Entergy Corporation (ETR) Earnings Call Transcript & Summary

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Entergy Corporation Second Quarter Earnings Call and Teleconference. [Operator Instructions] And I will now turn the call over to Liz Hunter, Vice President of Investor Relations for Entergy Corporation. Liz, you have the floor.

Good morning. Thank you, Greg, and thanks to everyone for joining this morning. We will begin today with comments from Entergy's Chair and CEO, Drew Marsh; and then Kimberly Fontan, our CFO, will review results. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Drew.

Thank you, Liz, and good morning, everyone. Today, we are reporting quarterly adjusted earnings per share of $1.03. We remain firmly on track to meet our 2026 adjusted EPS guidance and longer-term outlook. Kimberly will review our financial results in more detail. Last month, we hosted our Investor Day in New York, and I want to thank all of you who attended in person and listened online. We provided a comprehensive update on our business strategy that defines how every decision starts with the customer to create long-term value for our key stakeholders, our customers, employees, communities and owners. You also heard directly from 2 of our customers, AWS and Meta, on how we're working together to benefit stakeholders. Our differentiated growth story driven by macro trends was a key theme. While the technology sector is the largest demand growth contributor in our 5-year plan, we also have robust demand from our traditional industrial segments. Looking beyond our current outlook, we continue to have 7 to 12 gigawatts of hyperscale data center potential in our pipeline as well as 3 to 5 gigawatts of interest from traditional industrial segments. Since Investor Day, interest in potential large-scale projects throughout our service area has continued to grow, and we remain excited about the opportunities before us. We've highlighted our Fair Share Plus pledge which is our commitment to ensure that customers benefit from data center growth. Starting with our first data center agreement in 2024, we partnered with our elected leaders and our hyperscale customers to ensure that data centers pay the full cost to serve them and their fair share of fixed costs. For agreements signed to date, we expect $7 billion in customer bill benefits. On top of that, these customers bring significant economic development, community support and grid enhancements for the communities and states where they operate. Louisiana Governor, Jeff Landry, is also committed to protecting customers and communities. In late June, he signed an executive order ensuring that new data centers are committed to providing customer benefits, an order that we see is consistent with our Fair Share Plus pledge. The requirements include protecting Louisiana customers, investing in grid resilience and long-term reliability providing meaningful community benefits, including workforce development and maintaining transparency and accountability. Importantly, this new executive order moves beyond setting an expectation to now setting a standard required to qualify for state sales tax exemptions. We are proud to say that the governor held out Meta's investment in Richland Parish as a positive example, providing significant customer and community benefits that meet the executive orders requirements. And now any future data centers in Louisiana must also meet that standard. Last week, we attended the White House's Ratepayer Protection Pledge event with Governor Landry; Meta President, Dina Powell McCormick; and the Richland Parish School System Superintendent, Sheldon Jones. We were honored to participate and highlight the work we all have done to benefit our existing customers and communities through data center investments. The White House's Ratepayer Protection Pledge, Governor Landry's recent executive order and our Fair Share Plus pledge are all aligned to ensure that we grow and support this transformational investment opportunity and that we do it in a way that creates benefits for all stakeholders. I have a few operational updates today, beginning with resilience and reliability. So far this year, we've had 2 minor tropical storms that impacted our service area. Restoration costs were nominal and no special cost recovery is needed. We were fully prepared even though it turned out they weren't major storms. Severe weather preparation and readiness is a year-round effort focused on training, grid investments, inventory management, proactive maintenance such as vegetation management and other activities. At Investor Day, we highlighted investments we're making in resilient infrastructure. As a recent example, Entergy Louisiana kicked off a project in St. Bernard Parish that is part of its phase 1 accelerated resilience program, improvements include replacing or reinforcing approximately 640 distribution and transmission poles with infrastructure engineered to withstand wind speeds of up to 150 miles per hour. And another example, this quarter, our power delivery team reached an important reliability milestone for our customers. Our self-healing network program, which began installations in 2021, is improving reliability for more than 0.5 million customers through more than 400 self-healing networks now in service. Since the program began just 5 years ago, we have avoided more than 700,000 customer interruptions and an estimated 80 million outage minutes. But we aren't done. We recently provided notice in Louisiana that we plan to file for additional accelerated resilience investments in the third quarter of this year. We are calling our request, phase Ia, and it would bring -- it would bridge the end of the current program and the next phase. Phase Ia will be a smaller intermediate plan to help us continue resilience improvement and retain workforce continuity while managing customer affordability. In May, Louisiana implemented a rider to support an enhanced vegetation management program. This program provides for rider recovery of vegetation management expenses above the 2025 baseline spending level. And in June, Entergy Texas closed on its $200 million Texas Energy Fund grant to strengthen electric resilience and reliability at no cost to customers. This brings Entergy Texas accelerated resilience plan to $337 million. Investments like these will improve storm readiness, hard in the system and ensure faster restoration following extreme weather events. These improvements are also part of our long-term planning and work to modernize the grid and reduce the number and length of outages our customers experience. Turning to nuclear. River Bend Station was recently recognized for its 40 years of service and its importance to Louisiana's energy landscape, providing clean, reliable power during those 4 decades. Also, the Nuclear Energy Institute each year recognizes the nuclear industry's most innovative ideas with its Top Innovative Practice Awards. And this year's energy nuclear team is receiving 4 awards. Our customers will realize operational and affordability benefits as these innovations are implemented and in some cases, scaled across our fleet. One of the projects was a first-of-a-kind replacement of the reactor vessel head through the containment hatch. This work, which supports ANO's long-term operations was part of the recent refueling outage which successfully completed ahead of schedule on April 30. Moving to regulatory matters. Putting our customers first remains a cornerstone of regulatory outcomes that benefit all stakeholders. Over the past quarter, we continue to move steadily through multiple proceedings. Entergy Texas updated its distribution cost recovery factor, or DCRF, to include distribution assets that benefit customers and were placed in service since our last filing. Entergy Texas also received approval for its first-ever capacity cost recovery rider. This mechanism is a result of legislation passed in 2025 that modernizes MISO capacity cost recovery consistent with our other jurisdictions. Entergy Arkansas has new rates in effect for the generating Arkansas Jobs Act rider. The rider supports Entergy Arkansas's ability to make large investments to benefit customers and provide economic development in the state. In July, Entergy Arkansas filed its 2025 FRP historical netting adjustment. This filing reflects a rate reduction for customers, which will partially offset the impact of the base rate case, which itself was already expected to be less than 1% for residential customers. In June, Entergy Mississippi's annual FRP filing was approved resulting in no rate change. In addition, Entergy Louisiana and Entergy New Orleans filed their annual FRP. We expect new rates to be in effect in September for those jurisdictions. Both jurisdictions also filed to extend their current FRPs, Louisiana for 1 year and New Orleans for 4. We continue to make progress on our other regulatory proceedings, such as the [ EVAS ] filing to support additional service to Meta, the Arkansas rate case, the Cottonwood acquisition and other investments. There's more information on these proceedings in the appendix to today's earnings call presentation. We engage our communities in many ways, but one of the most important is through economic development. Our 4-state Gulf South corridor is benefiting from a massive construction and manufacturing boom that continues to expand. The strong economic growth in our states is having a positive effect the economic indicators are looking strong. For example, GDP and nonfarm payrolls are at 20-year highs. Population is also growing after years of declines in Louisiana and Mississippi. A strong economy is good for business, but it's also good for communities. For example, Northeast Arkansas is seeing new ancillary business investments to support the growing steel industry. This kind of complementary activity creates an industry hub that lowers cost for all local participants and enhances regional competitiveness. Teachers in Richland Parish, Louisiana are benefiting from bonuses of up to $50,000 as a result of a growing tax base supported by Meta's data center investments, an example of significant new opportunity in rural communities. In Mississippi, a circuit breaker manufacturing facility is expanding to serve local and regional data center and other electric infrastructure needs and bringing more jobs and property taxes along with it. And in Southeast Texas, with multiple new and expanding LNG facilities, the region is benefiting from new college and workforce development programs designed to help local residents gain skills that will support decades-long careers in the LNG industry. Beyond economic development, our commitment to supporting our communities continues to be recognized. Entergy was once again named as an honor of The Civic 50 which identifies the nation's most community-minded companies. Entergy was also recognized as the utilities sector leader, highlighting our ongoing commitment to employee volunteerism and community engagement. By continuing to put our customers first, we remain focused on delivering premium value to each of our key stakeholders. In the first half of we made steady progress across customer, operational, regulatory and financial fronts. And we remain solidly on track to achieve our objectives for 2026 and beyond. I'll now turn the call over to Kimberly, who will review our financial results for the quarter.

Thank you, Drew. Good morning, everyone. I'll now review our financial results and our outlook as well as activity in the quarter. Our results for the quarter were straightforward. Our adjusted EPS was $1.03 as shown on Slide 4. This was slightly lower than last year as weather was close to normal, compared to warmer weather in 2025. Excluding weather, retail sales growth was positive, driven by 10% industrial sales growth as new and expansion projects continue to ramp up their operations. The effects of investments made for our customers was also a driver. This includes regulatory actions net of higher depreciation expense, taxes other than income taxes and financing costs. Other drivers for the quarter included higher other O&M higher interest expense at parent and a higher share count from settling equity forwards. Slide 5 summarizes our credit ratings and affirms that our credit metric outlooks remain better than rating agency thresholds. Our plan reflects FFO to debt at or above 15% throughout the outlook period for Moody's metric, giving us capacity to manage events in the business as they occur. Drew mentioned our storm preparedness and that includes financial readiness. We've continued to stay ahead of our financing needs, giving us very strong liquidity and including cash on hand, revolver capacity and unsettled equity forwards, we are ready to respond in the event of a storm. We are constantly finding ways to strengthen our balance sheet and support our financial health to create benefits for customers. That includes structuring large agreements to protect existing customers on our credit and working with regulators on mechanisms that support the best decisions for our customers. S&P Global Ratings recently published a report highlighting our commitment to our fair share plus pledge to protect customers. They also noted that our credit profile appears positioned to benefit from data center expansion as a result of disciplined contracting and constructive regulatory tools to reduce associated risks. As you can see on Slide 6, our equity plan is unchanged from Investor Day. We continue to be proactive in addressing equity needs to provide certainty and flexibility, giving us ample time to raise capital. In early May, we completed a $2.175 billion offering for equity forwards. Approximately 60% of our 5-year equity plan is contracted, satisfying needs into 2028. On June 22, we settled 8.7 million shares of equity forwards for net proceeds of $672 million. The proceeds will support our customer-centric investment plan and our credit. As shown on Slide 7, we are affirming our 2026 adjusted EPS guidance and our outlooks through 2030. This is the same 5-year period that we showed at Investor Day. We expect our outlook period to continue to be through 2030 at EEI. For 2026, we are firmly on track, and we remain confident that we will deliver on our guidance. Looking ahead to the third quarter, with other movements in our plan, we expect other O&M to be approximately $0.05 to $0.10 higher than the same quarter last year, driven by increases in expenses that are recovered through riders offset elsewhere as well as consideration for the LDC sale last year. Assuming normal weather in the third quarter, we expect the majority of our year-over-year earnings increase to come through in the fourth quarter due to flex spending toward the end of the year, the end of last year. At Investor Day, we laid out our differentiated growth strategy that is delivering strong, sustainable results. We are creating value for all our key stakeholders, including our owners. With that plan, we have clear line of sight to achieve our outlook, and we have significant opportunities before us. And now we're happy to take your questions.

[Operator Instructions] It looks like our first question comes from the line of Shar Pourreza with Wells Fargo.

Maybe just starting off on the recent federal and state announcements on sort of nuclear advancement. I mean Governor Landry and the DOE are advancing negotiations on nuclear life cycle innovation, which includes advanced reactor deployment. Is that something Entergy's actively participating in? And are you seeing any incremental movement on the 3 legs of support for new reactor deployment between state regulators, federal backing and hyperscaler support, especially as we're thinking about the [ PA10 ] formation?

Well, I appreciate the question, Shar. So certainly, we've been in conversations with the state about their interest in new nuclear, and we are excited to get the news that the DOE has moved them to the next phase. The work that they are doing with the DOE is for a lot of the components that would support new nuclear investment. And so we're excited about that. That clearly would bring new jobs and opportunity in the state if Louisiana could be successful in winning that work. And I think our perspective on new nuclear deployment remains where it was at Investor Day. We are working with several parties to try and work through the various components of risk but making sure that our customers are protected and managed with that risk and that our -- the balance sheets of our operating companies are managed and protected from new nuclear risk is still going to be very, very important. We're making progress on that, but I don't think we're near where we need to be just yet to be successful in launching, but we are continuing to have those conversations.

Is that a '26 update, Drew, or '27 update, do you think?

In terms of when that might be available or when we might announce something, we don't have a firm time line. We don't have a firm time line. We're working through it. And I feel like we're making this progress. But at the end of the day, as we've said before, it has to be customer led. And so that customer-led component is what's going to determine the time line.

Got it. Okay. Perfect. And then lastly, just on the terms of the Louisiana FRP extension, do you anticipate extension? And what would be the alternatives, I guess, in lieu of the FRPA, how quickly are you able to propose an alternative filing. So I guess what's your expectation on a full GRC versus a new FRP construct?

Yes. I think that we have a long history of extending formula rate plans within Louisiana. And so our expectation is that we would probably be able to extend, of course, we have to work with the regulators and the staff and other folks that will be participating in the process to make sure that it works for everybody. But we've had success in the past. And so that -- we would think that, that's probably a good indicator for what we might be able to do going forward.

And our next question comes from the line of Jeremy Tonet with JPMorgan.

Just wanted to swing over to Mississippi, if we could. We've had conversations recently with key stakeholders in the state, and it's really highlighted particularly positive tone towards incremental data center development and this might be the most receptive conversation we've had in all of our conversations. I was just wondering if you could update us on the potential for incremental expansions in Mississippi and what size you think that could reach?

Yes. Well, I mean we continue to have very robust conversations in Mississippi. Of course, you all know that AWS has a significant investment there and AVAIO is also looking to invest with us there. And there are other investments in other parts of the state. So I think the state is clearly embracing the opportunity and the benefits that come along with these investments for customers and communities, existing customers and communities. The Fair Share Plus pledge really kind of originated and with our first customer in Mississippi with AWS. And so we've been pushing those guidelines the whole time. And so we believe that there still continues to be opportunity. I think it's beyond the customers that we have talked to historically. I think there's other customers that are out there who may be interested in Mississippi as well. But we don't have any specific updates or details that we can give you at this time.

Got it. That's very helpful. Turning to Louisiana, again, conversations with the key stakeholders in Louisiana pointed to Meta possibly reaching 12 gigawatts in the state. And I was just wondering if you could provide any thoughts on how big the opportunity set is you see in Louisiana.

Well, I can't speak to Meta's appetite specifically. Obviously, as we've said in the past that all of the customers that we have been working with. Every one of them has been interested in expanding beyond where they are. So we would continue to work with Meta to expand should that opportunity come about. There is a lot of interest, I mentioned earlier that the front end of our funnel continues to be very, very active. It's not yet so the spot where we are ready to change our 7 to 12 gigawatt number. But it is very, very active, and we're excited about what those opportunities could be.

And our next question comes from the line of Richard Sunderland with Truist Securities. [Operator Instructions] in the meantime, we will go to Paul Zimbardo with Jefferies for the next question.

I hope you can hear me okay.

Paul, we can hear you great.

Good. Good. I was readying the [ undock ] circle. Just wanted to check in. I know you know that interest has grown since the Investor Day. Is there any labor or quantification you can put on that, whether it's expansions from existing customers, specific jurisdictions, just anything there would be helpful.

It's in our existing -- the 3 jurisdictions primarily, and it is significant. I'll say that. But I mean, we -- in sort of the [ 7 to 12 ], we're already probability weighting those numbers because the actual cue size is much, much greater than that. And these -- this interest is potentially adding significantly to that. But it's still very -- it's more like indications of interest, I would say, at this point rather than full fledged proposals kind of ready to go. So it's still early innings, but it is a lot of volume that we are seeing come in that is showing interest. And so we're excited about what that could turn into. Our existing portfolio of signed electric service agreements started as indications of interest as well. So we think that there could be some opportunity here.

Okay. No, that's great. And then the other one want to touch on just on Cottonwood. I know you're a creative team. Are there any other options potentially involving large load customers to come up with a different configuration or otherwise reduce the bill impact on customers? Any color would be helpful.