Yahoo Finance WEC Energy Group, Inc. (NYSE:WEC) Q1 2024 Earnings Call Transcript
WEC Energy Group, Inc. (NYSE:WEC) Q1 2024 Earnings Call Transcript May 1, 2024
WEC Energy Group, Inc. beats earnings expectations. Reported EPS is $1.97, expectations were $1.91. WEC Energy Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good afternoon, and welcome to WEC Energy Group's Conference Call for First Quarter 2024 Results. This call is being recorded for rebroadcast. And all participants are in a listen-only mode at this time. After the presentation, the conference will be open to analysts for questions and answers. In conjunction with this call, a package of detailed financial information is posted at wecenergygroup.com. A replay will be available approximately two hours after the conclusion of this call. Before the conference call begins, please note that all statements in the presentation, other than historical facts are forward-looking statements that involve risks and uncertainties that are subject to change at any time.
Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to in connection with the statements, factors described in WEC Energy Group's latest Form 10-K and subsequent reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those contemplated. During the discussions, referenced earnings per share will be based on diluted earnings per share, unless otherwise noted. And now it is my pleasure to introduce Gale Klappa, Executive Chairman of WEC Energy Group.
Gale Klappa: Live from the Heartland. Good afternoon, everyone. Thank you for joining us today as we review our results for the first quarter of 2024. First, I'd like to introduce the members of our management team who are here with me today. We have Scott Lauber, our President and Chief Executive; Xia Liu, our Chief Financial Officer; and Beth Straka, Senior Vice President of Corporate Communications and Investor Relations. Now as you saw from our news release this morning, we reported first quarter 2024 earnings of $1.97 a share. Throughout the warmest winter in Wisconsin history, we remain laser-focused on financial discipline, operating efficiency and customer satisfaction and we're confident that we can deliver another year of strong results in line with our guidance for 2024.
As a reminder, we're guiding to a range of $4.80 to $4.90 a share for the full year. This, of course, assumes normal weather as always going forward. Switching gears now. We're off to a strong start moving forward with our ESG progress plan. It's the largest five-year investment plan in our history, totaling $23.7 billion for efficiency, sustainability and growth. As we've discussed, the plan is based on projects that are low risk and highly executable. In the past few weeks alone, we filed with the Wisconsin Commission more than $2 billion of projects that are needed to meet customer demand across the region. In addition, just a few days ago, we announced that we plan to purchase a 90% ownership interest in the Delilah I Solar Energy. Delilah is a 300-megawatt solar park in Northeast Texas.
It will be the next addition to our WEC Infrastructure segment. We expect to close on Delilah with an investment of $459 million when the project goes into service, and that's currently expected by the end of June. Since the beginning of the year, we also purchased an additional 10% interest in the Samson Solar project, now that's part of the Samson & Delilah development in Northeast Texas. And we plan to increase our ownership in the Maple Flats Solar Energy Center from 80% to 90%. And just as a reminder, Maple Flats is under development in South Central Illinois. It has an off-take agreement with a Fortune 100 company for all the energy it will produce. The project should be in service by the end of this year. So to sum it up, with Delilah and with the increase in ownership of Samson and Maple Flats, we'll be investing an additional $560 million this year in our Infrastructure segment.
As you recall, we're reallocating away from our operations in Illinois, a total of $800 million over the five-year period 2024 through 2028. These high-quality, zero carbon projects clearly go a long way toward achieving that goal. And each of these projects meets our strict financial criteria. Overall, the building blocks of our capital plan show even stronger growth in our regulated electric business. And our plan fully supports our long-term earnings growth rate, which we project to be in the 6.5% to 7% range on a compound average annual basis. And now turning to the regional economy. The unemployment rate in Wisconsin stands at 3%, continuing a long-running trend below the national average. In fact, Wisconsin recently reached a new record for employment, more people working than at any other time in state history and that includes a record folks for the number of construction jobs.
That's a great sign of the growth and the potential we're seeing, particularly in what we call the I-94 corridor. To give you just one example of the new economic activity in the region. Just a few weeks ago, electronic components that are used in fiber broadband networks began rolling off the assembly line at a state-of-the-art facility developed by Sanmina Corporation. These components help form the backbone for high-speed Internet service. And we want to welcome Eli Lilly to our neighborhood. The pharmaceutical giant is purchasing a new production facility, again, in the I-94 corridor. And speaking of growth, Microsoft is moving full speed ahead on the construction of a massive data center complex in the I-94 corridor south of Milwaukee.
In fact, in the next few weeks, Microsoft is planning an event here in the Milwaukee area to discuss its plans for new investments in Wisconsin. So stay tuned. And looking broadly across the landscape, I can tell you that the number of prospects looking at expanding or locating in the Milwaukee 7 region is stronger literally than at any time in the past two decades. And with that, I'll turn the call over to Scott for more specifics on our regulatory calendar, our capital plan and our operational highlights. Scott, all yours.
Scott Lauber: Thank you, Gale. I'd like to start with some updates on the regulatory front. In Wisconsin, we filed new rate reviews for test years 2025 and 2026 on April 12th. Our request focus on addressing three major areas of need. First, improving reliability and reducing outages from increased storm activity; second, supporting Wisconsin's economic growth and job creation through investments in new generation and distribution projects; and lastly, complying with the new EPA mission rules by continuing the transition from coal generation to renewables and natural gas. We expect the decision by the end of the year with new rates effective January 1, 2025. Last month, we submitted filings to the Wisconsin Commission for significant developments to support our electric generation business.
Our proposed projects include two new sources of natural gas generation. The first request is for approval to construct 1,100 megawatts of modern simple cycle [ph] combustion turbines at our existing Oak Creek power plant site. The expected investment is $1.2 billion. To support that generation, we are proposing to build a 33-mile lateral with an expected investment of approximately $180 million. This lateral would provide firm reliability of natural gas to the Oak Creek site for those units as well as our Power the Future units that we're converting to natural gas. And to help to share reliability, we are proposing a new storage facility at Oak Creek, with a planned investment of approximately $460 million. This facility would have the capacity to store 2 billion cubic feet a liquefied natural gas to support both our generation and our gas distribution system.
In addition, we requested approval to add 128 megawatts of state-of-the-art generation using reciprocating internal combustion engines, or as we call them, RICE units. We expect to invest approximately $280 million in that project near our Paris Generation Station. As a reminder, these investments are expected to earn AFUDC during the construction period. We also have smaller rate reviews in progress at our two Michigan utilities. Michigan Gas Utilities and Upper Michigan Energy Resources. These applications are primarily driven by our capital investments supporting reliability and safety. As you recall, our discussion last quarter on the recent developments in Illinois. There are three dockets we're actively engaged in at this time. First, the Illinois Commission granted us a limited rehearing focused on the request to restore $145 million for the safety modernization program in 2024.
This mostly relates to emergency work, work that was in progress and work driven by public entities like the City of Chicago. This limited rehearing is now underway, and we expect to receive a final commission order by June 1. The other two outstanding dockets are expected to span at least a year, and we are actively involved. One is a full review of the safety modernization program and the other is an evaluation of the future gas in Illinois. Of course, we'll keep you updated on any further developments. Now turning to our capital plan. We're making good progress on a number of regulated projects in support of affordable, reliable and clean energy. Arizona LNG storage facility is now in service, this additional 1 Bcf of storage will be necessary during the extreme weather events we see here in Wisconsin.
Also, the Wisconsin Commission has approved our purchase of 100 megawatts of additional capacity at West Riverside Energy Center. We expect to invest approximately $100 million to add this capacity to our electric business in the second quarter. At the same time, we're continuing the efforts to phase out older, less efficient coal generation. In fact, I'm happy to report that we're on track to retire Unit 5 and 6 of our Oak Creek power plant later this month. These changes support our goals to reduce greenhouse gas emissions. It's a busy and strong start to the year. Our capital plan is robust and highly executable, and we continue to focus on the fundamentals of our business. With that, I'll turn things back to Gale.
Gale Klappa: Scott, thank you very much. Now as you may recall, our Board of Directors at its January meeting raised our quarterly cash dividend by 7%. This marks, ladies and gentlemen, the 21st consecutive year that our company will reward shareholders with higher dividends. The increase is consistent with our policy of paying out 65% to 70% of our earnings in dividends and underscores our confidence in delivering a bright, sustainable future. Next up, Xia will provide us with more details on our financial results for the quarter and our guidance for Q number two. Xia?
Xia Liu : Thank you, Gale. Our 2024 first quarter earnings of $1.97 per share increased $0.36 per share compared to the first quarter of 2023. Our earnings package includes a comparison of first quarter results on Page 12. I'll walk through the significant drivers. Starting with our utility operations. Our earnings were $0.28 higher compared to the first quarter of 2023. Weather had an estimated $0.07 negative impact quarter-over-quarter. As noted earlier, this past winter was the warmest in Wisconsin history. The milder weather, along with $0.09 from higher depreciation and amortization, interest expense and day-to-day O&M expense were more than offset by the following positive variances. Timing of fuel expense was a $0.09 increase quarter-over-quarter.
Our fuel was in a positive recovery position at the end of Q1 this year, compared to an under-recovered position at the end of Q1 last year. And rate base growth contributed $0.35 to earnings quarter-over-quarter. This includes the rate increases from Wisconsin, Illinois and Michigan. One thing to note, as I mentioned on our year-end call, with the rate design changes at Peoples Gas, base revenues are even more concentrated in the first and fourth quarters when natural gas usage is the highest and this earnings shift is a significant driver for the quarter. Looking ahead, we'll see the opposite shift in Q2 and Q3. Before I turn to earnings at the Other segment, let me briefly discuss our weather normal sales. You can find our sales information on Page 9 of the earnings package.
While weather was historically mild in the quarter, our weather-normal gas and electric deliveries were both relatively flat and overall in line with our forecast. However, on the electric side, our residential and small commercial and industrial segments are currently ahead of forecast. Now at our Energy Infrastructure segment, earnings increased $0.02 in the first quarter of 2024 compared to the first quarter of 2023. Production tax credits were higher quarter-over-quarter resulting from production at our Samsung and Sapphire Sky renewable generation projects, both of which were acquired in February 2023. Finally, you'll see that earnings at our Corporate and Other segment rose $0.06, primarily driven by timing of tax. In closing, as Gale mentioned earlier, we are reaffirming our 2024 earnings guidance of $4.80 to $4.90 per share, assuming normal weather for the rest of the year.
To offset the mild first quarter weather impact, we're implementing a variety of initiatives. For example, we now expect our 2024 day-to-day O&M to be 3% to 5% higher than 2023 versus our previous expectation of 6% to 7% higher. The lion's share of the reduction is expected to come in the second half of the year. For the second quarter, we're expecting a range of $0.60 to $0.64 per share. This accounts for April weather and assumes normal weather for the rest of the quarter. As a reminder, we earned $0.92 per share in the second quarter last year. While the Q2 guidance range is lower, if you combine Q1 actual and Q2 guidance, we expect to be $0.04 to $0.08 ahead of the first quarter of 2023. With that, I'll turn it back to Gale.
Gale Klappa: Great. Thank you, Xia. And now a final note. We did some quick math this morning. In today marks the 87th time that I've had the privilege of hosting an analyst call, starting back in the day at Brand X and then continuing through the past 21 years here at WEC. Together, we've covered a lot of history and a ton of progress. I can tell you that your thoughtful questions and your thorough analysis have helped us to build and sustain a premier company on a mission that truly matters. And for that, I'm grateful. Going forward on these calls, you'll be hearing from Scott and Xia, they are ready, and it's their time to shine. And operator, we're now ready for the question-and-answer portion of the call.
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