01—Abstract
Summary
Summary of the 8-K filed April 25, 2024. Cited figures are marked; the original filing is the authoritative source.
FirstEnergy (FE) reported first quarter 2024 GAAP earnings of $253 milliona, or $0.44 per basic and diluted share, on revenue of $3.3 billion, compared with $0.51 per share in 1Q 2023.
Operating (non-GAAP) EPS was $0.55b, down from $0.60 a year earlier but $0.02 above the midpoint of the company's guidance. The decline was driven mainly by higher planned operating expenses and financing costs, partially offset by new base rates in Maryland, New Jersey and West Virginia, distribution and transmission rate base growth, and somewhat better weather-related demand. Special items of $0.11 per share, mainly strategic transaction charges of $0.08 tied to the FET interest sales, account for the gap between GAAP and operating results.
The company guided to second quarter 2024 operating EPS of $0.50 to $0.60c (GAAP earnings of $290 million to $345 million), reaffirmed its full-year 2024 operating EPS guidance of $2.61 to $2.81, and reaffirmed its 6% to 8% long-term annual operating EPS growth target. Management highlighted a $3.5 billion sale of a 30% interest in FirstEnergy Transmission (FET), of which $2.3 billion has closed and been deployed to reduce debt, with the remaining $1.2 billion expected later in 2024. The company also announced upgrades from Moody's (to Baa3) and S&P, which brings FE Corp. and all subsidiaries to investment grade at all three major rating agencies.
For investors, the key takeaways are a materially stronger balance sheet, a $26 billiond five-year Energize365 capital plan that management says requires no incremental equity beyond employee benefit programs, and a pipeline of pending rate cases in Pennsylvania and Ohio. Ongoing government investigations and HB 6-related litigation remain the principal risks. Earnings were not weather-normalized, and the 2024 results are heavily dependent on the timing of rate case outcomes.
02—Key points
Key Highlights
- 1Q 2024 GAAP EPS of $0.44 (vs. $0.51 in 1Q 2023); operating EPS of $0.55 (vs. $0.60), above the guidance midpoint of $0.53.
- 2Q 2024 operating EPS guidance of $0.50 to $0.60, with GAAP earnings guided to $290M to $345M.
- 2024 operating EPS guidance of $2.61 to $2.81 and the 6% to 8% long-term operating EPS growth target were both affirmed.
- Closed the FET 30% interest sale for $3.5B total; $2.3B received and deployed in March 2024 to pay down debt, with $1.2B expected later in 2024.
- Moody's upgraded FE Corp. to Baa3 (from Ba1) on March 28, 2024, and S&P upgraded it on April 23, 2024; all FE Corp. and subsidiaries now carry investment grade ratings at all three agencies.
- Energize365 five-year, $26B transmission and distribution investment plan; management expects 9% average annual rate base growth for 2024 to 2028 and no incremental equity needs beyond employee benefit programs.
- Operating expenses were $0.03 per share higher than the prior year and financing costs were $0.04 higher. Weather was $0.07 below normal, but the company's operating performance offset much of this shortfall.
03—Questions
Frequently Asked Questions
Did FirstEnergy beat or miss expectations in 1Q 2024?
Operating EPS of $0.55 came in $0.02 above the midpoint of the company's own guidance ($0.53), but was down from $0.60 in 1Q 2023. GAAP EPS of $0.44 was also lower than the $0.51 reported a year earlier, mainly because of $0.11 per share of special items, including $0.08 of strategic transaction charges.
Is the 2024 earnings guidance changing?
No. FirstEnergy affirmed its 2024 operating EPS guidance of $2.61 to $2.81 per share, based on 576 million shares outstanding, and reaffirmed its 6% to 8% long-term annual operating EPS growth target. Management noted that the timing and amount of items affecting comparability make a reconciliation of forward-looking non-GAAP measures impracticable.
What is the status of the balance sheet and the FET transaction?
The company received $2.3 billion of the $3.5 billion proceeds from selling a 30% interest in FirstEnergy Transmission, and used it for debt reduction, including the early redemption of notes and the repayment of maturing debt. The remaining $1.2 billion is expected later in 2024 and is earmarked for investment funding and liability management, depending on market conditions. The company said its credit ratings are now investment grade at all three rating agencies.
What factors are pressuring earnings, and what is supporting them?
Higher planned operating expenses and higher financing costs are the main headwinds. Support comes from new base rates in Maryland, New Jersey and West Virginia, growth in distribution and transmission rate base under formula rates, and better weather-related demand compared with 1Q 2023. Mild weather still left results $0.07 per share below normal, which operational efficiency helped offset.
What are the main risks investors should monitor?
The filing highlights ongoing government investigations and litigation related to Ohio House Bill 6, including the risk of dismissing derivative shareholder lawsuits. The company also faces the outcome of pending rate cases, including the Pennsylvania base rate case filed April 2, 2024 requesting a $502 million increase, the Ohio base rate case planned for May 2024, and the Ohio ESP V order expected by May 31, 2024. Other risks include interest rate volatility, pension funding needs, weather and climate effects, and cyber threats.
04—Continue