ALLETE, Inc. (ALE) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day and welcome to the ALLETE First Quarter 2021 Financial Results Call. Today's call is being recorded. Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements such as terms defined in the Private Securities Litigation Reform Act of 1995. Because such statements can include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements which reflect management's views only as the date hereof. The company undertakes no obligation to revise or update any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise. Bethany Owen: Thank you. Good morning, everyone, and thanks for joining us today. With me are ALLETE's Senior Vice President and Chief Financial Officer, Bob Adams; and Vice President, Controller, and Chief Accounting Officer, Steve Morris. Also with us this morning are Al Rudeck, Vice President of ALLETE Clean Energy; and Frank Frederickson, Minnesota Power's Vice President of Customer Experience. Corresponding slides for this morning's call can be found on our website at allete.com in the Investors section. To follow along, we'll call out each slide number as we go through today's presentation. This morning, ALLETE reported first-quarter 2021 earnings of $0.99 per share on net income of $51.8 million. Last year's results were $1.28 per share on net income of $66.3 million. Although these results were below our internal expectations for the quarter due to the impact of extreme weather and timing, we remain confident in our ability to achieve our original guidance range of $3 to $3.30 per share. In a few minutes, Steve and Bob will provide additional insights in the key financial drivers for the remainder of the year. At the highest level, I'd like to share a few thoughts on the extreme weather events that took place during the quarter and provide a progress update on our clean energy strategy. As you know, in February of this year, a polar vortex brought extreme cold and icing conditions to much of our nation with areas, especially in the South and Southwest experiencing some of the coldest temperatures in decades. These temperature extremes caused major disruption in the power and gas markets, resulting in significant operational challenges and power price volatility in a very short period of time. Although ALLETE was affected by the extreme weather during the quarter, the effects varied greatly depending on locations and the nature of our operations. For example, our regulated operations performed well and customers at Minnesota Power and Superior Water, Light and Power were largely unaffected, while extreme weather in the Southwest and lower wind availability in the Midwest negatively affected our ALLETE Clean Energy operations and related earnings. ALLETE's strategic geographic diversity and our diverse business mix were certainly major factors in our ability to successfully navigate this extreme event, and we believe they will continue to differentiate ALLETE with our ability to remain resilient and manage adverse economic risk. Steve Morris: Thanks, Bethany and good morning, everyone. I would like to remind you that we filed our 10-Q this morning, and I encourage you to refer to it for more detail. Please refer to Slides 4 and 5 for significant variances and other items for comparison considerations for the first quarter. Today, ALLETE reported first-quarter 2021 earnings of $0.99 per share on net income of $51.8 million. Earnings in 2020 were $1.28 per share on net income of $66.3 million. The timing of income taxes and operating and maintenance expense in the first quarter of 2021 negatively impacted results compared to internal expectations by approximately $0.15 per share, which is expected to reverse during the remainder of the year. In addition, net income in 2021 included an approximately $5 million or $0.10 per share negative impact related to ALLETE Clean Energy's Diamond Spring wind energy facility due to extreme winter weather in the Southwest United States in February 2021. This winter weather event caused volatility in power prices in the regional power market, resulting in losses being incurred under one of the facility's power sales agreement. A few details from our business segments. ALLETE's regulated operations segment, which includes Minnesota Power, Superior Water, Light and Power and the company's investment in the American Transmission Company recorded net income of $45 million compared to $57.5 million in the first quarter of 2020. Earnings reflected lower net income at Minnesota Power as compared to 2020, primarily due to lower margins resulting from the expiration of a power sales contract in 2020, lower kilowatt hour sales to industrial customers primarily due to the indefinite idling of the Verso paper mill in Duluth, Minnesota, higher operating and maintenance, property taxes and depreciation expense and the timing of income taxes. These decreases were partially offset by increased earnings related to the Great Northern Transmission Line. Bob Adams: Thanks, Steve, and good morning, everyone. As already highlighted, financial results of ALLETE's businesses were impacted varying degrees by the extreme weather during the quarter, but we remain steadfast and confident in our ability to achieve our original earnings guidance range for 2021. At the highest level, this confidence comes from our ability to mitigate some of the losses realized at ALLETE Clean Energy through expense management and an improving 2021 outlook for the economy and our large power production levels at Minnesota Power. As I've expressed since the beginning of this year, achieving ALLETE's growth objective of 5% to 7% over the long term remains a focus, and we are continuing to advance and execute upon strategies to ensure that happens. One of the most important initiatives is to ensure Minnesota Power is able to achieve reasonable rates of return. Given the challenges of COVID and increasing investments and expenses incurred to support the clean energy transition, the company's return levels are at some of the lowest levels in decades at approximately 2% to 3% below the currently authorized level. It is imperative that the financial returns of the business be improved, so that we are able to sustain our business and attract the equity and debt capital needed as we go forward. Towards that end, in addition to our ongoing laser focus on business efficiency improvements, we have continued to advance our preparations for our Minnesota Power rate case, which will be filed in November of this year. Beyond equitable regulatory outcomes, growth in our regulated businesses will be driven predominantly by sustainable clean energy infrastructure investments. Minnesota Power's energy forward initiatives, as outlined in our recent IRP filing, would include an unprecedented transformation of our generation fleet as well as supporting transmission and distribution investments. We believe the IRP strikes an important balance of advancing and achieving clean energy goals, while ensuring our system remains reliable and cost competitive to our customers. We are also pursuing other regulated opportunities, particularly in the transmission area as the MISO region continues to be challenged with constraints on the grid as renewable generation continues to expand. Bethany Owen: Thank you for the update, Steve and Bob. We're pleased with our progress and our execution of ALLETE's strategy made all the more remarkable given the challenges of the past year. And as the economy continues to strengthen, we're excited to share more in the coming quarters. We're proud of all that we've accomplished and look forward to the future as we continue to answer the nation's call for cleaner and more sustainable energy. There is one more very important development I'd like to highlight before we field your questions. On Slide 7, there are several links to important sustainability information about our company, but I would point you to the second link document, ALLETE's first comprehensive corporate sustainability report. This CSR aligns with the reporting requirements of the sustainability accounting standards board, or SASB, and the task force on climate-related financial disclosures or TCFD. I'd encourage you to review this document as it describes in detail ALLETE's strong commitment to sustainability in all of its forms, including diversity, equity and inclusion, our strong partnership with our communities as well as best practice governance. We refer to our sustainability commitment as a commitment to people, planet and prosperity. We're proud of ALLETE's track record and our work on this report, and we'll update the CSR regularly as we continue to execute our sustainability and action strategy. We're a team and a company with a rich history of doing the right things the right way, and sustainability in all of its dimensions is not only a value shared by us at ALLETE, it's the very foundation of our strategy. Thank you for your interest and your investment in ALLETE. And at this time, I'll ask the operator to open the line for your questions. Operator: Our first question will come from the line of Brian Russo from Sidoti. You may begin. Brian Russo: Could you just provide us an update on the Verso paper mill bringing some local press in Minnesota that the city or the county may be looking to give any potential new owner or buyer of Verso some tax breaks. Just wondering where that is, what's the status of that? Frank Frederickson: Thank you for that question, Brian. This is Frank Frederickson here. And we continue to see positive support, as you mentioned, from state and local agencies in terms of putting packages together to help with the redevelopment of that site. And we're aware that Verso continues with the process with the current potential buyer of that mill right now. So we don't have anything further to announce or disclose about that at this time. But it's a very, as we mentioned, a positive movement in terms of public support. Brian Russo: And then just tying into that now that you have large power customers and taconite customers operating at full demand levels through the end of the year, when you file the rate case next - at the end of this year with a forward test year, how do you account for what could be variability in those taconite customer demand, now that they're at full production, and there's only downside for Minnesota Power as well as the pending end game for Verso. Just curious when that test year sales is forecasted for the rate case? And is - can you adjust it as you move through the case? Frank Frederickson: Frank here, again Brian. I'll maybe start with a little bit of the landscape as we see it and then turn it to Steve in terms of how we're thinking about it from a rate case perspective. And it's - we're very pleased, as we mentioned today, that we're seeing full production in our taconite customers. And as you've seen, if you pay attention to those customers, it's a mix of pretty good recovery of the domestic steel industry. It's still not quite at pre-COVID levels, but it's getting close to that 80% capacity utilization as we're up at about 77% right now. We're also aware that there's a couple of blast furnaces that have come down since the pre-COVID conditions of 2019. So there is a little changed landscape there. And we're also seeing some record high global prices for iron ore on IODEX, and that's been very supportive of production levels as we see it today. So we recognize that there's some variability in how that is. We're very pleased with how it's coming this year, and I'll maybe turn it to Steve in terms of how we're thinking about it. Steve Morris: Hi, Brian. So we're working on our test year budget, 2022 budget. And we'll watch the markets closely and the customers throughout the year, and it's going to depend on pricing globally and domestically. And what we do with this - with our budget. And full production for next year is really on our radar screen. We have to watch that closely. But even with that, it's very likely in this - in our request in our rate case that we ask for some type of true-up mechanism for large power. It was really evident during the pandemic when many of our large power customers shut down that we had no basis to collect that. And we've tried that through the deferred accounting or the lost revenue petition, of course, that was denied by the commission, which really signaled the need for some type of true-up mechanism that we don't have other utilities in the state to have that. So it's likely to be a request that we have in our next rate case regardless of what tonnage we use. Brian Russo: Then on the IRP, any progress there or key dates we should look out for? And then some of those near-term solar projects that are proposed. I'm just wondering if there's been any increment there. Bethany Owen: Brian, this is Bethany. So obviously, we knew going in that this would be a lengthier process. It's a pretty significant filing on our part, strategic filing. And certainly, our regulators have a lot on their dockets right now. So we are expecting kind of later this year or early next year a result, but it is moving its way through the process. A relatively positive overall reception to the plan that we filed. And so we're actually feeling very positive about it. And as I mentioned, we're continuing very close engagement with stakeholders as we work our way through the process. So same is true for the solar projects as well. So we're doing - we're working our way through the process. Brian Russo: And then just lastly on the guidance. You maintained the range in the midpoint. But if I heard you correctly, the rate utilities are at the high end due to the improved taconite mine sales. And ACE is at the low end due to the Diamond Spring's storm issue. So are you looking to mitigate that $0.10 that Diamond Springs at ACE or are you just maintaining your guidance because the utility is at the high end, while ACE is at the low end? Just to clarify. Al Rudeck: Good morning, Brian. This is Al Rudeck from ALLETE Clean Energy. Yes, we intend to mitigate a portion of that at ACE and then a portion of it across ALLETE. So as Bethany said, ALLETE family companies are stronger together, and that mix of the entire business really helps us navigate these ups and downs that happen in the market and that extreme weather event certainly was something that we're focused on and through expense management and other things, we're going to mitigate a portion of that, but it will be in the broader company. So as Steve said that changing a guidance or maintaining guidance is very important to us. So you'll see us continue to work our way through the year at ALLETE Clean Energy. Operator: Our next question will come from the line of Peter Bourdon from Mizuho. You may begin. Peter Bourdon: Just a quick one on the announced deal yesterday. In terms of the return expectations, should we be expecting something similar to what you've done in the past with these similar type transactions? Al Rudeck: Yes, Peter. Good morning. This is Al Rudeck, again. Thanks for the question. Yes, we don't disclose the net proceeds at this time because we're in a regulatory proceeding with our customers. But yes, I would say similar - we entered these transactions with a certain set of expectations. And the developer did a great job with this project. It's Is very derisked, and it's in a really good spot. And we're really expecting working with WEC and MGE, a really constructive regulatory process with the Wisconsin Commission. So I would say similar expectations to our most recent build, transfer projects generally. Peter Bourdon: And then just maybe on the strategy side of it, do you see or foresee more of these type of deals down the pipeline enhancing ACE earnings or would it be more kind of going back to the traditional announcements you've had in terms of actually owning the wind farms? Al Rudeck: Yes, great question. We generally would continue to want to own and operate these wind projects. But we think about the ACE portfolio as a myriad of opportunities that we have in front of us. So we'll see a mix of these kind of projects and long-term ownership projects. Naturally, we're positioning ourselves to provide that steady earnings to support our dividend. But naturally, when we work with customers and hear what they need, we want to tailor our solutions to meet the customer expectations. I don't know, Bob, any further thoughts on that? Bob Adams: Yes. Thanks for the question, Peter. So something to keep in mind here in terms of the benefits of these build, own, transfer of course is the cash generation that they provide. And that cash generation allows us to offset any equity that we may otherwise need to fund other projects. So it does have, if you will, a permanent earnings per share contribution to the company as well. But as Al pointed out, I mean, our strong preference - we're building a portfolio, which will have recurring revenues, recurring cash flow, support the dividend, that's the preference. But certainly, the work that ACE is doing with Al Rudeck's leadership around optimizing these PTCs that we have set aside is a critical part of that as well because these do have some shelf life currently and finding the opportunity is to strategically place these, but these kinds of deals makes a lot of sense as well. Peter Bourdon: And then maybe just lastly, just to clarify. So this - or this - the announcement from yesterday has no impact to the previously stated 2022 guidance of, I think, $3.70 to $4. Is that correct? Bob Adams: It would actually be incremental to that from the standpoint of the cash flow. Again, that contributes - that would offset equity needs that we may have - modest equity needs that we might otherwise have. So it would be... Peter Bourdon: But no change. Bob Adams: That's right. It would be an improvement to that outlook as we know it today. Operator: At this time, there are currently no further questions in queue. I'd like to turn the call back over to Bethany Owen for any closing remarks. Bethany Owen: Steve, Bob, Al, Frank and I thank you again for being with us this morning and for your investment and interest in ALLETE. We look forward to speaking with many of you virtually in the near future and at other investor venues throughout the year. Enjoy the rest of your day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
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ALLETE, Inc. (NYSE: ALE) Q3 Earnings Report Analysis

  • ALLETE, Inc. (NYSE:ALE) reported a Q3 EPS of $0.78, missing the estimated $0.93 but surpassed revenue expectations with $407.2 million.
  • The company's net income decreased significantly from the previous year's Q3, highlighting a drop from $85.9 million to $45 million.
  • Despite the earnings miss, ALLETE's financial ratios such as a P/E ratio of 20.53 and a debt-to-equity ratio of 0.63 indicate a stable financial position.

ALLETE, Inc. (NYSE:ALE), a diversified energy company based in Duluth, Minnesota, operates across the United States in the energy sector. It competes with other energy giants like Xcel Energy and NextEra Energy, focusing on regulated utilities, renewable energy, and infrastructure development.

On October 30, 2024, ALE reported its third-quarter earnings before the market opened. The company achieved an earnings per share (EPS) of $0.78, which was below the estimated $0.93. Despite this, ALE's revenue was $407.2 million, surpassing the estimated $391 million. This indicates strong revenue performance despite lower-than-expected earnings.

ALE's net income for the third quarter of 2024 was $45 million, translating to 78 cents per share. This is a significant decrease from the previous year's third quarter, where the company reported earnings of $1.49 per share on a net income of $85.9 million. The 2023 results were boosted by a favorable arbitration ruling, contributing 71 cents per share, as highlighted by Business Wire.

The company's financial ratios provide insight into its performance. ALE has a price-to-earnings (P/E) ratio of approximately 20.53, indicating how much investors are willing to pay for each dollar of earnings. Its price-to-sales ratio is about 2.36, and the enterprise value to sales ratio is around 3.43, reflecting the company's valuation relative to its sales.

ALE's debt-to-equity ratio is 0.63, showing a moderate level of debt compared to equity. The current ratio of about 1.45 suggests a good level of liquidity, meaning ALE can cover its short-term liabilities with its short-term assets. The earnings yield of 4.87% indicates the return on investment for shareholders.