EMERA INC 6-K Analysis & Summary – 2/21/2025

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Emerald Holding, Inc.

6-K

Earnings Release (Preliminary), Guidance Update

Filing date:

02/21/2025

TLDR:

Emera Inc. reported its 2024 fourth quarter and annual financial results, with adjusted EPS of $0.84 for the quarter and $2.94 for the full year, and is focused on executing its $20 billion capital plan.

ELI5:

Emera, an energy company, had a year where its usual profits were steady, but its reported profits were down because of some one-time costs. They’re investing a lot in their business, but there are a few things to keep an eye on.

Accession #:

0001193125-25-031772

Published on

March 16, 2025

Analyst Summary

Q4 adjusted EPS grew 33% to $0.84, full-year adjusted EPS of $2.94 was generally in line with 2023 ($2.96).
Q4 reported EPS was $0.52 compared to $1.04 last year, full-year reported EPS was $1.71 compared to $3.57 in 2023.
Executed a $3.2 billion capital plan, driving 7% rate base growth year-over-year. A $20 billion 5-year capital plan is planned.
Constructive completion of Tampa Electric’s rate case resulting in a 10.5% ROE and increased revenue.
Earnings coverage ratio for the year ended December 31, 2024, is 1.26.

Opportunities and Risks

Decline in Reported EPS: The significant decline in reported EPS for both Q4 and the full year compared to 2023 is a concern, attributed to charges related to the pending sale of NMGC, decreased MTM gains, and charges related to wind-down costs and asset impairments.
Impact of FX Hedges: The translation impact of a weaker CAD on USD earnings was more than offset by realized and unrealized losses on FX hedges, resulting in a $29 million decrease to net income in Q4 2024 and $35 million decrease to net income for the year ended December 31, 2024.
The company uses adjusted net income and adjusted EPS, which are non-GAAP measures. While these measures can provide useful insights into the underlying performance of the business, it’s important to understand the adjustments made and to reconcile them to the nearest GAAP measure.

Potential Implications

Company Performance

The decline in reported EPS suggests a decrease in overall profitability.
The increase in adjusted EPS indicates that the underlying business is performing well, excluding certain non-recurring items.
The 7% rate base growth and the planned $20 billion capital plan suggest that Emera is focused on growth and expansion.
The company is investing heavily in its regulated utilities, which should provide stable and predictable earnings.

Stock Price

Pending sale of NMGC and its associated charges warrant close monitoring.
Effectiveness of Emera’s FX hedging strategies and its sensitivity to currency fluctuations should be evaluated.
Effectiveness of the capital deployment and its impact on rate base growth and earnings should be assessed.

Emera Inc. – Form 6-K Report Analysis – February 21, 2025

Executive Summary

This report analyzes Emera Inc.’s Form 6-K filing for February 21, 2025, focusing on the included exhibits related to the company’s 2024 financial results. The filing includes certifications from the CEO and CFO regarding the accuracy and fairness of the annual filings, the earnings coverage ratio, and a press release summarizing the Q4 and full-year 2024 financial results. The overall assessment is cautiously optimistic. While reported EPS declined, adjusted EPS remained relatively stable, and the company is executing a significant capital plan. However, the impact of FX hedges and the pending sale of NMGC warrant close monitoring. We recommend a “Hold” rating, pending further clarification on the NMGC sale and the effectiveness of the capital deployment.

Company Overview

Emera Inc. (TSX: EMA) is a leading North American energy services provider with investments in regulated electric and natural gas utilities, and related businesses and assets. The company serves approximately 2.6 million customers in Canada, the United States, and the Caribbean.

Detailed Analysis

1. CEO and CFO Certifications (Exhibits 99.1 and 99.2)

The CEO and CFO certifications (Form 52-109F1) affirm the accuracy and fair presentation of Emera’s annual filings for the year ended December 31, 2024. Specifically, they certify that the filings do not contain material misstatements or omissions and fairly present the company’s financial condition, performance, and cash flows. They also confirm the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR). The certifications note a limitation on the scope of design of DC&P and ICFR to exclude controls, policies and procedures of a proportionately consolidated entity, a special purpose entity, or a business acquired not more than 365 days before the issuer’s financial year end, which is disclosed in the annual MD&A. This is a standard practice, but it’s important to review the MD&A to understand the potential impact of these exclusions.

2. Earnings Coverage Ratio (Exhibit 99.3)

The earnings coverage ratio for the year ended December 31, 2024, is 1.26. This ratio indicates Emera’s ability to cover its interest and preferred dividend requirements with its earnings. A ratio above 1.0 is generally considered acceptable, indicating that the company generates sufficient earnings to meet its debt obligations and preferred dividend payments. The calculation includes net income attributable to common shareholders, income taxes, interest on debt, amortization of debt financing costs, allowance for funds used during construction, and preferred share dividends. It’s crucial to monitor this ratio over time to assess Emera’s financial health and its ability to service its debt.

3. Q4 and Full-Year 2024 Financial Results (Exhibit 99.4)

This exhibit is a press release summarizing Emera’s Q4 and full-year 2024 financial results. Key highlights include:

* **Adjusted EPS:** Q4 adjusted EPS grew 33% to $0.84, driven by solid operating performance across regulated utilities. Full-year adjusted EPS of $2.94 was generally in line with 2023 ($2.96).
* **Reported EPS:** Q4 reported EPS was $0.52 compared to $1.04 last year. Full-year reported EPS was $1.71 compared to $3.57 in 2023. The difference between adjusted and reported EPS is significant and requires further investigation into the specific adjustments.
* **Capital Plan:** Executed a $3.2 billion capital plan, driving 7% rate base growth year-over-year. A $20 billion 5-year capital plan is planned.
* **Tampa Electric Rate Case:** Constructive completion of Tampa Electric’s rate case resulting in a 10.5% ROE and increased revenue.

**Key Observations and Red Flags:**

* **Decline in Reported EPS:** The significant decline in reported EPS for both Q4 and the full year compared to 2023 is a concern. The press release attributes this to charges related to the pending sale of NMGC, decreased MTM gains, and charges related to wind-down costs and asset impairments. The $225 million in charges related to the pending sale of NMGC is substantial and warrants further scrutiny.
* **Impact of FX Hedges:** The press release notes that the translation impact of a weaker CAD on USD earnings was more than offset by realized and unrealized losses on FX hedges, resulting in a $29 million decrease to net income in Q4 2024 and $35 million decrease to net income for the year ended December 31, 2024. This highlights the sensitivity of Emera’s earnings to currency fluctuations and the effectiveness of its hedging strategies. The company needs to carefully manage its FX risk.
* **Non-GAAP Measures:** The company uses adjusted net income and adjusted EPS, which are non-GAAP measures. While these measures can provide useful insights into the underlying performance of the business, it’s important to understand the adjustments made and to reconcile them to the nearest GAAP measure. The reconciliation is provided in the “Segment Results and Non-GAAP Reconciliation” section.
* **Segment Performance:** The press release provides a breakdown of adjusted net income by segment. The Florida Electric Utility and Gas Utilities and Infrastructure segments showed strong performance. However, the “Other” segment reported a significant loss.
* **Forward-Looking Information:** The press release contains forward-looking information, including the company’s targeted 5-7% average adjusted EPS growth through 2027 and its $20 billion 5-year capital plan. These statements are subject to risks and uncertainties, as noted in the disclaimer.

4. Financial Statement Analysis (Based on Press Release Data)

While the full financial statements are not included in this 6-K, we can glean some insights from the press release:

* **Profitability:** The decline in reported EPS suggests a decrease in overall profitability. However, the increase in adjusted EPS indicates that the underlying business is performing well, excluding certain non-recurring items.
* **Growth:** The 7% rate base growth and the planned $20 billion capital plan suggest that Emera is focused on growth and expansion.
* **Capital Allocation:** The company is investing heavily in its regulated utilities, which should provide stable and predictable earnings.

Conclusion and Actionable Insights

Emera’s Form 6-K filing provides a mixed picture. While the company is executing its capital plan and its regulated utilities are performing well, the decline in reported EPS and the impact of FX hedges are concerns. The pending sale of NMGC and its associated charges also warrant close monitoring.

**Recommendations:**

* **Hold Rating:** Based on the current information, we recommend a “Hold” rating.
* **Further Investigation:** Conduct a more in-depth analysis of Emera’s annual report (10-K) to understand the specific adjustments made to arrive at adjusted net income and adjusted EPS.
* **Monitor NMGC Sale:** Closely monitor the progress of the NMGC sale and its impact on Emera’s financial results.
* **Assess FX Risk Management:** Evaluate the effectiveness of Emera’s FX hedging strategies and its sensitivity to currency fluctuations.
* **Evaluate Capital Deployment:** Assess the effectiveness of the capital deployment and its impact on rate base growth and earnings.

This analysis is based on the information provided in the Form 6-K filing. A more comprehensive analysis would require a review of Emera’s full financial statements and other relevant information.

Emera Inc. Financial Analysis – December 31, 2024

1. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Not directly calculable from the provided data. The data focuses on net income and adjusted net income, not gross profit or revenue.

Operating Profit Margin

Ratio/Metric: Not directly calculable from the provided data. The data focuses on net income and adjusted net income, not operating profit or revenue.

Net Profit Margin

Ratio/Metric: Not directly calculable from the provided data. The data focuses on net income and adjusted net income, not revenue.

Return on Assets (ROA)

Ratio/Metric: Not directly calculable from the provided data. Asset information is not provided.

Return on Equity (ROE)

Ratio/Metric: Not directly calculable from the provided data. Equity information is not provided.

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric:
- Basic EPS (2024): $1.71
- Basic EPS (2023): $3.57
- Adjusted EPS (Basic) (2024): $2.94
- Adjusted EPS (Basic) (2023): $2.96
Trend:
- Basic EPS decreased from $3.57 to $1.71, a decrease of 52.1%.
- Adjusted EPS decreased slightly from $2.96 to $2.94, a decrease of 0.7%.
Industry: Utility companies typically have stable but moderate EPS growth. A significant decrease in basic EPS warrants further investigation into the specific factors affecting Emera’s performance. The adjusted EPS is more stable, suggesting that the difference between the two is due to one-time events.

Liquidity

Current Ratio

Ratio/Metric: Not calculable from the provided data. Current asset and current liability information is not provided.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: Not calculable from the provided data. Current asset and current liability information is not provided.

Cash Ratio

Ratio/Metric: Not calculable from the provided data. Cash and current liability information is not provided.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Not calculable from the provided data. Debt and equity information is not provided.

Debt-to-Assets Ratio

Ratio/Metric: Not calculable from the provided data. Debt and asset information is not provided.

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Not directly calculable, but the exhibit 99.3 provides an “Earnings Coverage” ratio of 1.26. This is a similar metric.
Industry: A ratio of 1.26 is relatively low for a utility company, suggesting that Emera has a high level of debt relative to its earnings. Generally, a ratio above 1.5 is preferred.

Activity/Efficiency

Inventory Turnover

Ratio/Metric: Not applicable. As a utility company, inventory turnover is not a key metric for Emera.

Days Sales Outstanding (DSO)

Ratio/Metric: Not calculable from the provided data. Accounts receivable and revenue information is not provided.

Days Payable Outstanding (DPO)

Ratio/Metric: Not calculable from the provided data. Accounts payable and cost of revenue information is not provided.

Asset Turnover

Ratio/Metric: Not calculable from the provided data. Revenue and asset information is not provided.

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Not calculable from the provided data. Stock price information is not provided.

Price-to-Book Ratio (P/B)

Ratio/Metric: Not calculable from the provided data. Stock price and book value information is not provided.

Price-to-Sales Ratio (P/S)

Ratio/Metric: Not calculable from the provided data. Stock price and revenue information is not provided.

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: Not calculable from the provided data. Market capitalization and EBITDA information is not provided.

Growth Rates

Revenue Growth

Ratio/Metric: Not calculable from the provided data. Revenue information is not provided.

Net Income Growth

Ratio/Metric: Not calculable from the provided data. Net income information is not provided.

EPS Growth

Ratio/Metric:
- Basic EPS Growth: (1.71 – 3.57) / 3.57 = -52.1%
- Adjusted EPS Growth: (2.94 – 2.96) / 2.96 = -0.7%

Other Relevant Metrics

Adjusted EPS

Description: A non-GAAP measure that excludes certain items to provide a clearer picture of underlying operating performance.
Calculation: Reported EPS adjusted for items such as gain on sale of LIL, financing structure wind-up, charges related to wind-down costs and certain asset impairments, charges related to the pending sale of NMGC, and MTM (loss) gain, after-tax.
Significance: Provides a more stable view of earnings by removing the impact of one-time or unusual items.
Trend: Adjusted EPS decreased slightly from $2.96 in 2023 to $2.94 in 2024, a decrease of 0.7%. This suggests that the underlying business performance was relatively stable.
Critical Assessment: While adjusted EPS can be useful, it’s important to understand the specific adjustments made. In this case, the adjustments seem reasonable as they relate to non-recurring events. However, investors should always consider both GAAP and non-GAAP measures.

Operating Unit Performance

Analysis: The company provides a breakdown of adjusted net income by operating unit. Florida Electric Utility and Gas Utilities and Infrastructure showed increases in adjusted net income year-over-year. Canadian Electric Utilities decreased. Other Electric Utilities increased. The “Other” category, which includes corporate items, showed a decrease.

2. Commentary

Emera’s financial performance in 2024 presents a mixed picture. While adjusted EPS remained relatively stable, reported EPS experienced a significant decline, primarily due to one-time charges and market-to-market adjustments. The earnings coverage ratio is relatively low, indicating a higher debt burden. The company’s strategic decisions, such as the sale of its equity interest in the LIL and the pending sale of NMGC, have significantly impacted reported earnings. The adjusted EPS and operating unit performance provide a clearer picture of the underlying business, which appears to be performing reasonably well, with growth in key segments like Florida Electric Utility and Gas Utilities and Infrastructure.