10-QPeriod: Q2 FY2018

CENTERPOINT ENERGY INC Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 3, 2018For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported a net loss of $75 million ($0.17 per diluted share) for the three months ended June 30, 2018, a significant decrease from a net income of $135 million ($0.31 per diluted share) in the prior year's comparable period. This decline was primarily driven by a substantial increase in losses related to indexed debt securities (ZENS) due to the AT&T acquisition of Time Warner, coupled with a decrease in operating income across segments and higher interest expenses. For the six months ended June 30, 2018, net income was $90 million ($0.21 per diluted share), down from $327 million ($0.75 per diluted share) year-over-year, also heavily impacted by ZENS losses. The company is actively pursuing a significant strategic initiative, announcing a proposed merger with Vectren Corporation in April 2018 for approximately $6 billion. This transaction, if completed in early 2019, is expected to be financed through a combination of debt and equity. Despite the net loss in the quarter, key operational segments like Electric Transmission & Distribution showed improved operating income, benefiting from rate increases and higher usage. However, Natural Gas Distribution and Energy Services segments experienced declines in operating income due to various factors including regulatory adjustments, timing impacts, and higher operating expenses. Investors should closely monitor the progress and financial implications of the Vectren merger, alongside ongoing regulatory matters and the performance of the Energy Services segment.

Financial Highlights

47 data points
Beta

Revenue

$2.19B

63.9% Gross Margin

Net Income

-$75.00M

-3.4% Net Margin

EPS (Diluted)

$-0.17

Total Assets

$22.11B

Cash & Equivalents

$366.00M

Free Cash Flow

$609.00M

Financial Statements
Beta
Revenue$2.19B
Cost of Revenue$790.00M
Gross Profit$1.40B
Operating Expenses$2.00B
Operating Income$187.00M
Net Income-$75.00M
EPS (Basic)$-0.17
EPS (Diluted)$-0.17
Shares Outstanding (Basic)431.52M
Shares Outstanding (Diluted)431.52M

Key Highlights

  • 1Reported a net loss of $75 million for Q2 2018, a significant decrease from a net income of $135 million in Q2 2017, largely due to losses on indexed debt securities (ZENS) related to the AT&T/Time Warner merger.
  • 2Announced a proposed merger with Vectren Corporation for approximately $6 billion, expected to close in Q1 2019, which will be financed by debt and equity.
  • 3Electric Transmission & Distribution segment saw a year-over-year increase in operating income to $181 million (Q2 2018) from $171 million (Q2 2017), driven by rate increases and higher usage.
  • 4Natural Gas Distribution segment's operating income decreased to $7 million in Q2 2018 from $42 million in Q2 2017, impacted by regulatory adjustments and higher labor costs.
  • 5Energy Services segment reported a slight decrease in operating income to $15 million in Q2 2018 from $16 million in Q2 2017, with a net loss of $11 million for the six-month period.
  • 6The company's effective tax rate decreased significantly due to the Tax Cuts and Jobs Act (TCJA) of 2017, with CenterPoint Energy's rate falling to 15% in Q2 2018 from 36% in Q2 2017.
  • 7Liquidity remains supported by credit facilities and cash flows from operations, with significant capital expenditures planned for infrastructure improvements.

Frequently Asked Questions

The primary driver for the decrease in net income was a substantial increase in losses related to indexed debt securities (ZENS). This was largely due to the AT&T acquisition of Time Warner, which triggered a significant loss on these securities. Additionally, operating income declined in several segments, and interest expenses increased.

CenterPoint Energy announced a definitive agreement to acquire Vectren Corporation for approximately $6 billion in cash. The transaction is expected to close in the first quarter of 2019 and is being financed through a combination of debt and equity issuances. Regulatory approvals and shareholder approval from Vectren are required. The merger is a key strategic initiative for CenterPoint Energy, aiming to expand its operations and achieve synergies.

The TCJA significantly reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. This resulted in lower income tax expense and a reduced effective tax rate for CenterPoint Energy and its subsidiaries. For example, CenterPoint Energy's effective tax rate dropped to 15% in the second quarter of 2018 from 36% in the prior year. Regulatory bodies are addressing the pass-through of these tax savings to customers through various rate adjustments.

CenterPoint Energy maintains liquidity through its credit facilities and cash flows from operations. Capital expenditures are focused on maintaining and expanding its electric and natural gas infrastructure. The company anticipates meeting its cash needs for the remainder of 2018 through operational cash flows, borrowings under credit facilities, and potential debt issuances. The Vectren merger financing plan is a significant factor in future capital resource planning.