10-Q: Evergy Q2 Earnings Decline Amid Weather, Investment Losses

Evergy reports a decrease in second-quarter net income and diluted EPS, primarily due to unfavorable weather and losses from early-stage clean energy investments, despite regulatory approvals for new generation projects and rate adjustments.

Summary

• Net income attributable to Evergy, Inc. decreased to $171.3 million for the three months ended June 30, 2025, down from $207.0 million in the same period of 2024.
• Diluted earnings per share (EPS) for Evergy, Inc. fell to $0.74 in the three months ended June 30, 2025, compared to $0.90 in the same period of 2024.
• Year-to-date net income attributable to Evergy, Inc. was $296.3 million, a decrease from $329.7 million in the prior year period.
• Year-to-date diluted EPS was $1.28, down from $1.43 in the prior year period.
• Operating revenues for the three months ended June 30, 2025, were $1,437.0 million, a slight decrease from $1,447.5 million in the same period of 2024, primarily due to lower retail sales from unfavorable weather.
• Year-to-date operating revenues increased to $2,811.5 million from $2,778.5 million in the prior year period, driven by new Evergy Missouri West retail rates and higher transmission revenues.
• Utility gross margin (non-GAAP) increased by $3.2 million for the three months ended June 30, 2025, and $44.1 million year-to-date, benefiting from new retail rates and transmission revenue, despite weather impacts.
• Operating and maintenance expenses increased by $17.4 million in the three months ended June 30, 2025, and $17.9 million year-to-date, mainly due to higher general and administrative labor, employee benefits, and credit loss expenses.
• Interest expense increased by $10.2 million in the three months ended June 30, 2025, and $29.5 million year-to-date, primarily due to new long-term debt issuances.
• Evergy Kansas Central reached a unanimous settlement agreement in July 2025 for a $128.0 million retail revenue increase, expected to be effective September 29, 2025.
• Regulatory approvals were secured in July 2025 for planned natural gas plants (two 705 MW combined-cycle plants in Kansas, one 440 MW simple-cycle plant in Missouri) and solar facilities (159 MW Kansas Sky, 65 MW Sunflower Sky, 100 MW Foxtrot).
• Unrealized losses and impairment losses from non-regulated investments in early-stage clean energy and energy solution companies totaled $29.0 million year-to-date June 30, 2025. Evergy has initiated a process to dispose of these investments.

Sentiment

Score: 4

Explanation: While the company secured significant regulatory approvals for future generation projects and rate increases, current financial performance shows a notable decline in net income and EPS due to unfavorable weather, increased operating costs, higher interest expenses, and substantial losses from non-regulated investments. The strategic direction is positive, but the immediate financial results are a concern, indicating a challenging operating environment and some non-core asset underperformance.

Positives

• A unanimous settlement agreement was reached for Evergy Kansas Central's 2025 Rate Case, providing a $128.0 million increase to retail revenues, expected to be effective September 29, 2025.
• The Kansas Corporation Commission (KCC) approved the non-unanimous partial settlement agreement for Evergy Kansas Central's planned natural gas plant investments, deeming them prudent and allowing for Construction Work In Progress (CWIP) recovery.
• The KCC approved the unanimous partial settlement agreement for the Kansas Sky solar investment, allowing recovery through a levelized revenue requirement for 30 years.
• The Missouri Public Service Commission (MPSC) approved unanimous stipulation and agreement for Sunflower Sky and Foxtrot solar generating facilities, granting Certificate of Convenience and Necessity (CCN) requests.
• The MPSC approved non-unanimous stipulation and agreement for Evergy Missouri West's planned natural gas plant investments, granting CCN and establishing them as decisionally prudent.
• Missouri Senate Bill (SB) 4 was signed into law, establishing new mechanisms for cost recovery of natural gas-fired generating units, including CWIP in rate base and extending Plant-In-Service Accounting (PISA) provisions through 2035.
• Kansas House Bill (HB) 2107 was signed into law, establishing a two-year statute of limitations and a $5.0 million punitive damages limit for wildfire-related claims against Kansas electric public utilities.
• Cash flows from operating activities increased by $138.7 million year-to-date June 30, 2025, compared to the same period in 2024.
• Moody's Investor Service changed Evergy Missouri West's outlook from Negative to Stable in April 2025.
• Income of $11.6 million was recognized from the sale of a commercial solar generation project completed in the second quarter of 2025.

Negatives

• Net income attributable to Evergy, Inc. decreased by $35.7 million for the three months ended June 30, 2025, and by $33.4 million year-to-date, compared to the same periods in 2024.
• Diluted earnings per common share decreased by $0.16 for the three months ended June 30, 2025, and by $0.15 year-to-date, compared to the same periods in 2024.
• Lower retail sales were experienced in Q2 2025 and year-to-date, primarily due to unfavorable weather (cooling degree days decreased by 26% in Q2 and 25% year-to-date).
• Unrealized losses and impairment losses from non-regulated investments in early-stage clean energy and energy solution companies totaled $29.0 million year-to-date June 30, 2025.
• Operating and maintenance expenses increased by $17.4 million in Q2 2025 and $17.9 million year-to-date, driven by higher general and administrative labor, employee benefits, and credit loss expenses.
• Interest expense increased by $10.2 million in Q2 2025 and $29.5 million year-to-date, primarily due to new long-term debt issuances.
• Cash flows from financing activities decreased by $176.1 million year-to-date June 30, 2025, compared to the same period in 2024, primarily due to lower proceeds from long-term debt issuances.

Risks

• Economic and weather conditions can significantly impact sales, prices, and costs.
• Significant changes in the demand for electricity pose a risk to operations and financial results.
• Changes in business strategy or operations, including those related to meeting future customer demand, could affect performance.
• Federal, state, and local political, legislative, judicial, and regulatory actions or developments, including deregulation or re-regulation of the electric utility industry, can have adverse impacts.
• Changes in U.S. trade policies, including tariffs and other trade measures, and responses from other countries, may affect the company.
• The ability to build or acquire generation and transmission facilities to meet future electricity demand is subject to challenges such as changes in labor costs, availability and productivity, contractor management, subcontractor performance, shortages, delays, increased equipment/material/labor costs, and increased financing costs due to interest rate changes or project delays.
• Decisions of regulators regarding customer rates and the prudency of operational decisions, such as capital expenditures and asset retirements, are critical.
• Changes in applicable laws, regulations, rules, principles, or their interpretations governing tax, accounting, and environmental matters (e.g., air and water quality, waste management and disposal) can impact the company.
• The development, adoption, and use of artificial intelligence by the company and its third-party vendors introduce new risks.
• The impact of climate change, including increased frequency and severity of significant weather events, is a risk.
• Risks relating to potential wildfires, including costs of litigation, potential regulatory penalties, and damages in excess of insurance liability coverage, are present.
• The extent to which counterparties are willing to do business with, finance operations of, or purchase energy from the company may be affected by its operation of coal-fired generation.
• Prices and availability of electricity and natural gas in wholesale markets can fluctuate.
• Market perception of the energy industry and the company can influence financial performance.
• Financial market conditions and performance, including disruptions in the banking industry, volatility in interest rates and credit spreads, and availability and cost of capital, can affect derivatives, hedges, nuclear decommissioning trust, and pension plan assets and costs.
• Impairments of long-lived assets or goodwill could occur.
• Inflation rates can increase operating and capital costs.
• The effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments are important.
• Physical and cybersecurity breaches, criminal activity, terrorist attacks, acts of war, and other disruptions to the company's facilities or information technology infrastructure, or those of third-party service providers, pose risks.
• The impact of geopolitical conflicts on the global energy market, including the ability to contract for non-Russian sourced uranium, is a concern.
• The ability to carry out marketing and sales plans is a factor.
• The cost, availability, quality, and timely provision of equipment, supplies, labor, and fuel are critical.
• The ability to achieve generation goals and the occurrence and duration of planned and unplanned generation outages are risks.
• Managing generation, transmission, and distribution development plans and transmission joint ventures involves inherent risks.
• Inherent risks associated with the ownership and operation of a nuclear facility, including environmental, health, safety, regulatory, and financial risks, exist.
• Workforce risks include those related to attracting and retaining qualified personnel, maintaining satisfactory relationships with labor unions, and managing costs of, or changes in, wages, retirement, health care, and other benefits.
• Disruption, costs, and uncertainties caused by or related to the actions of individuals or entities, such as activist shareholders or special interest groups, that seek to influence the company's strategic plan, financial results, or operations.
• The impact of changing expectations and demands of customers, regulators, investors, and stakeholders, including differing views on environmental, social, and governance concerns.
• The possibility that strategic initiatives, including mergers, acquisitions, joint ventures, and divestitures, and long-term financial plans, may not create the value that they are expected to achieve in a timely manner or at all.
• Difficulties in maintaining relationships with customers, employees, contractors, regulators, or suppliers.
• The outcome of litigation involving the company is uncertain.
• The ultimate effect of the Ozone Interstate Transport State Implementation Plans (ITSIP) and Federal Implementation Plans (ITFIP) on operations and compliance costs could be material, especially if the ITFIP takes effect for Missouri, Kansas, and Oklahoma.
• The cost to comply with lower Particulate Matter National Ambient Air Quality Standards (PM 2.5 NAAQS) could be material, given the uncertainty of attainment status and potential reconsideration of the NAAQS.
• The overall costs of implementing the Regional Haze Rule could be material due to uncertainty regarding when or if a Kansas or Missouri revised SIP or FIP is finalized, potentially requiring additional operational or physical modifications.
• The cost to comply with Greenhouse Gas (GHG) regulations could be material, due to uncertainty regarding which proposed rules will be finalized and ongoing judicial review.
• The revision of Asset Retirement Obligations (AROs) for Coal Combustion Residuals (CCRs) may be required in the future due to new information, changes in regulations, groundwater monitoring results, or changes in interpretation/timing, potentially having a material impact on operations or consolidated financial results.
• Three lawsuits, including one seeking class certification, were filed in 2025 against Evergy Metro alleging unspecified damages from the alleged unlawful and negligent spreading of CCRs associated with the Montrose Station coal ash landfill. The outcome or possible damages cannot be reasonably estimated at this preliminary stage.
• A class action complaint was filed in July 2025 alleging violations of the Sherman Antitrust Act in establishing wages for employees at nuclear facilities since 2003, naming Wolf Creek Nuclear Operating Corporation (94% indirectly owned by Evergy) as a defendant. The outcome or possible damages cannot be reasonably estimated at this preliminary stage.

Future Outlook

Evergy Kansas Central's new rates are expected to be effective on September 29, 2025, following KCC approval of the unanimous settlement agreement. The first combined-cycle natural gas plant in Kansas is expected to begin operations by summer of 2029, and the second by summer of 2030. Evergy Missouri West's 440 MW simple-cycle natural gas plant is expected to begin operations in 2030. The Kansas Sky, Sunflower Sky, and Foxtrot solar generation facilities are expected to begin operations by summer of 2027. Wolf Creek's next refueling outage is planned to begin in the fourth quarter of 2025. The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA) on operations and consolidated financial results but does not anticipate a material impact. The EPA plans to end the Good Neighbor Rule for the 2015 Ozone NAAQS and restructure the Regional Haze Program. The EPA plans to reconsider the 2024 PM 2.5 NAAQS and the GHG regulation and guidelines, with a proposed repeal of the most burdensome requirements of the 2024 rule. The EPA has indicated a second rulemaking modifying Coal Combustion Residuals (CCR) requirements should be anticipated later in 2025.

Management Comments

• Management believes that adjusted earnings (non-GAAP) and adjusted EPS (non-GAAP) are representative measures of Evergy's recurring earnings, assist in the comparability of results and are consistent with how management reviews performance.
• Management believes that utility gross margin (non-GAAP) provides a meaningful basis for evaluating Evergy's operations across periods because utility gross margin (non-GAAP) excludes the revenue effect of fluctuations in fuel and purchased power costs and SPP network transmission costs.
• Evergy has initiated a process to dispose of these investments [early-stage clean energy and energy solution companies] and could experience additional losses or gains on these investments as a result of further changes in their value or upon their ultimate liquidation.
• Evergy expects cash flows to be sufficient to meet existing short-term capital requirements.
• Evergy and Evergy Metro believe the claims [Montrose Station CCRs lawsuits] are without merit and intend to vigorously defend themselves.

Industry Context

The filing reflects a utility company navigating a complex regulatory and environmental landscape while investing in both natural gas and renewable generation to meet future demand and resource adequacy requirements. The legislative changes in Missouri (SB 4) and Kansas (HB 2107) highlight state-level efforts to support utility infrastructure investment and manage specific risks like wildfires. The ongoing federal regulatory uncertainty regarding environmental standards (Ozone, PM 2.5, GHG, CCRs) is a significant industry-wide challenge, requiring utilities to adapt their long-term planning. The company's move to dispose of early-stage clean energy investments suggests a focus on core regulated utility operations, potentially de-risking its portfolio from non-regulated ventures. The increase in interest expense and O&M costs reflects broader inflationary pressures and capital investment trends impacting the utility sector.

Corporate Governance

Legal Proceedings

• Three lawsuits, including one seeking class certification, were filed in 2025 in the Circuit Court of Henry County, Missouri, against Evergy Metro and two other defendants. The lawsuits allege unspecified damages resulting from the alleged unlawful and negligent spreading of Coal Combustion Residuals (CCRs) associated with the Montrose Station coal ash landfill.
• A class action complaint was filed in July 2025 in the U.S. District Court for the District of Maryland alleging violations of the Sherman Antitrust Act in establishing wages for employees at nuclear facilities since 2003. Wolf Creek Nuclear Operating Corporation, 94% indirectly owned by Evergy, is named as a defendant.

Related Party Transactions

• Evergy Kansas Central, Evergy Metro, and Evergy Missouri West engage in related party transactions, including shared services and joint ownership of generation facilities.
• Operating expenses and capital costs billed for jointly-owned plants and shared services include: Evergy Kansas Central billings to Evergy Missouri West of $69.6 million year-to-date June 30, 2025; Evergy Metro billings to Evergy Missouri West of $55.2 million year-to-date June 30, 2025; Evergy Kansas Central billings to Evergy Metro of $26.5 million year-to-date June 30, 2025; and Evergy Metro billings to Evergy Kansas Central of $68.1 million year-to-date June 30, 2025.
• As of June 30, 2025, Evergy Kansas Central had a net payable to Evergy of $13.3 million and a net payable to Evergy Metro of $17.8 million, and a net receivable from Evergy Missouri West of $65.0 million.
• As of June 30, 2025, Evergy Metro had a net receivable from Evergy of $16.4 million and a net receivable from Evergy Kansas Central of $17.8 million, and a net receivable from Evergy Missouri West of $79.8 million.
• Evergy Kansas Central, Evergy Metro, and Evergy Missouri West are authorized to participate in the Evergy, Inc. money pool for short-term internal financing, with no outstanding receivables or payables for Evergy Kansas Central and Evergy Metro as of June 30, 2025.
• Income taxes for consolidated or combined subsidiaries are allocated based on separate company computations of income or loss. As of June 30, 2025, Evergy Kansas Central had income taxes payable to Evergy of $12.4 million, and Evergy Metro had income taxes payable to Evergy of $13.4 million.

Stakeholder Impact

• Shareholders: Negative impact from decreased net income and EPS. Potential dilution from the ATM program. Positive impact from continued dividend payments ($0.6675 per share declared). Regulatory approvals for new projects and rate increases provide long-term stability and growth potential.
• Customers: Impacted by rate increases (Evergy Kansas Central $128.0 million, Evergy Missouri West $55.0 million, TDC increases for Evergy Kansas Central $55.9 million and Evergy Metro $4.8 million). Potential for refunds if Evergy Kansas Central's earnings exceed 9.7% ROE. Benefits from infrastructure investments aimed at improving reliability and customer service.
• Employees: No direct impact mentioned, but general and administrative labor and employee benefits expense increased. Workforce risks related to attracting/retaining qualified personnel and labor union relationships are noted.
• Suppliers/Contractors: Benefit from significant capital expenditures for new natural gas and solar generation facilities.
• Creditors: Positive impact from debt issuances and compliance with debt covenants. Moody's outlook change for Evergy Missouri West from Negative to Stable is positive, despite rating downgrade.

Next Steps

• New Evergy Kansas Central rates expected to be effective on September 29, 2025, pending KCC approval.
• Wolf Creek's next refueling outage is planned to begin in the fourth quarter of 2025.
• Evergy Kansas Central and Evergy Metro cash dividends to Evergy are payable on or before September 18, 2025.
• Evergy's common dividend is payable on September 19, 2025.
• EPA is required to issue final designations for PM 2.5 NAAQS for all states by February 2026.
• First combined-cycle natural gas plant in Kansas expected to begin operations by summer of 2029.
• Second combined-cycle natural gas plant in Kansas expected to begin operations by summer of 2030.
• Evergy Missouri West's 440 MW simple-cycle natural gas plant expected to begin operations in 2030.
• Kansas Sky, Sunflower Sky, and Foxtrot solar generation facilities are expected to begin operations by summer of 2027.
• EPA anticipates a second rulemaking modifying CCR requirements later in 2025.

Key Dates

Recommendation

The company's financial performance for the quarter and year-to-date shows a clear decline in net income and EPS, primarily driven by unfavorable weather, increased operating costs, higher interest expenses, and significant losses from non-regulated investments. This short-term underperformance is a concern. However, the company has secured crucial regulatory approvals for substantial capital investments in both natural gas and solar generation, which are vital for long-term growth and reliability in its regulated markets. The legislative changes in Missouri and Kansas also provide a more favorable regulatory environment for cost recovery and risk management. The initiation of a process to dispose of underperforming non-regulated assets is a positive step towards focusing on core operations. Given the mixed signals – current financial headwinds versus strong long-term strategic positioning and regulatory support – a 'Hold' recommendation is appropriate. Investors should monitor the execution of new projects, the impact of the ATM program, and the resolution of environmental regulatory uncertainties and legal proceedings.

Keywords

Electric Utility, Energy, SEC Filing, 10-Q, Quarterly Report, Financial Performance, Regulatory Approval, Natural Gas Plants, Solar Energy, Renewable Energy, Rate Case, Kansas, Missouri, Environmental Regulations, Utility Gross Margin, Earnings Per Share, Capital Expenditures, Risk Management, Corporate Governance, Infrastructure Investment