Evergy, Inc. (NASDAQ:EVRG) is a leading electric utility holding company that operates primarily through its wholly-owned subsidiaries, Evergy Kansas Central, Inc. and Evergy Metro, Inc. The company serves approximately 1.7 million customers across the states of Kansas and Missouri, providing them with reliable and affordable electricity.
Financials
Evergy's financial performance has been robust, with the company reporting annual net income of $731.3 million, annual revenue of $5.49 billion, and annual operating cash flow of $1.98 billion in its most recent fiscal year. However, the company's annual free cash flow stood at -$353.8 million, reflecting its significant capital investment program.
In the first quarter of 2024, Evergy reported adjusted earnings of $0.54 per share, compared to $0.59 per share in the same period of the prior year. The decrease was primarily driven by higher operations and maintenance expenses, depreciation and amortization, and interest expenses, partially offset by new retail rates and increased transmission margins. Unseasonably warm weather in the quarter also negatively impacted results by approximately $0.07 per share.
Despite the mild weather, Evergy reaffirmed its 2024 adjusted EPS guidance range of $3.73 to $3.93 per share, as well as its long-term annual adjusted EPS growth target of 4% to 6% from 2023 to 2026. This growth is expected to be achieved without the need for new equity.
Business Overview
Evergy's business overview is as follows:
Evergy Kansas Central, Inc.
is an integrated, regulated electric utility that provides electricity to customers in the state of Kansas. It has one active wholly-owned subsidiary, Evergy Kansas South, Inc.Evergy Metro, Inc.
is an integrated, regulated electric utility that provides electricity to customers in the states of Missouri and Kansas.Evergy Missouri West, Inc.
is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri.Evergy Transmission Company, LLC
owns a 13.5% stake in Transource Energy, LLC, a company focused on the development of competitive electric transmission projects.Evergy's geographic breakdown shows that the company generates the majority of its revenue from its Kansas-based operations, with Evergy Kansas Central and Evergy Metro contributing 52% and 32% of total revenue, respectively, in the most recent quarter. Evergy Missouri West accounted for the remaining 16% of revenue.
In terms of revenue breakdown, Evergy's largest customer class is residential, contributing 36% of total revenue in the first quarter of 2024. Commercial and industrial customers accounted for 32% and 12% of revenue, respectively, while wholesale, transmission, and other revenue sources made up the remaining 20%.
Recent Developments
Evergy's capital investment plan is a key driver of its growth strategy. The company recently filed its triennial Integrated Resource Plan (IRP), which reflects the impact of updated long-term load growth expectations, including the addition of a new Google data center in Missouri. The 2024 IRP includes 5,800 megawatts of resource additions through 2033, representing an increase of 1,500 megawatts over the next 10 years compared to the previous plan.
The company's focus on affordability, reliability, and sustainability is evident in its strategic initiatives. Evergy has invested significantly to enable its fossil units to meet environmental standards, operate reliably, and support its customers' needs. Since 2005, the company has reduced its carbon emissions by 53% and reduced sulfur dioxide and nitrogen oxide emissions by 98% and 90%, respectively.
Liquidity
Evergy's liquidity position remains strong, with $1.41 billion in available borrowing capacity under its master credit facility as of March 31, 2024. The company's debt-to-capitalization ratio stood at 59% at the end of the first quarter, providing ample financial flexibility to fund its capital investment program.
Risks and Challenges
Regulatory developments have been a key focus for Evergy. In Kansas, the company welcomed the passage of House Bill 2527, which provides a constructive framework for infrastructure investment and economic development. The bill includes a plant-in-service accounting (PISA) provision that allows Evergy Kansas Central and Evergy Metro to defer and recover 90% of depreciation expense and associated return on investment linked to qualifying electric plants in service. This is expected to mitigate regulatory lag and improve the company's ability to earn its authorized returns.
In Missouri, Evergy Missouri West has a pending general rate case, with a decision expected in early 2025. The company is also monitoring legislative efforts to amend the state's PISA statute to include new natural gas units and extend the sunset provision to 2035.
Evergy's risk profile includes exposure to environmental regulations, such as the recently issued EPA rules on greenhouse gas emissions and other air pollutants. The company is assessing the potential impact of these rules on its operations and resource planning, particularly with respect to the requirements for carbon capture and storage technology on existing coal-fired units.
Conclusion
Overall, Evergy's strong financial performance, robust capital investment program, and proactive regulatory engagement position the company well to continue delivering sustainable growth and value to its shareholders. The company's focus on affordability, reliability, and sustainability aligns with the evolving energy landscape and the needs of its customers.