8-K: Black Hills Corp. Reaffirms 2024 Earnings Guidance Despite Q3 Profit Dip

Black Hills Corporation reported a decrease in third-quarter earnings per share but reaffirmed its full-year 2024 earnings guidance.

Summary

• Black Hills Corporation announced its financial results for the third quarter of 2024, showing a decrease in net income available for common stock to $24.4 million, or $0.35 per diluted share, compared to $45.4 million, or $0.67 per diluted share, in the same period of 2023.
• Year-to-date net income available for common stock was $175.0 million, or $2.52 per diluted share, compared to $182.5 million, or $2.74 per diluted share, for the same period in 2023.
• The company reaffirmed its 2024 earnings guidance of $3.80 to $4.00 per share.
• The third-quarter earnings were impacted by higher operating expenses, unplanned generation outages, and increased interest expenses, which were partially offset by new customer rates, rider recovery, and customer growth.
• The company completed key financing activities for 2024, reaching its long-term capitalization target of 55% debt.
• Black Hills is progressing with its Ready Wyoming transmission project and is pursuing new renewable resources in Colorado and dispatchable generation in South Dakota.
• The company also announced a partnership with Meta to provide power for its new AI data center in Cheyenne, Wyoming, expected to be operational by 2026.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the reaffirmed earnings guidance and strategic progress, but tempered by the significant decrease in Q3 earnings and ongoing cost pressures.

Positives

• The company reaffirmed its 2024 earnings guidance, indicating confidence in its full-year performance.
• New customer rates in Arkansas and a settlement agreement in Iowa are expected to improve future revenue.
• The partnership with Meta for the AI data center is a significant growth opportunity.
• The Ready Wyoming transmission project is progressing on schedule, enhancing system capacity.
• The company has a long track record of 54 consecutive years of dividend increases.
• The company successfully completed its planned equity issuance for 2024.

Negatives

• Third-quarter earnings per share decreased significantly compared to the same period last year.
• Unplanned generation outages negatively impacted earnings.
• Higher operating expenses and interest expenses reduced profitability.
• Unfavorable weather and lower energy market pricing also impacted earnings.
• The company experienced a decrease in operating income in both the electric and gas utilities segments compared to the same quarter last year.

Risks

• The company's earnings are subject to the accuracy of assumptions regarding weather conditions, regulatory outcomes, and operational performance.
• The company faces risks related to cost recovery through regulatory proceedings.
• The company's ability to complete capital projects on time and within budget is a risk.
• Changes in interest rates could impact the company's financial performance.
• Supply chain disruptions could affect the availability and cost of materials.
• Inflation and volatile energy prices pose a risk to the company's profitability.
• The company is exposed to risks related to insurance coverage and potential losses.

Future Outlook

Black Hills reaffirms its 2024 earnings guidance of $3.80 to $4.00 per share and expects to continue executing its strategy while navigating cost pressures and weather impacts. The company anticipates growth from its data center and blockchain strategy, aiming for these customers to contribute 10% or more of earnings per share by 2028.

Management Comments

• We are on track to achieve our 2024 earnings guidance as we continue to execute on our strategy while navigating ongoing cost pressures and mild weather, said Linn Evans, president and CEO of Black Hills Corp.
• Our team made progress on our regulatory initiatives, with new natural gas utility rates effective in Arkansas and a constructive settlement reached in Iowa.
• We also completed our key financing activities for the year, ending the quarter at our long-term capitalization target of 55% debt.
• I'm excited about our strategic progress in delivering safe, reliable and cost-effective energy for our customers.
• Our 260-mile Ready Wyoming transmission project remains on track and will expand system capacity and power market access.
• We also continue to pursue new renewable resources in Colorado and dispatchable, baseload generation in South Dakota.
• For more than a decade, our innovative service model has successfully supported data center demand, and we look forward to serving Metas new AI data center in Cheyenne, Wyoming by 2026, concluded Evans.

Industry Context

The announcement reflects the ongoing trends in the utility sector, including the focus on renewable energy, grid modernization, and serving the growing demand from data centers. The partnership with Meta highlights the increasing importance of utilities in supporting the digital economy. The company's efforts to secure new rates and manage costs are consistent with industry-wide challenges related to inflation and regulatory pressures.

Comparison to Industry Standards

• Black Hills' reaffirmed earnings guidance of $3.80 to $4.00 per share is within the range of other mid-sized utility companies, such as MDU Resources Group (MDU) and Northwest Natural Holding Company (NWN), which have also provided similar guidance for 2024.
• The company's debt-to-capitalization ratio of 55% is in line with industry averages, where many utilities target a range of 50% to 60% to maintain a balance between financial stability and growth opportunities.
• The 10.5% return on equity requested by Colorado Electric is comparable to the returns sought by other utilities in rate cases, although the final approved return can vary based on regulatory decisions.
• The company's focus on renewable energy and grid modernization aligns with the broader industry trend towards decarbonization and enhancing grid reliability, similar to initiatives undertaken by companies like Xcel Energy (XEL) and NextEra Energy (NEE).
• The partnership with Meta for a data center is a significant move, similar to other utilities that are increasingly focusing on serving large technology customers, such as Dominion Energy's (D) data center initiatives in Virginia.

Stakeholder Impact

• Shareholders may be concerned about the decrease in third-quarter earnings but reassured by the reaffirmed full-year guidance and dividend increase.
• Customers in Arkansas and Iowa will see changes in their natural gas rates.
• Employees will continue to work on strategic projects, including the Ready Wyoming transmission project and new generation resources.
• The partnership with Meta will create new opportunities for the company and its stakeholders.
• Suppliers and creditors will be impacted by the company's ongoing capital projects and financing activities.

Next Steps

• Black Hills will host a conference call and webcast on November 7, 2024, to discuss its financial and operating performance.
• The company will continue construction on the Ready Wyoming transmission project.
• South Dakota Electric expects to file for a permit to construct a natural gas project in the first quarter of 2025.
• Colorado Electric will continue its resource planning process to add renewable resources.
• The company will await regulatory approval of the settlement agreement for new customer rates in Iowa.
• Black Hills will continue to pursue its data center and blockchain growth strategy.

Key Dates

Keywords

earnings, utilities, natural gas, electric, rates, transmission, renewable energy, data center, dividends, financial results