10-QPeriod: Q3 FY2018

CENTERPOINT ENERGY INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 8, 2018For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported its third-quarter 2018 results, showing a decrease in net income available to common shareholders to $153 million ($0.35 per diluted share) from $169 million ($0.39 per diluted share) in the prior year's quarter. This decline was primarily driven by a $71 million decrease in operating income across its business segments, higher interest expenses related to bridge facility fees, increased losses on indexed debt securities (ZENS), and higher preferred dividend requirements. These were partially offset by a significant decrease in income tax expense due to the Tax Cuts and Jobs Act (TCJA) and an increase in equity earnings from its investment in Enable. For the nine-month period, net income available to common shareholders also decreased significantly to $243 million ($0.56 per diluted share) from $496 million ($1.14 per diluted share), largely impacted by substantial losses on indexed debt securities related to the AT&T/TW and Meredith/Time transactions. The company continues to advance its pending merger with Vectren Corporation, with key regulatory approvals obtained, anticipating a closing in the first quarter of 2019. Financing for the merger has been secured through substantial debt and equity issuances, including Series A and Series B preferred stock and senior notes.

Financial Highlights

47 data points
Beta

Revenue

$2.21B

60.9% Gross Margin

Net Income

$158.00M

7.1% Net Margin

EPS (Diluted)

$0.35

Total Assets

$22.23B

Cash & Equivalents

$331.00M

Free Cash Flow

$586.00M

Financial Statements
Beta
Revenue$2.21B
Cost of Revenue$864.00M
Gross Profit$1.35B
Operating Expenses$1.99B
Operating Income$226.00M
Net Income$158.00M
EPS (Basic)$0.35
EPS (Diluted)$0.35
Shares Outstanding (Basic)431.55M
Shares Outstanding (Diluted)434.89M

Key Highlights

  • 1Third-quarter net income available to common shareholders was $153 million, down from $169 million in the prior year.
  • 2Diluted earnings per share for Q3 2018 were $0.35, compared to $0.39 in Q3 2017.
  • 3Nine-month net income available to common shareholders decreased to $243 million from $496 million year-over-year, significantly impacted by losses on indexed debt securities.
  • 4The company incurred substantial losses on indexed debt securities (ZENS) related to AT&T's acquisition of Time Warner and Meredith's acquisition of Time, impacting the nine-month results.
  • 5CenterPoint Energy continues to progress towards the acquisition of Vectren Corporation, with expected closing in the first quarter of 2019, having secured necessary regulatory approvals.
  • 6Significant financing activities were undertaken to support the Vectren acquisition, including the issuance of Series A and Series B preferred stock and $1.5 billion in senior notes.
  • 7The effective tax rate decreased significantly in 2018 due to the TCJA, with CenterPoint Energy's consolidated rate at 24% for Q3 and 26% for the nine-month period.

Frequently Asked Questions

In the third quarter of 2018, CenterPoint Energy reported net income available to common shareholders of $153 million, or $0.35 per diluted share, a decrease from $169 million, or $0.39 per diluted share, in the same period of 2017. This decline was mainly due to a $71 million decrease in operating income, increased interest expenses, higher losses on indexed debt securities, and increased preferred dividend requirements, partially offset by lower income tax expenses and higher equity earnings from Enable.

CenterPoint Energy is progressing with its acquisition of Vectren Corporation, valued at approximately $6 billion. Key regulatory approvals, including from FERC, have been obtained, and the company anticipates closing the merger in the first quarter of 2019. Financing for the transaction has been secured through multiple debt and equity issuances.

The TCJA significantly reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. This reduction led to a substantial decrease in CenterPoint Energy's effective tax rate for both the third quarter (24% vs. 37% in 2017) and the nine-month period (26% vs. 36% in 2017). The lower tax rate also resulted in lower income tax expense, partially offsetting other negative impacts on net income.

The company experienced significant losses on its ZENS and related securities. For the nine months ended September 30, 2018, losses on indexed debt securities totaled $257 million, primarily due to events related to the AT&T/Time Warner and Meredith/Time mergers. These losses had a material negative impact on the company's earnings available to common shareholders for the period.