NextEra Energy, Inc. 2014 Q1 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for NextEra Energy, Inc. (NEE) and its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL), for the three months ended March 31, 2014. NEE’s principal segments are FPL and NextEra Energy Resources (NEER), a competitive energy business focused heavily on wind and solar generation. FPL served approximately 4.7 million customer accounts in Florida.
Financial performance and key metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| NEE operating revenues | $3,674 million | $3,279 million | +12% |
| NEE operating income | $738 million | $434 million | +70% |
| NEE income from continuing operations | $430 million | $41 million | + $389 million |
| NEE net income | $430 million | $272 million | +58% |
| NEE diluted EPS | $0.98 | $0.64 | +53% |
| NEE operating margin | 20.1% | 13.2% | +6.9 percentage points |
| NEE net margin | 11.7% | 8.3% | +3.4 percentage points |
| FPL operating revenues | $2,535 million | $2,188 million | +16% |
| FPL net income | $347 million | $288 million | +20% |
| FPL operating margin | 24.9% | 24.8% | Stable |
- FPL’s earnings benefited from continued rate-base investment, an 11.22% regulatory return on common equity, new nuclear capacity, the Cape Canaveral modernization project, higher customer usage and customer growth. Average usage per retail customer increased 2.4%, and average customer accounts increased 1.9%.
- NEER reported net income of $86 million versus a $40 million loss in the prior-year quarter. Growth from new investments and existing assets was partly offset by weaker customer supply and trading results and greater unrealized mark-to-market losses.
- NEE’s effective tax rate was approximately 26%, compared with 78% in Q1 2013. The prior-year rate was elevated by a valuation allowance related to the Spain solar projects. Wind production tax credits were approximately $49 million in Q1 2014.
- Common dividends were $0.725 per share, compared with $0.66 in the prior-year quarter.
Cash flow, debt and liquidity
- NEE operating cash flow was $1,017 million, down from $1,082 million. FPL operating cash flow was $875 million, up from $776 million.
- NEE investing cash outflow was $1,842 million, including $1,866 million of capital expenditures, independent power investments and nuclear fuel purchases. FPL investing cash outflow was $1,067 million.
- NEE financing cash inflow was $875 million, supported by a $1,179 million increase in short-term debt. NEE paid $315 million in common dividends.
- NEE cash and cash equivalents increased to $488 million from $438 million at December 31, 2013. FPL cash increased to $38 million from $19 million.
- NEE long-term debt, including current maturities, was approximately $27,639 million at March 31, 2014; FPL long-term debt, including current maturities, was approximately $8,801 million. NEE consolidated long-term debt was $23,824 million excluding current maturities shown separately on the balance sheet.
- NEE total net available liquidity was approximately $5.5 billion, including $2.9 billion for FPL. This included cash, revolving credit capacity and other facilities, net of commercial paper and outstanding letters of credit.
- Estimated capital expenditures from the remainder of 2014 through 2018 totaled $10.8 billion for FPL, $5.8 billion for NEER and $1.8 billion for Corporate and Other. These estimates are subject to revision.
Material changes versus the prior comparable period
- The $158 million increase in NEE net income primarily reflected higher FPL earnings and improved NEER results.
- Q1 2013 included a $342 million after-tax impairment and related charges for the Spain solar projects and a $231 million after-tax gain from the sale of hydropower assets. Neither item recurred in Q1 2014.
- NEER recorded a $12 million after-tax gain in Q1 2014 after deciding not to pursue the sale of Maine fossil assets; the prior-year period included a $43 million after-tax loss related to the planned sale. The prior-year Maine fossil loss was reclassified from discontinued operations to continuing operations.
- NEE’s interest expense increased to $319 million from $272 million, reflecting higher debt balances, including a $27 million unfavorable change in certain interest-rate hedges.
- NEER added approximately 75 MW of U.S. wind generation and 165 MW of U.S. solar generation during the quarter.
- FPL began construction on the Port Everglades modernization project and placed an approximately 1,200 MW modernized Riviera Beach natural-gas combined-cycle unit in service in April 2014.
Guidance, outlook, risks and unusual items
- The filing does not provide a clear quantitative full-year earnings guidance figure in the supplied text. Management expects to fund capital requirements through operating cash flow, debt and equity markets, credit facilities and other financing sources while maintaining a strong investment-grade credit profile.
- Spain solar projects remained subject to uncertainty regarding Spanish regulatory implementation, potential further impairment and possible refund obligations for tariff revenues. Project-level debt of approximately $792 million and related interest-rate swap liabilities of approximately $108 million were classified as current at March 31, 2014.
- Credit-rating downgrades could require substantial collateral postings under derivative agreements. Estimated collateral requirements could reach approximately $2.2 billion for NEE subsidiaries if relevant ratings fell below investment grade, plus up to approximately $800 million for certain other covenant or credit triggers.
- Major risks include extensive regulatory and environmental oversight, recovery of costs through regulated rates, severe weather, commodity-price volatility, derivative and counterparty exposure, nuclear operations, cyber and information-technology risks, construction and permitting delays, tax-credit changes, litigation and access to capital markets.
- FPL and NEE reported no material changes to the risk factors in the 2013 Form 10-K. Management concluded that disclosure controls were effective and that no material change occurred in internal control over financial reporting.
- Other notable matters include pending environmental and legal proceedings, nuclear insurance and retrospective assessment exposure, significant purchase and transportation commitments, and a proposed $360 million Lone Star senior secured notes issuance expected in July 2014.
Important facts for investors to verify
- Reconcile reported GAAP earnings with management’s adjusted earnings, particularly the effect of unrealized derivative losses, tax credits, Maine fossil, Spain solar and discontinued operations.
- Assess whether FPL’s rate-base growth, 11.22% regulatory ROE and customer growth remain sustainable as capital spending increases.
- Monitor NEER’s exposure to merchant power prices, extreme weather, customer supply margins, trading performance and non-qualifying hedge volatility.
- Review Spain solar regulatory developments, financing restructuring status and potential additional impairment or tariff-repayment exposure.
- Evaluate liquidity after considering commercial paper borrowings, debt maturities, letters of credit, derivative collateral requirements and planned capital expenditures.
- Verify the timing, approvals and final economics of the proposed solar, wind, nuclear and Florida natural-gas pipeline investments.
- Review nuclear, environmental and legal contingencies, including the Clean Air Act proceeding involving Scherer Unit No. 4 and potential impacts from evolving water and air regulations.