NextEra Energy, Inc. 2017 Q1 Form 10-Q Summary
Business context and reporting period
Combined unaudited Form 10-Q for NextEra Energy, Inc. (NEE) and Florida Power & Light Company (FPL) for the three months ended March 31, 2017, filed April 21, 2017. NEE operates primarily through FPL, a regulated Florida electric utility serving approximately 4.9 million customer accounts, and NextEra Energy Resources (NEER), a competitive energy business focused on renewable generation, gas infrastructure and energy marketing.
Key financial metrics
| Metric | NEE Q1 2017 | NEE Q1 2016 |
|---|---|---|
| Operating revenues | $3,972 million | $3,835 million |
| Operating income | $2,405 million | $1,234 million |
| Net income attributable to NEE | $1,583 million | $653 million |
| Diluted EPS | $3.37 | $1.41 |
| Operating cash flow | $1,364 million | $1,545 million |
| Capital expenditures and investments | $5,179 million | $3,879 million |
| Dividends | $460 million | $401 million |
- NEE operating margin was approximately 60.6%, compared with 32.2% in the prior-year quarter; the current-period margin was substantially increased by a $1.1 billion pretax gain on the sale of the fiber-optic telecommunications business. Excluding that gain, operating margin was approximately 33.0%.
- Net margin was approximately 39.9%, compared with 17.0% in Q1 2016, also reflecting the fiber-optic sale gain and higher derivative-related earnings.
- At March 31, 2017, NEE had total assets of $91.2 billion, cash and cash equivalents of $600 million, long-term debt of $28.5 billion and current debt obligations of approximately $5.3 billion, including commercial paper, other short-term debt and current maturities.
- NEE reported total net available liquidity of approximately $7.7 billion, including cash and available credit facilities, excluding two undrawn $3.75 billion bilateral term-loan facilities.
FPL operating results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenues | $2,527 million | $2,303 million |
| Operating income | $811 million | $714 million |
| Net income | $445 million | $393 million |
| Operating cash flow | $835 million | $1,113 million |
| Capital expenditures | $1,687 million | $1,133 million |
FPL’s operating margin was approximately 32.1%, compared with 31.0% in Q1 2016. Earnings benefited from continued rate-base investment, new retail base rates under the 2016 rate agreement and the Port Everglades power plant. Average usage per retail customer declined 2.5%, while average customer accounts increased 1.3%. FPL reported a regulatory ROE of 11.50% and recorded approximately $211 million of reserve amortization, with approximately $1.0 billion remaining available for future amortization.
Material changes versus the prior comparable period
- NEE net income attributable to shareholders increased $930 million, or approximately 142%, to $1.583 billion.
- NEER net income increased $252 million to $476 million, driven by new wind, solar and pipeline investments and a $207 million after-tax improvement in non-qualifying hedge activity. These benefits were partly offset by weaker gas infrastructure, customer supply and trading results and higher interest and general and administrative expenses.
- Corporate and Other earnings increased $626 million, principally because of the approximately $685 million after-tax gain from the January 2017 sale of the fiber-optic telecommunications business.
- NEE operating cash flow decreased $181 million, while capital expenditures and investments increased $1.3 billion. The company funded the resulting cash shortfall through debt and commercial paper issuance, including a $2.041 billion increase in commercial paper.
- NEE’s total assets increased from $90.0 billion at December 31, 2016 to $91.2 billion at March 31, 2017. Cash declined from $1.292 billion to $600 million.
- NEE placed approximately 99 MW of new wind generation, 114 MW of repowering generation and 117 MW of new solar generation into service during the quarter.
Guidance, outlook, commentary and unusual items
- The filing does not provide a clear quantified full-year earnings guidance figure. Management expects capital requirements to be funded through operating cash flow, debt and equity markets, short-term borrowings and other project-level financing sources while maintaining a strong investment-grade credit profile.
- Approved capital expenditures for the remainder of 2017 through 2021 total approximately $25.6 billion: $19.3 billion for FPL, $6.0 billion for NEER and $280 million for Corporate and Other. Management cautions that actual spending may vary significantly.
- NEE and affiliates were pursuing the proposed acquisition of Oncor. On April 13, 2017, the Public Utility Commission of Texas voted that the transaction was not in the public interest; NEE expected to seek rehearing. Oncor subsequently suspended certain obligations under the related letter agreement for 60 days beginning April 17, 2017.
- The fiber-optic sale produced approximately $1.1 billion of net cash proceeds after repayment of $370 million of related debt and an approximately $1.1 billion pretax gain, or approximately $685 million after tax.
- NEER changed the estimated useful lives of certain wind-plant equipment from 30 to 35 years. The change increased Q1 2017 NEE net income by approximately $15 million and is expected to increase full-year 2017 net income by approximately $60 million.
- FPL assumed ownership of a 330 MW coal-fired Indiantown facility for $451 million, including approximately $218 million of existing debt. FPL expects to reduce operations and eventually phase the facility out of service.
- Key risks include regulatory cost recovery and ROE decisions, commodity and derivative volatility, credit and collateral requirements, interest rates, construction and permitting execution, severe weather, cyber and operational disruptions, nuclear liabilities, environmental compliance, insurance limitations and access to capital markets.
- At March 31, 2017, approximately 95% of NEE’s and 100% of FPL’s energy marketing and trading counterparty credit exposure was associated with investment-grade counterparties.
Most important facts for investors to verify
- Separate recurring earnings from the $685 million after-tax fiber-optic sale gain and other non-GAAP adjustments, including $109 million of after-tax non-qualifying hedge gains.
- Confirm the sustainability of FPL’s earnings from rate-base growth, reserve amortization and the 2016 rate agreement, including the remaining reserve available for amortization.
- Assess funding needs for the $25.6 billion five-year approved capital program relative to operating cash flow, debt maturities and current commercial-paper balances.
- Monitor the status and potential financial consequences of the rejected Oncor transaction and the associated undrawn $7.5 billion bilateral term-loan facilities.
- Evaluate sensitivity to interest rates, commodity prices, derivative fair values, collateral calls, regulatory outcomes, severe weather and nuclear or environmental events.
- Review the filing’s commitments, guarantees, purchased-power and pipeline obligations, including approximately $2.5 billion of guarantees related to purchased power, nuclear activities, tax credits and other contractual obligations.