WEC Energy Group (WEC 0.17%) -- formerly known as Wisconsin Energy -- reported its earnings on Wednesday. As you can imagine from an electric and natural gas utility company with essentially all of its business coming from the regulated side of the utility sector, this quarter's numbers were pretty much in line with what happened last year. Here's a quick snapshot of what happened this quarter and what management had to say about the company's future.
WEC Energy Group's Quarter: By the Numbers
| Results | Q3 2015 | Q3 2014 | % Change |
|---|---|---|---|
| Revenue (USD in millions) | $1,698 | $1,033 | 64.3% |
| Operating income (USD in millions) | $345.7 | $246.1 | 40.4% |
| EPS | $0.58 | $0.56 | 3.5% |
Source: WEC Energy earnings release.
Those numbers may seem a bit off, considering the large upticks in revenue and operational income and the small change in earnings per share. But those reported numbers also don't reflect the impact of the recent $12 billion acquisition of Integrys. Management estimates that the additional shares in WEC Energy equated to a $0.23-per-share dilution, which was almost completely offset by the $0.21-per-share contribution that Integrys made to the bottom line.
What happened at WEC Energy this quarter?
- Management and the board announced a quarterly dividend of $0.4575 per share, a 17% increase from the same time last year.
- Despite weather conditions throughout July, August, and September that aren't typically conducive to electricity use, the company saw overall electricity consumption across its entire platform increase.
- Residential electricity consumption increased 11.5%, small commercial and industrial customer consumption increased by 1.6%, and large commercial and industrial consumption -- excluding mine activity that has shut in -- stayed flat.
- Its We Energies segment added 6,000 electric customers and 10,000 gas customers compared with this time last year.
What management had to say
According to CEO Gale Klappa, the acquisition of Integrys gives WEC Energy plenty of new venues for investment across its electric and natural gas systems that should keep it busy for many years to come. As a utility, these investments inevitably trickle down to earnings:
[O]n the subject of infrastructure upgrades, you may recall that we originally projected capital spending for the combined company in the range of $1.3 billion to $1.4 billion a year for the remainder of the decade and actually beyond. Now about 120 days into the company, as we look at the spectrum of projects that need to be addressed to deliver industry-leading reliability, we're seeing even stronger investment opportunities. And in the latter part of the decade, our capital investments could range above $1.5 billion a year. With a few other minor changes to our estimates, we continue to project longer-term earnings-per-share growth in the 5% to 7% a year range, and we're comfortable at the midpoint of that range.
Klappa on the company's dividend policy going forward:
In June, our board of directors raised the quarterly dividend to $0.4575 a share, an increase of 8.3% over the previous quarterly rate. This is equivalent to an annual rate of $1.83 a share. You may recall this was our second dividend increase during 2015. In total, we've raised the dividend by 17.3% this year. Going forward, we're targeting, as you may have heard us say, a payout ratio of 65% to 70% of earnings, and we expect dividend growth to be in line with growth in earnings per share. Looking forward, we expect to return to our normal pattern of dividend action. Management typically brings the dividend proposal to the board in January of each year, and we would expect to do so in January of 2016.
Looking forward
As with most utility companies, the lack of news around WEC Energy Group's earnings is the good news. The company's plans to invest $1.3 billion to $1.5 billion annually is mostly dedicated to natural gas transmission and distribution, which will give the company greater access to customers across its systems in Minnesota, Wisconsin, and Michigan. If the company can execute its expansion plan and start to realize some cost benefits from the Integrys merger, then WEC Energy should be able to meet its ambitious dividend targets -- which is pretty much all a dividend investor can ask for.
