Entergy Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. This combined filing includes Entergy Corporation and six separately reporting subsidiaries. Figures below primarily reflect Entergy Corporation consolidated results unless noted. Entergy is principally a regulated Gulf South electric utility. Following its exit from merchant nuclear generation, the former Entergy Wholesale Commodities activities are included in Parent & Other; comparative segment data was restated.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $2.981 billion | $2.878 billion | +3.6% |
| Operating income | $462.1 million | $566.1 million | -18.4% |
| Net income attributable to Entergy | $310.9 million | $276.4 million | +12.5% |
| Diluted EPS | $1.47 | $1.36 | +8.1% |
| Operating margin | 15.5% | 19.7% | Lower |
| Net margin | 10.4% | 9.6% | Higher |
| Operating cash flow | $959.5 million | $538.0 million | +$421.6 million |
| Construction/capital expenditures | $1.176 billion | $1.502 billion | Lower |
| Cash and cash equivalents at quarter-end | $1.971 billion | $702 million | Up from year-end 2022 |
Operating income fell despite higher revenue. Fuel and fuel-related expenses rose $231.4 million, while purchased-power expense fell $31.3 million and other operation and maintenance expense fell $47.3 million. Quarterly results included a $129 million reduction in income tax expense from Entergy Louisiana’s Hurricane Ida securitization, partly offset by a $103 million regulatory charge ($76 million after tax) to provide customer credits. The consolidated effective tax rate was negative 33.8%, versus 19.2% a year earlier; the tax benefit materially affected the net-income comparison.
Cash from operations improved with higher customer collections, lower storm spending and lower pension contributions, partly offset by working-capital movements and higher interest paid. Investing cash outflow was $1.284 billion; financing provided $2.070 billion, including $1.458 billion associated with the Louisiana securitization. The company reported debt-to-capital of 67.4% (67.2% excluding specified non-recourse securitization bonds) and net debt-to-net capital of 65.5% excluding those bonds. These excluding-securitization ratios are non-GAAP measures. Entergy had $865.6 million of commercial paper outstanding and $3.347 billion available under its $3.5 billion credit facility; it reported compliance with the facility’s debt covenant.
Material changes and significant items
- Hurricane Ida financing: In March, an independent Louisiana authority issued approximately $1.491 billion of securitization bonds. The bonds are not reported as Entergy debt; customers’ system-restoration charges are intended to service them and began being collected in April. The transaction also drove the unusual tax and customer-credit items described above.
- Sales and weather: Total utility electric sales were essentially flat, but retail sales declined 3%; residential sales fell 14%, primarily reflecting less favorable weather. Industrial sales rose 2% and sales for resale rose 24%.
- Debt and interest: Entergy Arkansas issued $425 million of 5.15% mortgage bonds in January; System Energy issued $325 million of 6.00% mortgage bonds in March. Consolidated interest expense increased $24.2 million.
- Business portfolio: The absence of Palisades revenues and costs following its 2022 shutdown and sale reduced Parent & Other activity. Entergy reported one principal segment, Utility.
- Shareholder return: The Board declared a quarterly common dividend of $1.07 per share in April, unchanged from the prior quarter. No shares were repurchased in Q1.
Outlook, risks and contingencies
The filing provides no specific consolidated earnings or EPS guidance in the supplied text. Management cautions that interim results are seasonal and should not be used to estimate full-year results; peak periods typically occur in the first and third quarters. Planned investment includes substantial resilience and storm-hardening proposals, but recovery and timing depend on regulatory approvals. Entergy Louisiana’s proposed first five years of its ten-year Future Ready plan would involve approximately $5 billion of investment and remained subject to LPSC review.
- Regulatory and litigation exposure: System Energy faces FERC proceedings concerning Grand Gulf rates, return on equity, capital structure, sale-leaseback costs and other matters. A prior FERC order led to $103.5 million of refunds paid in January 2023 and disallowed future recovery of an estimated $11.5 million annually in sale-leaseback renewal costs for certain utilities. Other proceedings could result in additional refunds or rate changes; outcomes remain uncertain.
- Storm and recovery risk: Cost recovery, customer affordability and financing for major storm restoration remain dependent on regulatory processes. Louisiana’s securitization bonds are legally obligations of the issuing authority, but the related customer charge and affiliated preferred-interest structure warrant monitoring.
- Other business and operating risks: The filing highlights exposure to extreme weather, fuel and power prices, MISO market rules, nuclear safety and performance, environmental regulation, capital-project execution, supply chains, interest rates, access to capital, and cybersecurity. The EPA’s March 2023 Good Neighbor Plan may require additional emissions controls; Entergy was assessing compliance options.
- Renewables and resilience approvals: Solar procurement, proposed solar projects and storm-hardening plans require regulatory approval and may change in cost or schedule. Entergy Louisiana was seeking approval for a process to acquire up to 3 GW of solar resources.
Most important facts for investors to verify
- How much of Q1 earnings growth reflects the one-time securitization tax benefit, and what are the expected ongoing effects on customer bills and future earnings?
- Whether Entergy can sustain operating cash generation while funding capital investment, dividends and debt maturities; assess leverage using both reported and non-GAAP measures.
- Updates and potential financial effects of System Energy’s FERC proceedings, including any further refunds, rate reductions or appeals.
- Regulatory approval, cost recovery and customer impacts for storm-hardening investments, solar projects and fuel-cost balances.
- Whether weather-normalized demand, particularly residential usage, recovers, and how fuel costs, interest expense and emissions requirements affect margins.