, EPS grew YoY on stronger equity earnings and lower commodity-derivative volatility .
    • Segment revenue at Sempra Infrastructure declined YoY ($629M vs $697M) while Q3 segment earnings rose, highlighting ongoing mix and timing effects (tariffs/interest capitalization vs optimization revenues) .
    • Parent & Other losses widened YoY ($-97M vs $-74M), reflecting higher interest expense, partially offset by tax benefits, modestly tempering consolidated operating leverage .

Financial Results

Overall P&L and margins (oldest → newest):

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Total Revenues ($MM)$3,617 $6,560 $3,335 $3,334
GAAP EPS (diluted)$0.77 $3.07 $1.91 $1.14
Adjusted EPS (diluted)$0.98 $2.92 $1.88 $1.08
EBIT / “Income before interest and tax” ($MM)$429 $1,671 $823 $616
EBIT Margin % (EBIT/Revenue)11.9% (calc from /)25.5% (calc from /)24.7% (calc from /)18.5% (calc from /)
Net Income to Common ($MM)$485 $969 $603 $721
Net Income Margin %13.4% (calc from )14.8% (calc from )18.1% (calc from )21.6% (calc from )

Context: Q3 revenue -7.8% YoY; GAAP EPS +48% YoY (to $1.14); Adjusted EPS +10% YoY (to $1.08). Sequentially, revenue was flat vs Q2; EBIT margin normalized from unusually strong Q2/Q1 levels; net margin improved YoY on equity earnings and lower derivative headwinds .

Segment earnings attributable to common shares ($MM):

SegmentQ3 2022Q3 2023
SDG&E$271 $274
SoCalGas-$82 $16
Sempra Texas Utilities$256 $305
Sempra Infrastructure$114 $223
Parent and other-$74 -$97
Total$485 $721

Operational KPIs (utilities) (older → newer):

KPIQ3 2022Q3 2023
Oncor total deliveries (MM kWh)44,040 47,736
Oncor electric customer meters (000s)3,881 3,953
SDG&E total electric deliveries (MM kWh)5,227 4,547
SDG&E electric customer meters (000s)1,502 1,515
SDG&E+SoCalGas total gas deliveries (Bcf)233 220

Notes: Oncor deliveries +8.4% YoY; SDG&E deliveries down YoY amid mix/CCA dynamics; gas deliveries down modestly YoY .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP EPSFY 2023$8.78–$9.38 (pre‑split; to be updated post-split) $4.44–$4.74 (post‑split) Range refined for split; mid-point modestly higher vs implied split-adjusted
Adjusted EPSFY 2023$8.60–$9.20 (pre‑split) $4.30–$4.60; expect at or above high‑end Range maintained; outlook effectively raised vs positioning
EPSFY 2024$9.10–$9.80 (pre‑split) $4.55–$4.90 (post‑split), affirmed Affirmed
LT EPS GrowthMulti‑year6%–8% 6%–8%, affirmed No change
Capex Plan5‑yr$40B (announced in Q1) Expect +10%–20% vs $40B at next update Positive outlook
CA Cost of Capital2024N/AROE +~70 bps expected from Jan 1, 2024 (pending CPUC) Positive regulatory
TX DCRF2024N/ASecond annual DCRF adds ~$70–$90M annual earnings at full run‑rate Positive regulatory
Dividend/Other2023Two‑for‑one stock split declared Aug 21, 2023 Completed; per‑share metrics updated in Q3 Completed action

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Capex growthQ1 launched $40B plan; Oncor rate base growth, TX demand story Plan to lift $40B by 10%–20%, driven by Oncor Up
Texas regulation (HB 2555, SB 1015)Q2 outlined reduced lag, 2x annual DCRF, resiliency mechanism; ~$70–$90M DCRF benefit Filing SRP in Q1’24; 180‑day approval; DCRF benefit full‑year 2024 Positive
California GRC/ROEQ2: constructive GRC; PD in 2Q24; CAISO T‑projects awarded/competitive bids CCM triggered; +~70 bps ROE from 1/1/24 expected; GRC PD still 2Q24 Positive
LNG strategy (PA1/PA2, Cameron 2)Q2: PA1 construction; PA2 FERC anticipated; Cameron 2 value engineering; 2024 FID contemplated PA2 FERC approval obtained; 2024 FID targets reiterated; commercial momentum continues Advancing
Hydrogen/e‑natural gasLimited in Q1/Q2CA “ARCHES” hub up to $1.2B (SoCalGas partner); HyVelocity Gulf Coast hub up to $1.2B; e‑natural gas MOU with Japanese consortium Emerging tailwind
Resiliency/operationsQ2: TX heat/storms managed; SDG&E #1 reliability in West; storage additions Oncor reliability: avg outage duration improved 9% LTM; SDG&E seeking additional 160 MW storage Operational strength
Financing planQ2: flexible capital stack; potential equity as needed Considering all options incl. common equity to fund capex uplift Watch leverage/equity needs

Management Commentary

  • “We’re expecting to be at or above the high end of our 2023 adjusted EPS guidance range, and we’re affirming our 2024 EPS guidance range and projected long‑term EPS growth rate of 6% to 8%.” — Jeff Martin, CEO .
  • “We expect to increase our $40 billion capital plan by 10% to 20% when we update our 5‑year plan on our fourth quarter call… anchored by regulated utility investments and primarily driven by Oncor.” — Jeff Martin, CEO .
  • “We expect the addition of the second DCRF filing to improve Oncor’s earnings by approximately $70 million to $90 million annually.” — Allen Nye, Oncor CEO .
  • “Applications [in CA] are expected to increase ROEs by approximately 70 basis points beginning January 1, 2024.” — Trevor Mihalik, CFO .
  • “Port Arthur LNG Phase 2… received FERC approval… Marketing… continues to build momentum… We expect [Cameron Phase 2] to position us well to make a final investment decision in 2024.” — Justin Bird, SI CEO .

Q&A Highlights

  • Funding the 10%–20% capex uplift: management will use all levers and include common equity if efficient; specifics to be detailed with the plan update .
  • Texas earnings uplift timing: second DCRF filing in September; bulk benefit flows in 2024; ~$70–$90M annual run‑rate .
  • California ROE: CCM triggered; advice letters filed; management anticipates commission support of the adjustment mechanism; 2024 guidance range already accommodates outcomes .
  • LNG cadence: PA2 FERC approval in hand; Cameron 2 targeting 2024 FID post value‑engineering and commercial arrangements; both projects advancing .
  • Segment reporting: considering combining SDG&E and SoCalGas into “Sempra California” for segment reporting (accounting re‑segmentation, not legal restructuring) .

Estimates Context

  • Wall Street (S&P Global) consensus for Q3 2023 EPS and revenue was unavailable at time of analysis due to SPGI daily request limits; therefore, we cannot provide “vs. estimates” comparisons for this quarter. Values were unavailable from S&P Global.
  • Management guided to “at or above” the high‑end of FY23 adjusted EPS guidance, implying a positive variance to prior expectations even without explicit Street comparisons .

Key Takeaways for Investors

  • Near‑term beat/raise dynamic on guidance: updated FY23 GAAP EPS range and “at or above” high‑end positioning on adjusted EPS reduce downside risk into year‑end .
  • Texas remains the growth engine: regulatory upgrades (HB 2555, SB 1015) reduce lag and support higher capex deployment; Oncor’s growth across data centers, manufacturing and Permian electrification underpins multi‑year rate base expansion .
  • 5‑year capex upgrade is the main 2024–2025 catalyst: a 10%–20% uplift to the $40B plan (to be detailed on Q4 call) is likely to drive upward estimate revisions to rate base, EPS and dividend capacity over time .
  • LNG optionality intact: PA2 FERC approval and Cameron 2 2024 FID target provide multi‑year EBITDA growth visibility; hydrogen hubs/e‑natural gas broaden low‑carbon adjacency .
  • California ROE uplift (~70 bps) and constructive GRC trajectory offer 2024 EPS support; retroactive rates expected in 2024 post‑PD .
  • Watch financing mix: management indicates openness to common equity to fund higher regulated capex; track capex plan details and equity cadence at year‑end/Q4 call .
  • Operational execution remains strong: reliability metrics improved at Oncor; SDG&E progressing storage and transmission to enable decarbonization .