8-K: FirstEnergy Narrows 2024 Earnings Guidance, Boosts Capital Investment Plan

FirstEnergy reported third quarter 2024 earnings within guidance, narrowed its full-year earnings outlook, and increased its capital investment plan.

Summary

• FirstEnergy reported third quarter 2024 GAAP earnings from continuing operations of $0.73 per share, with operating (non-GAAP) earnings of $0.85 per share, which was within their guidance range.
• The company's revenue for the quarter was $3.7 billion.
• For the first nine months of 2024, FirstEnergy's GAAP earnings from continuing operations were $1.25 per share, with operating (non-GAAP) earnings of $1.96 per share.
• FirstEnergy narrowed its full-year 2024 operating (non-GAAP) earnings guidance to $2.61 to $2.71 per share, from the original range of $2.61 to $2.81 per share.
• The company increased its 2024 capital investment plan to $4.6 billion, a 24% increase over 2023 levels of $3.7 billion.
• The company is targeting a long-term annual operating earnings growth of 6-8%.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company is facing some headwinds and has narrowed its earnings guidance, it is also showing strong growth in its regulated business, increasing its capital investment plan, and receiving credit rating upgrades. The withdrawal of the Ohio ESP V is a negative, but the company is taking steps to address it.

Positives

• The company's financial results demonstrate the strength of its regulated investment strategies.
• FirstEnergy's team has delivered results consistent with financial commitments despite facing headwinds.
• The company's Energize365 investment plan is driving rate base growth.
• The company has a strong growth outlook with a targeted 6-8% long-term annual operating EPS growth.
• FirstEnergy has a low-risk diversified T&D asset mix with a strong affordability position.
• The company is committed to dividend growth in line with earnings growth.
• The company has received 40 total notches of credit rating upgrades this year across all three rating agencies.

Negatives

• The company experienced lower customer demand due to mild weather.
• Distribution revenues in Ohio were lower due to the Electric Security Plan V order.
• Storm restoration costs were significantly higher in the third quarter.
• The sale of a 30% interest in FirstEnergy Transmission, LLC, diluted earnings.
• Lower tax benefits impacted results.
• The company withdrew its Ohio Electric Security Plan V due to a lack of clarity on key conditions.

Risks

• The company faces potential liabilities and increased costs from government investigations and agreements.
• There are risks associated with government investigations and audits regarding Ohio House Bill 6.
• Changes in economic conditions, including recession and inflation, could affect the company and its customers.
• Variations in weather and natural disasters could impact future operating results.
• Legislative and regulatory developments could pose risks.
• Cyber-attacks and data security breaches could compromise operations.
• The company's ability to meet its goals relating to employee, environmental, social and corporate governance opportunities is a risk.
• Changing market conditions could negatively impact pension trusts.
• Changes in customer demand for power could affect the company.
• The company's ability to access capital markets could be impacted by market conditions.
• Human capital management challenges, including attracting and retaining employees, are a risk.

Future Outlook

FirstEnergy is focused on delivering against its five-year, $26 billion Energize365 capital investment program and its long-term 6% to 8% targeted annual earnings growth rate. The company is also pursuing incremental transmission opportunities and advocating for customers through current industry dynamics.

Management Comments

• Our financial results point to the strength of our regulated investment strategies and a culture of resiliency, financial discipline and continuous improvement, said Brian X. Tierney, President and Chief Executive Officer.
• While we've faced a number of headwinds this year, our entire team has responded to deliver results consistent with our financial commitments.
• We experienced a series of unforeseen challenges in 2024, yet we remain on track to deliver against our five-year, $26 billion Energize365 capital investment program and our long-term 6% to 8% targeted annual earnings growth rate, which is based off the prior year mid-point of operating earnings guidance, Tierney said.

Industry Context

The document highlights the increasing electricity consumption by data centers and AI, which is expected to triple by 2030. FirstEnergy is taking a thoughtful approach to manage risks and ensure existing customers have adequate protections. The company is also working collaboratively across the industry to address these challenges.

Comparison to Industry Standards

• FirstEnergy's residential rates in Pennsylvania remain 2% below the peer average in the state.
• The company's targeted 6-8% long-term annual operating EPS growth is a key metric for investors to compare against other utilities.
• The company's 24% increase in capital investment plan is a significant increase compared to the previous year and may be compared to other utilities' investment plans.
• The company's credit rating upgrades by Fitch, S&P, and Moody's are positive indicators of financial health and are comparable to other investment-grade utilities.

Management Changes

Legal Proceedings

• The company is involved in ongoing government investigations and audits regarding Ohio House Bill 6.
• There are risks and uncertainties associated with litigation, arbitration, and mediation, particularly regarding HB 6 related matters.

Stakeholder Impact

• Shareholders are impacted by the narrowed earnings guidance and increased capital investment plan.
• Customers are impacted by the lower distribution revenues in Ohio and higher storm restoration costs.
• Employees are impacted by the company's efforts to improve efficiency and reduce costs.
• The company's suppliers and vendors are impacted by changes in economic conditions and supply chain disruptions.
• Creditors are impacted by the company's debt transactions and credit rating upgrades.

Next Steps

• The company expects to file the ESP VI by early next year.
• Project approvals for incremental transmission investments are expected to be announced in late February 2025.
• The company expects orders for OH Grid Mod II and NJ EE&C by the end of 2024 and EnergizeNJ by 1Q25.

Key Dates

Keywords

earnings, financial results, capital investment, operating earnings, rate base, transmission, distribution, regulatory, Energize365, credit rating