Sempra Energy's (NYSE:SRE) first quarter of 2024 results showcase the company's strong financial performance and its strategic positioning to capitalize on the growing demand for energy infrastructure in North America. With a diverse portfolio of regulated utilities and energy infrastructure assets, Sempra Energy is well-poised to deliver sustainable growth and attractive returns to its shareholders.

Financials

In the first quarter of 2024, Sempra Energy reported GAAP earnings of $801 million, or $1.26 per share, compared to $969 million, or $1.53 per share, in the same period last year. On an adjusted basis, the company's earnings were $854 million, or $1.34 per share, compared to $922 million, or $1.46 per share, in the first quarter of 2023.

For the full year 2023, Sempra Energy reported net income of $3,075 million on revenues of $15,802 million. The company's operating cash flow for the year was $6,218 million, while its free cash flow was negative $2,179 million, reflecting the company's significant capital investments.

Segmental Performance

Sempra California, the company's largest segment, which includes its regulated utilities San Diego Gas & Electric (SDG&E) and Southern California Gas (SoCalGas), reported a decrease in earnings of $36 million (6%) to $582 million in the first quarter of 2024. This was primarily due to higher net interest expense, lower income tax benefits, and lower CPUC base operating margin, partially offset by higher authorized cost of capital.

Sempra Texas Utilities, which includes the company's investment in Oncor Holdings, saw an increase in earnings of $100 million to $183 million, driven by higher equity earnings from Oncor due to rate updates, increased invested capital, and higher customer consumption.

Sempra Infrastructure, the company's energy infrastructure segment, reported a decrease in earnings of $184 million to $131 million. This was mainly due to lower asset and supply optimization results, partially offset by lower net interest expense, lower taxes, and higher power generation results.

Outlook

Sempra Energy's management team is committed to challenging the status quo and driving growth in some of North America's largest economic markets. The company has a robust $48 billion capital plan through 2028, targeting attractive mid-teens returns on equity.

In California, the company is at the forefront of the energy transition, serving 25 million consumers and making investments to support electrification, decarbonization, and improved affordability, safety, and reliability. The company is awaiting a final decision on its 2024 General Rate Case, which is expected to provide a clear regulatory pathway for its utility-focused capital plan through 2027.

In Texas, Sempra's Oncor subsidiary is adapting to the state's strong demand growth, with ERCOT forecasting peak load to reach 152 gigawatts by 2030, nearly double the record set last year. Oncor recently filed a $3 billion system resiliency plan to improve grid reliability and modernization, which is expected to be reviewed and approved by the end of 2024.

Sempra Infrastructure is also well-positioned to capitalize on the growing global demand for energy security and the transition to cleaner energy sources. The company has approximately 16 million tonnes per annum of new LNG export capacity currently under construction, which would more than double its existing LNG operating footprint. Additionally, the company is developing renewable energy projects, such as the Cimarrón Wind project in Mexico, and exploring carbon sequestration opportunities to support its customers' decarbonization efforts.

Disciplined Capital Allocation and Financing

Sempra Energy has a track record of efficiently financing its growth, with no need for additional equity. The company's current financing plan has the capacity to support its $48 billion capital plan through 2028, and it is exploring various options, including utilizing the balance sheet of its Sempra Infrastructure segment, to fund its future investments.

The company's commitment to disciplined capital allocation is central to its success. Sempra Energy understands the importance of returning capital to its owners and has successfully grown its dividend at a rate of approximately 7% annually over the last 10 years, which is particularly noteworthy given the expected strength of its future earnings growth.

Risks and Challenges

While Sempra Energy's growth prospects are promising, the company faces several risks and challenges, including regulatory decisions, construction and development risks, and potential supply chain and labor constraints.

The company's regulated utilities in California and Texas are subject to the decisions of their respective regulatory bodies, which could impact the company's ability to recover its costs and earn its authorized returns. Additionally, the successful development and construction of Sempra Infrastructure's projects are subject to numerous risks, including securing customer commitments, obtaining financing, and obtaining necessary permits and approvals.

Sempra Energy is also exposed to potential supply chain and labor constraints, which could impact the cost and timing of its capital projects. The company is actively managing these risks by diversifying its supply chain, securing long-lead time equipment, and partnering with experienced contractors.

Conclusion

Sempra Energy's first quarter 2024 results demonstrate the company's ability to deliver strong financial performance and position itself for continued growth. With its diverse portfolio of regulated utilities and energy infrastructure assets, the company is well-positioned to capitalize on the growing demand for energy in North America. Sempra Energy's disciplined capital allocation, efficient financing, and commitment to innovation and customer service make it an attractive investment opportunity for investors seeking exposure to the energy infrastructure sector.