CenterPoint Energy, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The filing also covers CenterPoint Energy Houston Electric, LLC and CenterPoint Energy Resources Corp. (CERC). CenterPoint acquired Vectren on February 1, 2019, so consolidated results include Vectren for two months and are not fully comparable with Q1 2018.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $3.531 billion | $3.155 billion |
| Operating income | $245 million | $251 million |
| Net income | $169 million | $165 million |
| Income available to common shareholders | $140 million | $165 million |
| Diluted EPS | $0.28 | $0.38 |
| Operating cash flow | $271 million | $484 million |
| Capital expenditures | $537 million | $362 million |
- Revenue increased 12%, largely reflecting Vectren consolidation. Operating income declined $6 million; increased operating and maintenance costs and lower Houston Electric results offset improvements elsewhere.
- Common earnings fell despite higher net income, chiefly due to greater ZENS-related losses, merger-financing and acquired debt interest, and $29 million of preferred dividends. The share count also increased following prior equity issuance.
- Cash used in investing was $6.539 billion, including $5.987 billion for acquisitions. Financing provided $2.345 billion, including $2.692 billion of net commercial-paper proceeds. Cash, cash equivalents and restricted cash ended at $355 million, down from $4.278 billion at year-end 2018.
- Long-term debt was $13.759 billion at quarter-end, versus $8.682 billion at December 31, 2018. Credit facilities totaled $5.1 billion; the company reported covenant compliance. Commercial paper and loans utilized approximately $3.2 billion at March 31.
- Quarter-end total assets were $33.902 billion and shareholders’ equity was $8.216 billion. The filing does not provide a consolidated current or quick ratio.
Comparative and segment developments
- Houston Electric net income declined to $27 million from $52 million. Lower usage in more normal weather, reduced equity return and merger-related costs contributed; throughput also declined.
- CERC net income rose to $138 million from $130 million. Continuing-operations income increased to $138 million from $78 million, while Q1 2018 included $52 million of after-tax discontinued-operations income from Enable following CERC’s 2018 internal spin.
- Energy Services operating income improved to $33 million from a $26 million loss, mainly due to favorable year-over-year derivative mark-to-market changes; management also cited weaker margin opportunities than in the unusually cold prior-year quarter.
- Vectren contributed $473 million of revenue and a $31 million net loss from the acquisition date through March 31. Consolidated operating expenses included $37 million of accelerated share-award costs and $61 million of severance; integration costs were $8 million. Merger-related costs also affected acquired segment results.
Liquidity, outlook and notable risks
- For the remaining nine months of 2019, estimated capital expenditures were $1.904 billion for CenterPoint Energy, including $744 million for Houston Electric and $598 million for CERC; scheduled securitization-bond principal payments were $283 million. Management expected funding from operating cash flow, debt and commercial paper, credit facilities, and Enable distributions.
- Houston Electric filed a base-rate case in April seeking approximately $161 million of annual increases, based on a $6.5 billion rate base and 10.4% ROE. A final order was expected in October 2019. The request is pending, not approved.
- On April 24, 2019, Indiana regulators approved proposed F.B. Culley environmental investments but denied the proposed 700–850 MW gas combined-cycle plant; a new resource plan was expected by mid-2020. The company reported a $46 million ash-pond closure asset-retirement obligation and anticipated $45–$65 million in additional A.B. Brown equipment purchases.
- Other key exposures include regulatory outcomes and cost recovery, weather, commodity and interest-rate volatility, credit-rating changes and access to financing, Enable’s performance and distributions, integration of Vectren, environmental compliance, and litigation. The company cited a pending Houston Electric rate case and ongoing merger litigation. Management did not expect the cited litigation and environmental matters to have a material adverse effect, while noting uncertainties and possible liabilities.
- The preliminary Vectren purchase-price allocation included $4.256 billion of goodwill and remains subject to change. Disclosure controls were deemed effective; integration of Vectren into CenterPoint’s internal-control structure was ongoing and expected to continue through 2019.
Most important facts for investors to verify
- Progress and final decision in Houston Electric’s rate case, including approved recovery, timing and rate base.
- Post-merger earnings contribution, integration costs and final purchase-price allocation for Vectren.
- Debt, commercial-paper balances, refinancing needs, interest expense and continued covenant compliance.
- Operating cash generation versus planned capital expenditures and scheduled debt payments.
- Enable distributions and any change in CenterPoint’s ownership interest.
- Indiana generation-plan revisions and costs, ash-pond closure obligations, and related regulatory or insurance recoveries.