Evergy, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Evergy is a regulated electric utility holding company serving approximately 1.6 million customers in Kansas and Missouri. This annual report covers the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter filing. Evergy’s 2018 results include Great Plains Energy subsidiaries only from the June 4, 2018 merger close, so full-year comparisons are not like-for-like. The filing also reports fourth-quarter results separately.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $5.148 billion | $4.276 billion |
| Operating income | $1.186 billion | $934 million |
| Net income attributable to Evergy, Inc. | $670 million | $536 million |
| Diluted EPS | $2.79 | $2.50 |
| Cash from operations | $1.749 billion | $1.498 billion |
| Capital expenditures | $1.210 billion | $1.070 billion |
| Cash and cash equivalents at year-end | $23 million | $160 million |
Reported operating margin was approximately 23.0% and net margin attributable to Evergy was approximately 13.0%, calculated from reported figures. Operating cash flow less capital expenditures was approximately $539 million, a simple cash-flow measure rather than a company-defined metric.
At year-end, long-term debt including current maturities and variable-interest-entity debt was approximately $9.05 billion; reported capital structure, excluding short-term debt, was 51% long-term debt and 49% common equity. Evergy had $1.9 billion of available capacity under its master credit facility. Cash dividends were $1.93 per share for 2019.
Changes versus the prior comparable period
- Revenue rose $872 million and attributable net income rose $134 million. Management attributed the earnings increase largely to inclusion of Evergy Metro and Evergy Missouri West for the first five months of 2019, lower fossil-plant operating costs and lower administrative expenses; cooler summer weather and higher depreciation partly offset the gains.
- Retail sales were affected by cooler conditions: cooling degree days fell 16% year over year. Utility gross margin, a company-defined non-GAAP measure, increased $694 million, including $674 million from the additional subsidiaries’ first five months of results.
- Fourth-quarter 2019 revenue was $1.132 billion, operating income $166 million, net income $67 million and diluted EPS $0.28, compared with fourth-quarter 2018 diluted EPS of $0.07.
- Cash from operations increased, but cash declined by $137 million to $23 million, primarily reflecting share repurchases. Evergy repurchased 28.8 million shares for $1.629 billion in 2019.
Outlook, management commentary, risks and unusual items
- Management cited potential merger-related net savings of approximately $595 million over the combined company’s first five years and planned approximately $7.6 billion of rate-base investment from 2020 through 2024. These are expectations, not guarantees.
- The company targets an 80% reduction in carbon emissions by 2050 from 2005 levels. Its projected 2020 summer peak demand was approximately 10,367 MW; management expected existing generation and power purchases to meet capacity requirements.
- In March 2020, after year-end, the Board created a Strategic Review & Operations Committee to consider a potential strategic combination or an enhanced standalone plan, with a recommendation expected in the first half of 2020. Management said it did not anticipate further share repurchases while the review was underway.
- Evergy targets a long-term dividend payout ratio of 60%–70% of earnings. In February 2020, the Board declared a quarterly dividend of $0.505 per share.
- Significant risks include regulatory decisions and rate recovery, environmental compliance and potential generation-asset retirements, weather and customer demand, aging infrastructure, project execution, cybersecurity, nuclear operations at Wolf Creek, pension funding, and access to capital. A five-year Kansas base-rate moratorium began in December 2018; Kansas earnings above specified thresholds may require customer refunds during 2019–2022.
- Unusual items include merger and rebranding costs, customer bill credits, voluntary severance, and regulatory accounting matters. The Missouri regulator’s Sibley Station order resulted in a $10.2 million accrued probable refund; management noted additional potential exposure subject to future proceedings. A Kansas regulator disallowed recovery of certain costs tied to Evergy Kansas Central’s purchase of an 8% Jeffrey Energy Center interest, resulting in an $8.4 million pre-tax charge.
Important facts for investors to verify
- Separate the 2019 results from the merger-related consolidation effect when assessing underlying growth and earnings trends.
- Review debt maturities, interest costs, credit-facility availability and the effect of the substantial 2019 repurchases on liquidity and capital structure.
- Track outcomes of Kansas and Missouri rate proceedings, including the Kansas earnings-sharing plan and the Sibley Station refund determination.
- Assess whether the projected merger savings, capital plan, dividend targets and carbon-reduction goal are being achieved, and monitor the strategic review’s outcome.
- Check environmental compliance costs, Wolf Creek operating and decommissioning exposures, pension funding requirements and the recoverability of regulatory assets.