Ameren Corp (AEE) — Q3 2020 Earnings Call Transcript

Thank you, and good morning. On the call with me today are Warner Baxter, our Chairman, President, and Chief Executive Officer; and Michael Moehn, our Executive Vice President and Chief Financial Officer; as well as other members of the Ameren management team joining remotely. Warner and Michael will discuss our earnings results and guidance, as well as provide a business update. Then, we will open the call for questions. Before we begin, let me cover a few administrative details. This call contains time-sensitive data that's accurate only as of the date of today's live broadcast, and redistribution of this broadcast is prohibited. To assist with our call this morning, we have posted a presentation on the AmerenInvestors.com homepage that will be referenced by our speakers. As noted on page 2 of the presentation, comments made during this conference call may contain statements that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objectives, events, conditions, and financial performance. We caution you that various factors could cause actual results to differ materially from those anticipated. For additional information concerning these factors, please read the forward-looking statements section in the news release we issued yesterday and the forward-looking statements and risk factors sections in our filings with the SEC. Lastly, all per share earnings amounts discussed during today's presentation, including earnings guidance, are presented on a diluted basis unless otherwise noted. Now, here's Warner.

Thanks, Andrew. Good morning, everyone, and thank you for joining us. Before I jump into our discussion of third quarter results and other key business matters, I'll start with a few comments on COVID-19. I hope you, your families, and colleagues are safe and healthy during this challenging time. While COVID-19 has driven a great deal of change, I can assure you that one thing that remains constant in Ameren is our strong commitment to the safety of our co-workers, customers, and communities. We have a strong focus on delivering safe, reliable, cleaner, and affordable electric and natural gas services during this unprecedented time. Millions of customers in Missouri and Illinois are depending on us. I can't express enough appreciation to my co-workers, who have shown great agility, innovation, determination, and a keen focus on safety while delivering on our mission to power the quality of life. We continue to carefully monitor the impact of COVID-19 on our electric sales, liquidity, and supply chain. To date, these impacts have been manageable and are largely in line with our expectations. In addition, our team continues to successfully execute our strategy across the entire business. Looking ahead, we will remain focused on executing our strategy, including employing our strong safety practices, as well as continued exercise financial discipline to mitigate the impacts of COVID-19. At the same time, we will look to capitalize on the key opportunities we have identified during the last several months, including the benefits we are realizing from our digital investments and other efficiencies in our operations. Turning now to page 4 for an update on third quarter results and 2020 earnings guidance. Yesterday, we announced third quarter 2020 earnings of $1.47 per share compared to $1.47 per share earned in 2019. A summary of the key drivers is provided on this page, which Michael will discuss in more detail in a moment. I am pleased to report that we remain on track to deliver solid earnings growth in 2020 over 2019. Yesterday, we also announced that we narrowed our 2020 earnings guidance range to $3.40 per share to $3.55 per share. That compares to our initial guidance range of $3.40 per share to $3.60 per share. Moving to page 5, we reiterate our strategic plan, which we have been executing very well throughout the year. We expect our plan will continue delivering significant value for our customers and strong long-term earnings growth for our shareholders.

Thanks, Warner, and good morning, everyone. Turning now to page 13 of our presentation. Yesterday we reported third quarter 2020 earnings of $1.47 per share compared to earnings of $1.47 per share for the year-ago quarter. The key factors by segment that drove the year-over-year results are highlighted on this page. Ameren Transmission and Ameren Illinois Natural Gas earnings were up $0.03 and $0.02 per share, respectively, reflecting increased infrastructure investments. In Ameren Illinois Electric Distribution earnings increased $0.01 per share, reflecting increased infrastructure and energy efficiency investments, partially offset by a lower expected allowed return on equity under performance-based ratemaking. Ameren Missouri, our largest segment, reported earnings that declined $0.02 per share compared to the prior year. The comparison was primarily driven by lower electric sales of $0.08 per share due to both milder than normal temperatures in the third quarter compared to warmer than normal temperatures in the previous year, as well as lower weather-normalized sales, primarily due to impacts of COVID-19. Ameren Missouri's earnings also reflected lower MEEIA performance incentives of $0.03 per share compared to the year-ago period. These unfavorable factors were partially offset by new electric service rates effective April 1, which increased earnings by $0.08 per share compared to the year-ago period, as well as lower operations and maintenance expenses reflecting disciplined cost management, which increased earnings by $0.04 per share.

Hi. Good morning.

Good morning, Jeremy. Good morning. How are you doing?

Great. Thank you. Just want to dig in on 2021 a little bit more if I could and would you be able to provide any additional color on the sales outlook across different sectors; residential, commercial, industrial in your 2021 earnings considerations? And what local trends are you seeing and how do you expect these trends to change over 2021 with COVID recovery? And then lastly, are there any additional considerations for your gas versus electric operations under continued COVID impact?

Yeah. So, Jeremy, so, a lot to unpack there. Clearly, Michael laid out some of the trends that we have seen in 2020, and now obviously, we've talked a little bit about 2021 in the past. So, Michael, why don't you maybe touch on some of those trends? And then we can sort of look at the gas business and sort of the second part of that question.

Yeah. Good morning. Appreciate the question. Yeah, look, we did lay out quite a bit of detail, obviously, on 2020, and we continue to track pretty well with where we expected things to come out as we talked about at the beginning of the year. I think for the most part, it's coming in about where we expected. The mix is a little bit different. As you think about 2021, I mean, we're doing a lot of different scenarios, Jeremy, and we're thinking about how this recovery is going to continue. We are obviously modeling a recovery to continue into 2021, and we're looking hard within each of those sectors. And obviously, you've seen the strong piece on the residential side, industrial, it's come back for the most part. Commercial is the area we're spending a lot of time on just really trying to understand what that impact will be for retail, et cetera. So, we haven't, obviously, provided what we're going to exactly see for 2021 because we want to really see where 2020 continues to finish out here. Being really thoughtful about it, I mean, I – to be honest, I'm not seeing a lot of scenarios where we would gain all of that back; I mean, I'll be honest about that. But we clearly do continue to see the recovery continue in place. Now, all of that is premised on the fact that we wouldn't go back to any sort of shelter-in-place orders. And for the most part, where we're impacted by earnings here in Missouri, we're pretty well opened up. I mean, you do have certain sectors operating at some limited capacity, restaurants or retail, those kinds of things. And so, we're assuming that some of that continues to come back. But again, all that's premised on the fact that we wouldn't have any significant sort of shelter in place at the moment.

Yeah. Michael, I think that's a great summary. So, I think Michael summed it up well. We continue to see really pretty much what we expected at the outset. We expected a modest recovery over time, and that's what we're seeing. And we'll get more guidance, of course, when we come out in our February conference call with regard to 2021 and beyond, so we'll be able to give you some more perspectives. You asked about the gas business. And so, keep in mind, our big gas business. We have a small gas business in Missouri, but the big gas business is in Illinois, and that's decoupled. And so, when you think in terms of COVID-19, the implications there are really nonexistent in terms of the overall impacts on sales and margins and the like.

Hey. Good morning, guys. Thank you for taking my question. I'm sorry I didn't realize I was in mute. Maybe – you guys talked about sort of you're going to be cautious and disciplined including some of those incremental CapEx on the Q4 call. Perhaps what are – between now and Q4 sort of what goes into that consideration of including that CapEx? Is there something incremental on the IRP that you're going to hear? Just any thoughts or color around that would be appreciated.

Sure. Sure. So, this is Warner, again. Look, as we've said in the past, we'll be thoughtful in terms of when we include new renewable generation projects, things from the Integrated Resource Plan into our long-term CapEx and look at a variety of factors. And certainly, one important matter that we'll be mindful of is that Marty and his team, they've issued an RFP for the wind and solar projects. And so, that's already out there. So, while not only we filed the IRP, but we're taking steps to execute elements of that plan. And of course, an RFP and our ability to assess those projects from that RFP will be one important consideration that we'll look at. And, of course, there are regulatory factors. It's always – we want to be thoughtful in terms of when we do these things, looking at the nature of the projects, the regulatory approvals that would be required, all those things go into our determination of when we actually put it in there. But as I said at the outset, one thing is clear, the opportunities from our Integrated Resource Plan are significant, and there are $3 billion through 2030. And so, Michael, any other thing that you would add to that?

That's a great summary of the IRP itself. I mean, I think of just the normal kind of budgeting and stuff, the updates that we'll do in the February timeframe, we go through that process obviously throughout the year. We continue to look at capital allocation issues. And so, it'll be the normal updates just in the course of the business that we run through. And so, you certainly should expect to see that. And that's typically when we do that in that February call as well.

Thank you for participating in this call. A replay of this call will be available for one year on our website. If you have questions, you may call the contacts listed on our earnings release. Financial inquiries should be directed to me, Andrew Kirk. Media should call Brad Brown. Again, thank you for your interest in Ameren. We look forward to visiting with you at our EEI meetings next week. Until then, have a great day.