10-QPeriod: Q1 FY2018

CENTERPOINT ENERGY INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 4, 2018For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported its first quarter 2018 results, showing a decrease in net income to $165 million ($0.38 per diluted share) from $192 million ($0.44 per diluted share) in the prior year's quarter. This decline was primarily driven by a significant decrease in marketable securities gains and a reduction in operating income across its segments, particularly Energy Services. The company also experienced an increase in losses related to its indexed debt securities (ZENS) due to the acquisition of Time Warner Inc. by AT&T and the subsequent merger with Meredith. A key development subsequent to the quarter end was the announcement of CenterPoint Energy's proposed acquisition of Vectren Corporation for approximately $6 billion in cash, aiming to close in the first quarter of 2019. This transaction is subject to regulatory approvals and shareholder consent. The company also benefited from a lower effective tax rate due to the Tax Cuts and Jobs Act of 2017, which partially offset the decline in net income.

Financial Highlights

47 data points
Beta

Revenue

$3.15B

59.7% Gross Margin

Net Income

$165.00M

5.2% Net Margin

EPS (Diluted)

$0.38

Total Assets

$22.41B

Cash & Equivalents

$257.00M

Free Cash Flow

$484.00M

Financial Statements
Beta
Revenue$3.15B
Cost of Revenue$1.27B
Gross Profit$1.88B
Operating Expenses$2.90B
Operating Income$251.00M
Net Income$165.00M
EPS (Basic)$0.38
EPS (Diluted)$0.38
Shares Outstanding (Basic)431.23M
Shares Outstanding (Diluted)434.01M

Key Highlights

  • 1Net income decreased by $27 million to $165 million in Q1 2018, with diluted EPS falling to $0.38 from $0.44 in Q1 2017.
  • 2Total revenues increased to $3.16 billion from $2.74 billion, driven by higher utility and non-utility revenues.
  • 3Operating income decreased by $40 million to $251 million, with notable declines in the Energy Services and Natural Gas Distribution segments.
  • 4The company announced a significant $6 billion merger agreement to acquire Vectren Corporation, subject to regulatory and shareholder approvals.
  • 5CenterPoint Energy benefited from a lower effective tax rate of 22% in Q1 2018 compared to 36% in Q1 2017, largely due to the Tax Cuts and Jobs Act of 2017.
  • 6Capital expenditures increased to $362 million in Q1 2018 from $312 million in Q1 2017, indicating continued investment in infrastructure.
  • 7The company's investment in Enable Midstream Partners contributed $69 million in equity earnings, a slight decrease from $72 million in the prior year.

Frequently Asked Questions

The decrease in net income was primarily due to a $43 million decrease in gains on marketable securities, a $40 million decrease in operating income, and an $8 million increase in losses on indexed debt securities related to ZENS. These factors were partially offset by a significant $60 million decrease in income tax expense due to the Tax Cuts and Jobs Act of 2017 and lower net income.

CenterPoint Energy entered into an agreement to acquire Vectren for approximately $6 billion in cash. Vectren will become a wholly-owned subsidiary. Each share of Vectren common stock will be converted into $72.00 in cash. The transaction is expected to close in the first quarter of 2019 and is subject to regulatory approvals and Vectren shareholder approval.

The Tax Cuts and Jobs Act of 2017 significantly reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. This resulted in a lower effective tax rate for CenterPoint Energy in the first quarter of 2018 (22%) compared to the same period in 2017 (36%), which partially offset the decrease in net income.

CenterPoint Energy accounts for its investment in Enable Midstream Partners using the equity method. In the first quarter of 2018, equity earnings from Enable were $69 million, a slight decrease from $72 million in the prior year. The company continues to evaluate strategic alternatives for its investment in Enable, including potential sales of common units.