CMS Energy (CMS) Q1 2025 Earnings Call April 24, 2025 06:40 PM ET Company Participants Jason Shore - Treasurer & VP of Investor RelationsGarrick Rochow - President and CEORejji Hayes - EVP & CFODurgesh Chopra - Managing DirectorConstantine Lednev - Vice President - Equity ResearchMichael Sullivan - Director - Equity ResearchAndrew Weisel - Director Conference Call Participants Jeremy Tonet - ED - Equity Research AnalystJulien Dumoulin-Smith - Research AnalystNone - AnalystTravis Miller - AnalystGregg Orrill ...

Financial Data and Key Metrics Changes - In Q1 2025, the company reported adjusted earnings per share (EPS) of $1.02, a favorable comparison to the same period in 2024, largely due to normal winter weather and higher rate relief [28][30][31] - The full-year guidance for EPS remains at $3.54 to $3.60, with a long-term growth target of 6% to 8% [28][30] Business Line Data and Key Metrics Changes - The absence of mild weather in Q1 2024 contributed to a favorable variance of $0.26 per share, while rate relief net of investment-related expenses added $0.07 per share [30][31] - Increased operational and maintenance (O&M) costs were noted, driven by the electric reliability roadmap and storm-related expenses, which are expected to impact future financials [34][35] Market Data and Key Metrics Changes - The company has seen a significant increase in its data center pipeline, which now comprises 65% of its nine-gigawatt total, attributed to the elimination of sales and use taxes for data centers [25][27][43][144] - The company is actively monitoring economic conditions and has a diversified service territory with minimal exposure to the auto industry, which is only about 2% of total gross margin [17][21] Company Strategy and Development Direction - The company is focused on conservative planning and disciplined execution, with a commitment to improving electric reliability and expanding its service capabilities [7][12] - Future filings include a renewable energy plan (REP) expected by mid-September and an integrated resource plan (IRP) to be filed next year, which will define the company's clean energy future [16][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating economic uncertainties, citing a strong track record of delivering results under various conditions [17][41] - The company is prepared to adjust its strategies based on evolving market conditions and regulatory environments, particularly in light of the Inflation Reduction Act [19][21] Other Important Information - The company has filed for a deferred accounting order related to storm costs, which is a historic filing for the company [35][61] - Fitch reaffirmed the company's credit ratings, and the company is working with Moody's on a review process [38] Q&A Session Summary Question: What percentage of capital is going towards solar storage at NorthStar? - Management indicated that solar storage represents a small portion, with NorthStar contributing about 5% to EPS, and no capital is currently allocated to storage projects [45][47][49] Question: What is the status of the deferred accounting order for storm costs? - Management clarified that they have not presupposed approval for the deferred accounting order and are awaiting a timeline from the commission [58][60][66] Question: How is the financing plan progressing? - The company has completed a significant portion of its financing needs through hybrid notes and is exploring additional financing options for the remainder of the year [72][74] Question: What is the outlook for the gas rate case? - Management expressed optimism about the gas rate case, highlighting a constructive starting position and the importance of replacing gas pipes for safety and capacity [93][96] Question: How does the company view the risk of losing transferability of tax credits? - Management remains optimistic about maintaining tax credits and transferability, citing ongoing discussions with legislators [127][129]

Core Viewpoint - CMS Energy Corporation reported mixed financial results for the first quarter of 2025, with earnings per share (EPS) slightly missing estimates but revenues exceeding expectations, indicating a strong operational performance despite rising expenses [1][2]. Financial Performance - EPS for Q1 2025 was $1.02, missing the Zacks Consensus Estimate of $1.05 by 2.9%, but increased by 5.2% from $0.97 in the prior-year quarter [1]. - Operating revenues reached $2.45 billion, surpassing the Zacks Consensus Estimate of $2.24 billion by 8.9%, and increased by 12.5% from $2.18 billion in the same quarter last year [1]. - Operating expenses totaled $1.95 billion, up 10.7% from the previous year [2]. - Net income was $295 million, higher than $263 million in the prior-year quarter, but below the projected $329.2 million [2]. Financial Condition - Cash and cash equivalents stood at $465 million as of March 31, 2025, compared to $103 million as of December 31, 2024 [3]. - Total debt and financial leases (excluding securitization debt) were $16.31 billion, up from $15.87 billion as of December 31, 2024 [3]. - Net cash flow from operating activities was $1 billion in Q1 2025, compared to $0.96 billion in the prior-year quarter [3]. Guidance - CMS reaffirmed its 2025 adjusted EPS guidance in the range of $3.54-$3.60, with the Zacks Consensus Estimate currently at $3.59 per share [4]. - The company also reaffirmed its long-term adjusted EPS growth target of 6-8% [4]. Industry Context - NextEra Energy reported adjusted earnings of 99 cents per share, beating estimates, but its operating revenues of $6.24 billion fell short of expectations [6]. - FirstEnergy reported operating earnings of 67 cents per share, exceeding estimates, with operating revenues of $3.77 billion surpassing consensus [7]. - Entergy is scheduled to report its Q1 2025 results on April 29, with consensus estimates indicating a 7.6% improvement in sales year-over-year [9].

Group 1 - CMS Energy reported $2.45 billion in revenue for Q1 2025, a year-over-year increase of 12.5% [1] - The EPS for the same period was $1.02, compared to $0.97 a year ago, with a consensus EPS estimate of $1.05, resulting in an EPS surprise of -2.86% [1] - The reported revenue exceeded the Zacks Consensus Estimate of $2.24 billion by 9.04% [1] Group 2 - Key metrics indicate that CMS Energy's shares returned +0.3% over the past month, while the Zacks S&P 500 composite declined by -5.1% [3] - CMS Energy holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3] Group 3 - NorthStar Clean Energy's operating revenue was $99 million, surpassing the three-analyst average estimate of $72.24 million, reflecting a year-over-year change of +25.3% [4] - Consumers Energy (Electric+Gas) reported operating revenue of $2.35 billion, exceeding the three-analyst average estimate of $2.17 billion [4] - The Gas utility segment generated $1.05 billion in operating revenue, above the two-analyst average estimate of $1.01 billion, marking a year-over-year change of +8.7% [4] - The Electric utility segment reported $1.30 billion in operating revenue, compared to the estimated $1.17 billion, representing a +14.8% change year-over-year [4]

Financial Performance - CMS Energy reported earnings per share of $1.01 for Q1 2025, up from $0.96 in Q1 2024, with adjusted EPS at $1.02 compared to $0.97 in the previous year[1][2][12]. - The company reaffirmed its 2025 adjusted EPS guidance of $3.54 to $3.60, with long-term adjusted EPS growth projected at 6% to 8%[2][3]. - Operating revenue for Q1 2025 was $2.447 billion, an increase from $2.176 billion in Q1 2024, while operating income rose to $494 million from $412 million[12]. - Net income attributable to CMS Energy was $304 million for Q1 2025, compared to $287 million in Q1 2024, reflecting a year-over-year increase[12]. - The company reported net cash provided by operating activities of $1 billion for Q1 2025, compared to $956 million in Q1 2024[17]. Balance Sheet - Cash and cash equivalents increased to $465 million as of March 31, 2025, up from $103 million at the end of 2024[14]. - CMS Energy's total assets as of March 31, 2025, were $36.295 billion, an increase from $35.920 billion at the end of 2024[14]. - Current liabilities decreased to $1.920 billion as of March 31, 2025, down from $2.261 billion at the end of 2024[14]. Operational Goals - The company emphasized continued progress on customer investment projects in its electric and gas systems, supporting its operational and financial goals for 2025[3]. - Management views adjusted earnings as a key measure of the company's operating financial performance, using it for external communications with analysts and investors[20].

Core Insights - CMS Energy reported earnings per share of $1.01 for Q1 2025, an increase from $0.96 in Q1 2024, with adjusted earnings per share at $1.02 compared to $0.97 in the previous year [1][2][8] - The company reaffirmed its 2025 adjusted earnings guidance of $3.54 to $3.60 per share, with a long-term adjusted EPS growth target of 6 to 8 percent [2][3] - The CEO highlighted operational and financial progress, supported by a favorable electric rate case outcome and ongoing investments in electric and gas systems [3] Financial Performance - Operating revenue for Q1 2025 was $2.447 billion, up from $2.176 billion in Q1 2024 [7] - Operating expenses increased to $1.953 billion from $1.764 billion, resulting in operating income of $494 million, compared to $412 million in the prior year [8] - Net income attributable to CMS Energy was $304 million, up from $287 million, with diluted earnings per share at $1.01 compared to $0.96 [8][13] Cash Flow and Balance Sheet - Cash and cash equivalents increased to $465 million as of March 31, 2025, from $103 million at the end of 2024 [9] - Total assets rose to $36.295 billion from $35.920 billion, while total liabilities and equity also increased to $36.295 billion [9][10] - Net cash provided by operating activities was $1 billion, compared to $956 million in the previous year, while net cash used in investing activities rose to $918 million from $637 million [12]

Core Viewpoint - CMS Energy Corp. is expected to report its first-quarter 2025 results on April 24, with a focus on various factors influencing its performance, including weather conditions and revenue expectations [1][6]. Group 1: Weather Impact - The service areas of CMS experienced below-normal temperatures and moderate-to-heavy snowfall in the first two months of the quarter, likely increasing electricity demand for heating [2]. - However, above-normal temperatures in March may have reduced electricity demand, potentially moderating the overall revenue impact for the January-March 2025 quarter [3]. Group 2: Revenue and Earnings Expectations - The Zacks Consensus Estimate for CMS's sales is $2.29 billion, indicating a year-over-year growth of 5.4% [6]. - The consensus estimate for earnings is $1.11 per share, reflecting a year-over-year increase of 14.4% [6]. - Recent favorable rate hikes and cost reduction initiatives are expected to positively influence overall revenues and earnings [4]. Group 3: Operational Challenges - Severe weather conditions, such as an ice storm, may have caused infrastructure damage, leading to increased service restoration expenses that could negatively impact the bottom line [5]. Group 4: Earnings Prediction Model - The current model does not predict a definitive earnings beat for CMS, with an Earnings ESP of -5.75% and a Zacks Rank of 2 (Buy) [7][8].

Core Viewpoint - Wall Street anticipates a year-over-year increase in earnings for CMS Energy, driven by higher revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - CMS Energy is expected to report quarterly earnings of $1.11 per share, reflecting a year-over-year increase of +14.4% [3]. - Revenues are projected to be $2.29 billion, which is a 5.4% increase from the previous year [3]. Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating a stable outlook from analysts [4]. - The Most Accurate Estimate for CMS Energy is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -5.75%, suggesting a bearish sentiment among analysts [10][11]. Earnings Surprise Prediction - The Zacks Earnings ESP model indicates that a positive or negative reading can predict deviations from consensus estimates, with a strong predictive power for positive readings [7][8]. - CMS Energy's current Zacks Rank is 2, which complicates the prediction of an earnings beat despite the negative Earnings ESP [11]. Historical Performance - CMS Energy has consistently beaten consensus EPS estimates over the last four quarters, with a recent surprise of +1.16% when it reported earnings of $0.87 per share against an expectation of $0.86 [12][13]. Industry Comparison - FirstEnergy, another player in the electric power industry, is expected to report earnings of $0.59 per share, showing a year-over-year change of +7.3% [17]. - FirstEnergy's Earnings ESP is 0.85%, but its Zacks Rank of 4 (Sell) makes it difficult to predict an earnings beat [18].

Core Viewpoint - CMS Energy Corporation (CMS) presents a strong investment opportunity in the Zacks Utility Electric Power industry due to rising earnings estimates, strategic investments, robust return on equity (ROE), better solvency, and a strong dividend history [1] Growth Projections & Surprise History - The Zacks Consensus Estimate for CMS Energy's 2025 earnings per share (EPS) has increased by 0.3% to $3.60 per share over the past 60 days - The revenue estimate for CMS in 2025 is $8.07 billion, indicating a growth of 7.4% from the reported figure in 2024 - The company's long-term earnings growth rate is projected at 7.7%, with an average earnings surprise of 4.76% over the last four quarters [2] Return on Equity - CMS has a return on equity (ROE) of 12.02%, outperforming the industry average of 9.77%, indicating more efficient utilization of funds to generate returns [3] Solvency - The times interest earned (TIE) ratio for CMS Energy at the end of Q4 2024 was 2.5, suggesting the company can comfortably meet its interest payment obligations in the near term [4] Dividend History - CMS Energy has a quarterly dividend of 54.25 cents per share, leading to an annualized dividend of $2.17, with a current dividend yield of 3.02%, surpassing the Zacks S&P 500 Composite average of 1.38% [5] Systematic Investments - CMS plans to invest $20 billion in infrastructure upgrades and clean energy generation from 2025 to 2029, with $14.8 billion allocated to enhance gas infrastructure and electric distribution systems, improve customer satisfaction, minimize energy waste, and support clean energy transformation [6] Stock Price Performance - Over the past three months, CMS shares have increased by 7.8%, compared to the industry's growth of 4% [7]

Market Overview - Wall Street is anticipating a challenging start to the week, with fears of a repeat of the 1987 Black Monday, which saw a 22.6% market plunge [5][6] - Major indexes, including Dow, S&P 500, and Nasdaq, are expected to open 6% lower, potentially making last week's $6.6 trillion losses appear minor [6] Economic Impact - President Trump's recent tariffs have caused global market turmoil, leading to uncertainty among investors regarding future market reactions [6][7] - Trump stated he would not engage in trade deals until trade deficits are addressed, which may prolong market distress until clarity on the tariffs' economic impact is achieved [7] Investment Recommendations - In light of the current market conditions, investing in safe-haven stocks, particularly in the utilities sector, is advised [3][4] - Recommended utility stocks include: - **Avista Corporation (AVA)**: Expected earnings growth rate of 14%, Zacks Rank 1, beta of 0.38, and a dividend yield of 4.81% [9] - **CMS Energy Corporation (CMS)**: Expected earnings growth rate of 7.8%, Zacks Rank 2, beta of 0.34, and a dividend yield of 2.99% [11] - **Exelon Corporation (EXC)**: Expected earnings growth rate of 6.4%, Zacks Rank 2, beta of 0.39, and a dividend yield of 3.53% [13] - **Southwest Gas Holdings, Inc. (SWX)**: Expected earnings growth rate of 17.1%, Zacks Rank 2, beta of 0.50, and a dividend yield of 3.60% [15]