Canadian Utilities Ltd (CDUAF) Q4 2024 Earnings Call Highlights: Strong Earnings Growth Amid ...

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Adjusted Earnings: $647 million in 2024, up from $596 million in 2023.
Adjusted Earnings Per Share: $2.38 for 2024.
ATCO Energy Systems Adjusted Earnings: $632 million in 2024, an increase of 11% or $61 million compared to 2023.
ATCO EnPower Adjusted EBITDA: $146 million in 2024, up $14 million from 2023.
Electricity Generation Adjusted EBITDA: $75 million in 2024, an increase of $2 million over 2023.
Storage and Industrial Water Adjusted EBITDA: $71 million in 2024, with adjusted earnings of $38 million, up $7 million from 2023.
ATCO Australia Adjusted Earnings: $48 million in 2024, a decrease of $12 million compared to 2023.
Cash Flow from Operations: $1.9 billion in 2024, up 8% from the prior year.
Utility Investment: $1.4 billion in 2024.
Planned Investment in Canadian Regulated Utilities: $5.8 billion over the next three years.

Warning! GuruFocus has detected 9 Warning Signs with CDUAF.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Canadian Utilities Ltd (CDUAF) achieved adjusted earnings of $647 million in 2024, up from $596 million in 2023, demonstrating strong operational execution.
ATCO Energy Systems delivered adjusted earnings of $632 million in 2024, an increase of 11% compared to the previous year, driven by rate base growth and an increase in allowable ROE.
The company reported a significant increase in contracted sales volumes from 41% in 2023 to 73% in 2024, reducing volatility and stabilizing future earnings and cash flow.
Cash flow from operations was $1.9 billion in 2024, up 8% from the prior year, supporting operations, capital programs, and financial commitments.
Canadian Utilities Ltd (CDUAF) plans to invest $5.8 billion within its Canadian regulated utilities over the next three years, driving an average annual rate base growth of 5.4%.

Negative Points

The allowable ROE for 2025 has been reset to 8.97% from 9.28% in 2024, expected to impact earnings by approximately $15 million.
The efficiency carryover mechanism providing an additional 50 basis points of ROE concluded at the end of 2024, impacting earnings by approximately $11 million.
ATCO Australia reported a decrease in adjusted earnings by $12 million compared to 2023, primarily due to the impact of inflation indexing on rate base.
Alberta experienced a significant decrease in merchant power prices, resulting in a lower average realized price of $75 per megawatt in 2024 compared to $95 in 2023.
Regulatory uncertainty related to the power market in Alberta has delayed some projects, impacting the development of renewable energy initiatives.

Q & A Highlights

Q: How is Canadian Utilities planning to fund the increased capital expenditure in 2027 and beyond? A: Katie Patrick, Executive Vice President, Chief Financial & Investment Officer, stated that in the short to medium term, they do not foresee the need for external equity. They have a strong credit rating, which provides some leverage opportunities. However, for the larger expenditures, particularly related to the Yellowhead pipeline, they are considering various forms of equity to maximize shareholder value.

Q: What are the key challenges in advancing carbon and hydrogen projects given the current political uncertainties? A: Robert Myles, President & Chief Operating Officer, acknowledged the uncertainties both federally and provincially. He emphasized the need for clarity in the political environment before making significant decisions, affecting both renewable and hydrogen projects.

Q: Is the long-term rate base growth outlook still in the 4% to 5% range, or have emerging trends like data centers changed this outlook? A: Katie Patrick confirmed that while the medium-term rate base growth is updated to 5.4%, the long-term outlook remains unchanged due to various uncertainties. Positive trends like data centers are noted, but they are cautious about potential negative impacts on long-term growth.

Q: What is the company's strategy regarding gas-fired generation, and how does it relate to data centers? A: Robert Myles explained that they are considering gas-fired generation to support data centers and meet the need for more 24/7 generation in Alberta. They are also exploring opportunities in other jurisdictions like Australia and Mexico, but they are cautious about committing to 100% merchant projects without more certainty.

Q: Can you provide an update on the LUMA Energy situation in Puerto Rico? A: Robert Myles noted that PREPA is still in bankruptcy, and they are operating under an interim agreement. Despite challenges, Canadian Utilities remains committed to Puerto Rico, and they are navigating the changes with the new governments in Puerto Rico and Washington.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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