10-QPeriod: Q2 FY2019

SEMPRA Quarterly Report for Q2 Ended Jun 30, 2019

Filed August 2, 2019For Securities:SRESREA

Summary

Sempra Energy (SRE) reported a return to profitability in the six months ending June 30, 2019, with net income of $953 million, a significant improvement from a net loss of $172 million in the same period of 2018. This turnaround was largely driven by the absence of significant impairment charges seen in the prior year, particularly at Sempra LNG & Midstream. The company also benefited from the sale of assets and improved performance across its utility segments. Key operational highlights include stable performance from its California Utilities (SDG&E and SoCalGas), with increases in revenue and earnings primarily due to regulatory rate adjustments and the impact of new accounting standards for leases. Sempra Texas Utilities showed growth, reflecting increased equity earnings from Oncor. While Sempra Mexico experienced some headwinds from foreign currency fluctuations and arbitration proceedings related to its pipeline contracts with CFE, overall financial performance remained solid. The company is actively managing its portfolio, having completed the sale of its South American businesses and wind assets. It is focused on North American growth opportunities, particularly in LNG development and infrastructure. However, investors should note the ongoing legal and regulatory proceedings, including the Aliso Canyon gas leak at SoCalGas and wildfire mitigation costs for SDG&E, which present potential financial risks and uncertainties.

Financial Highlights

48 data points
Beta

Revenue

$2.23B

Net Income

$354.00M

15.9% Net Margin

EPS (Diluted)

$0.63

Total Assets

$62.73B

Cash & Equivalents

$168.00M

Free Cash Flow

-$115.00M

Financial Statements
Beta
Revenue$2.23B
Operating Income$357.00M
Interest Expense$258.00M
Net Income$354.00M
EPS (Basic)$0.65
EPS (Diluted)$0.63
Shares Outstanding (Basic)550.00M
Shares Outstanding (Diluted)559.20M

Key Highlights

  • 1Sempra Energy returned to profitability in the first half of 2019, reporting net income of $953 million, a significant improvement from a net loss of $172 million in the comparable period of 2018.
  • 2The company benefited from the absence of large impairment charges that impacted the prior year's results, particularly at Sempra LNG & Midstream.
  • 3The California Utilities (SDG&E and SoCalGas) showed stable operating performance, with revenues and earnings bolstered by regulatory rate adjustments and the adoption of new lease accounting standards.
  • 4Sempra Texas Utilities saw increased equity earnings, driven by the acquisition of InfraREIT and improved performance at Oncor.
  • 5Sempra Energy has continued its portfolio rotation strategy, divesting its South American businesses and wind assets, with a strategic focus on North American growth opportunities.
  • 6The company is navigating significant legal and regulatory matters, including ongoing costs and potential liabilities related to the SoCalGas Aliso Canyon gas leak and wildfire mitigation efforts at SDG&E.
  • 7Total assets grew to $62.7 billion at June 30, 2019, up from $60.6 billion at December 31, 2018, driven by investments in its core businesses.

Frequently Asked Questions

Sempra Energy reported a net income of $953 million in the first six months of 2019, a substantial turnaround from a net loss of $172 million in the same period of 2018. This improvement was primarily due to the absence of significant impairment charges, asset sales, and improved operational performance across its utility segments.

The primary segments are SDG&E and SoCalGas (California Utilities), Sempra Texas Utilities, Sempra Mexico, and Sempra LNG. SDG&E and SoCalGas demonstrated stable performance with modest earnings growth. Sempra Texas Utilities saw increased earnings from its investment in Oncor. Sempra Mexico faced some headwinds from foreign currency impacts but showed overall solid performance. Sempra LNG's results were impacted by the prior year's impairment charges, with current year performance showing a return to profitability.

Investors should be aware of several key risks. These include potential liabilities and costs associated with the Aliso Canyon natural gas leak at SoCalGas, which continues to be a significant legal and regulatory focus. For SDG&E, wildfire mitigation costs and the implementation of new wildfire legislation (AB 1054) are critical factors. Additionally, arbitration proceedings involving Sempra Mexico's pipeline contracts with CFE and overall regulatory and political uncertainty in California can impact future performance.

Sempra Energy is actively managing its portfolio by divesting non-core assets, including its South American businesses and wind assets, to focus on growth opportunities in North America, particularly in LNG and infrastructure development. The company is also making significant capital expenditures in its core utility operations and LNG projects.