10-QPeriod: Q3 FY2017

CENTERPOINT ENERGY INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 3, 2017For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported mixed financial results for the nine months ended September 30, 2017, compared to the same period in 2016. While net income saw a significant increase of $165 million to $496 million, this was largely driven by a substantial reduction in losses from indexed debt securities related to ZENS, and an increase in equity earnings from their investment in Enable. Operating income, however, showed a more modest increase of $60 million to $776 million, with segment performance varying. The company's Electric Transmission & Distribution segment saw a slight decrease in operating income due to lower usage and equity returns, partially offset by rate increases and customer growth. The Natural Gas Distribution segment experienced an increase in operating income driven by rate relief and customer growth, despite higher expenses. The Energy Services segment showed a dramatic improvement, primarily due to mark-to-market accounting for derivatives. Looking ahead, CenterPoint Energy anticipates significant capital expenditures for infrastructure, and expects its existing credit facilities and operational cash flows to cover its needs for the remainder of 2017. However, investors should note the ongoing risks outlined in the "Risk Factors" section, including regulatory changes, commodity price volatility, and the potential impact of Hurricane Harvey, which caused significant damage to the company's infrastructure.

Financial Highlights

47 data points
Beta

Revenue

$2.10B

60.3% Gross Margin

Net Income

$169.00M

8.1% Net Margin

EPS (Diluted)

$0.39

Total Assets

$22.14B

Cash & Equivalents

$201.00M

Free Cash Flow

$351.00M

Financial Statements
Beta
Revenue$2.10B
Cost of Revenue$832.00M
Gross Profit$1.27B
Operating Expenses$1.80B
Operating Income$297.00M
Net Income$169.00M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)431.03M
Shares Outstanding (Diluted)434.09M

Key Highlights

  • 1Net income increased by $165 million to $496 million for the nine months ended September 30, 2017, primarily due to a significant decrease in losses on indexed debt securities (ZENS).
  • 2Operating income increased by $60 million to $776 million for the nine months ended September 30, 2017, reflecting varied performance across business segments.
  • 3The Energy Services segment saw a significant improvement in operating income due to favorable mark-to-market accounting for derivatives and the impact of the AEM acquisition.
  • 4Hurricane Harvey caused an estimated $110 million to $120 million in restoration costs for Houston Electric and $25 million to $30 million for CERC Corp.'s NGD, with a portion covered by insurance.
  • 5Capital expenditures for the remainder of 2017 are expected to be approximately $473 million, primarily for infrastructure maintenance and expansion.
  • 6CenterPoint Energy's total long-term debt increased slightly to $7.53 billion as of September 30, 2017, from $7.53 billion at the end of 2016.
  • 7The company's investment in Enable Midstream Partners, LP remains significant, contributing $199 million in equity earnings for the nine-month period.

Frequently Asked Questions

Hurricane Harvey caused significant damage to Houston Electric and CERC Corp.'s NGD. Houston Electric estimates restoration costs between $110-$120 million, with about $35 million covered by insurance. CERC Corp. estimates restoration costs between $25-$30 million, with about $17 million covered by insurance. The uninsured costs are being deferred and are expected to be recovered through rate adjustments, thus management believes these costs should not materially affect net income for 2017.

The ZENS (Zero-Premium Exchangeable Subordinated Notes) and associated indexed debt securities have a notable impact. For the nine months ended September 30, 2017, the company reported a significant decrease in losses related to these securities, contributing positively to net income. However, the fair value of the derivative component of the ZENS obligation is sensitive to interest rate changes, and potential tax liabilities related to the ZENS and associated securities could be substantial if exchanged or sold.

CenterPoint Energy maintains revolving credit facilities and utilizes commercial paper for liquidity. For the nine months ended September 30, 2017, net cash used in financing activities decreased significantly compared to the prior year due to increased proceeds from long-term debt and decreased debt repayments. The company expects its current liquidity sources to be sufficient for its near-term obligations, including capital expenditures and debt maturities.

The Electric Transmission & Distribution segment saw a slight decrease in operating income due to lower usage and equity returns, offset by rate increases and customer growth. Natural Gas Distribution's operating income increased due to rate relief and customer growth, despite higher expenses. The Energy Services segment showed a substantial improvement, driven by mark-to-market accounting and the acquisition of AEM. Midstream Investments' performance is tied to its investment in Enable, which continued to generate significant equity earnings.