10-QPeriod: Q1 FY2017

SEMPRA Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 9, 2017For Securities:SRESREA

Summary

Sempra Energy (SRE) reported strong financial performance for the first quarter of 2017, with net income increasing by 25% to $441 million, and diluted earnings per share (EPS) rising by 25% to $1.75 compared to the same period in the prior year. This growth was primarily driven by improved performance across its utility and infrastructure segments, particularly Sempra Mexico, which saw a significant earnings increase due to acquisitions and project development, and Sempra LNG & Midstream benefiting from higher natural gas marketing results and a decrease in prior year impairment charges. The California Utilities, SDG&E and SoCalGas, also showed improved earnings, partly due to retroactive rate case decisions and operational efficiencies. Despite the overall positive financial results, the company faces ongoing significant risks and contingencies. The Aliso Canyon natural gas leak at SoCalGas continues to generate substantial costs, legal actions, and regulatory scrutiny, though the company has recorded significant insurance receivables related to the incident. SDG&E is also navigating regulatory processes related to wildfire claims and the San Onofre Nuclear Generating Station (SONGS) decommissioning. Investors should monitor the resolution of these significant legal and regulatory matters, as well as the company's ongoing capital investment programs across its diverse energy infrastructure portfolio.

Financial Highlights

46 data points
Beta

Revenue

$3.03B

Net Income

$441.00M

14.5% Net Margin

EPS (Diluted)

$0.90

Total Assets

$48.28B

Cash & Equivalents

$290.00M

Free Cash Flow

$12.00M

Financial Statements
Beta
Revenue$3.03B
Interest Expense$169.00M
Net Income$441.00M
EPS (Basic)$0.90
EPS (Diluted)$0.90
Shares Outstanding (Basic)502.20M
Shares Outstanding (Diluted)504.40M

Key Highlights

  • 1Sempra Energy reported a 25% increase in net income to $441 million and a 25% increase in diluted EPS to $1.75 for Q1 2017, compared to Q1 2016.
  • 2The Sempra Mexico segment showed significant earnings growth, driven by recent acquisitions and increased pipeline operational earnings.
  • 3Sempra LNG & Midstream's earnings improved due to higher natural gas marketing results and the absence of a prior year impairment charge.
  • 4California Utilities (SDG&E and SoCalGas) experienced improved earnings, aided by retroactive rate case adjustments and operational improvements.
  • 5The company continues to manage significant liabilities and potential costs associated with the Aliso Canyon natural gas leak at SoCalGas, with substantial insurance receivables recorded.
  • 6SDG&E is progressing through regulatory reviews for wildfire claims cost recovery and addressing matters related to the SONGS nuclear facility decommissioning.
  • 7Capital expenditures remained robust, with over $990 million invested across the company in Q1 2017, primarily in transmission and distribution infrastructure and pipeline safety enhancement programs.

Frequently Asked Questions

The increase in earnings was driven by a combination of factors across Sempra Energy's segments. Key contributors included improved performance in Sempra Mexico due to acquisitions and pipeline operations, a recovery in Sempra LNG & Midstream's results (including the absence of a prior year impairment charge), and improved earnings at the California Utilities (SDG&E and SoCalGas) partly due to retroactive rate case adjustments and operational efficiencies.

Sempra Energy faces significant ongoing risks related to the Aliso Canyon natural gas leak at SoCalGas, which continues to involve substantial costs, legal proceedings, and regulatory scrutiny. Additionally, SDG&E is managing regulatory processes for wildfire claims cost recovery and matters concerning the SONGS nuclear facility decommissioning. The company also faces risks associated with its capital investment projects, regulatory changes, and market dynamics within the energy sector.

Both SDG&E and SoCalGas reported improved earnings. SDG&E's earnings increased by 14%, primarily due to retroactive rate case adjustments, higher authorized base operating margins, and reimbursement of litigation costs related to SONGS. SoCalGas' earnings increased by 2%, also benefiting from retroactive rate case adjustments, despite a charge related to tracking income tax benefits.

Sempra Energy has a significant capital investment program. For 2017, the company expects to make capital expenditures and investments of approximately $3.4 billion. These investments are primarily directed towards infrastructure improvements, pipeline safety enhancement programs (PSEP), electric vehicle charging initiatives, and energy storage projects, across its various operating segments.