Fortis Reports Strong Performance with Increased Capital Plan in Q3 2024 Results

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Fortis Reports Strong Performance with Increased Capital Plan in Q3 2024 Results

Fortis Inc. (FTS), a leader in the regulated gas and electric utilities sector in North America, reported strong financial and operational results for the third quarter of 2024 during its earnings conference call held on October 31, 2024. Under the leadership of CEO David Hutchens and CFO Jocelyn Perry, the company reported a solid quarter, particularly due to increased capital investments in the Eagle Mountain pipeline project and raised dividends.

During the call, the company's financial performance was detailed, including $0.85 adjusted earnings per share (EPS) for the third quarter and $2.45 adjusted EPS year-to-date, alongside strategic initiatives aimed at supporting the transition to cleaner energy.

Key Points:

  • Fortis invested $3.6 billion in energy systems year-to-date and plans to spend a total of $5.2 billion in 2024.
  • The company announced a new $26 billion five-year capital plan aimed at an average annual base growth of 6.5% by 2029.
  • A fourth-quarter dividend increase of approximately 4% was announced, with a forecast for annual dividend growth of 4% to 6% by 2029.
  • Fortis projects an increase in the rate base to $53 billion by 2029 through a $14 billion increase.
  • An adjusted EPS of $0.85 for the third quarter and $2.45 adjusted EPS year-to-date were reported.
  • Regulatory updates included a FERC ruling affecting ITC's return on equity and proceedings regarding Central Hudson's rates in New York.
  • The company raised $2.6 billion in debt to support its capital programs and anticipates further load growth in Arizona.

Company Outlook: Fortis is focused on implementing its new five-year capital plan and exploring growth opportunities. Optimism was expressed regarding potential customer rate reductions through improvements in rate stability and increased demand from large energy users, particularly in Arizona. The company maintains a strong balance sheet and manages regulatory environments and market dynamics across different regions.

Negatives: The disposal of Aitken Creek and higher financing costs contributed to a decline in EPS year-to-date. S&P reaffirmed the company's rating with a negative outlook following discussions on climate risk reduction plans.

Positives: Regulatory activities are expected to pave the way for rate stability and growth by focusing on regulated investments and cleaner energy transition projects. Fortis continues to remain optimistic about growth expectations, emphasizing its commitment to regulated investments and cleaner energy transition projects.

Shortcomings: The company recorded a decline in EPS due to the disposal of Aitken Creek and higher financing costs, which was partially offset by unrealized gains in derivatives.

Q&A Highlights: Management discussed growth opportunities and regulatory issues across various regions, including British Columbia, Alberta, and Arizona. The need for regulatory clarity in Arizona was emphasized, with expectation for agreements by 2025. The company actively engages with customers and regulators regarding policy implications of using gas as backup power, especially for data centers. Fortis extended its currency hedging program for U.S. cash flows by two years and continuously evaluates market conditions.

In its 2024 third-quarter earnings call, Fortis Inc. demonstrated a strong commitment to growth and reliability through significant investments in infrastructure and a clear strategy to navigate the evolving energy landscape. The company's proactive approach to regulatory changes and focus on cleaner energy and operational efficiency positions it well for future expansion and stability in the utilities sector.

InvestingPro Forecasts: The robust financial performance and strategic initiatives outlined during Fortis Inc.'s (FTS) 2024 third-quarter earnings call are further supported by key metrics and forecasts from InvestingPro. The company's market capitalization stands at $21.86 billion, reflecting its significant presence in the North American utilities sector.

One of the most noteworthy InvestingPro Insights indicates that Fortis has "increased its dividend for 37 consecutive years." This aligns perfectly with the company's announcement of a fourth-quarter dividend increase and guidance for continued dividend growth through 2029. The current dividend yield of 4.16% underscores Fortis's commitment to shareholder returns, which is particularly attractive in the utilities sector.

Another relevant InvestingPro Insight shows that Fortis is "trading near its 52-week high," with the stock price at 95.66% of its 52-week peak. This reflects investor confidence in the company’s performance and outlook, consistent with the positive narrative presented during the earnings call.

As of the second quarter of 2024, the trailing twelve-month price-to-earnings (P/E) ratio stands at 19.11, with a 19.43 adjusted P/E ratio, indicating investors are willing to pay a premium for Fortis's earnings, likely due to its stable business model and consistent dividend growth. However, it's worth noting that with a PEG ratio of 2.41, the stock could be trading at a high P/E ratio relative to its near-term earnings growth potential.

Fortis reported trailing twelve-month revenues of $8.33 billion as of the second quarter of 2024, showing a slight revenue growth of 2.93% for that quarter. The company's strong adjusted EBITDA growth of 8.35% during the same period aligns with its focus on operational efficiency and strategic investments.

These insights from InvestingPro add context to the earnings call discussion, enhancing the understanding of Fortis's financial health and market position. Investors seeking a more comprehensive analysis can access eight additional InvestingPro Insights that provide deeper insights into Fortis's financial metrics and market performance.