TXNM Energy (TXNM) Q2 EPS Drops 58%

TXNM Energy (TXNM -0.16%), a regulated utility serving New Mexico and Texas, reported financial results for the second quarter of fiscal 2025 on August 1, 2025. The company reported ongoing (non-GAAP) earnings per share of $0.25 for Q2 2025, missing analyst expectations of $0.41 by 39%. GAAP net earnings fell to $21.6 million in Q2 2025, down from $48.0 million a year earlier. Revenue increased 2.9% year-over-year to $502.4 million in Q2 2025, but higher costs sharply reduced margins. Management did not provide updated financial guidance for the year due to the pending sale of the company to Blackstone Infrastructure. The period saw notable margin compression and significant special items related to the acquisition process.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

TXNM Energy is a publicly traded electric utility holding company operating through its subsidiaries PNM (Public Service Company of New Mexico) and TNMP (Texas-New Mexico Power). The company delivers electricity to over 800,000 customers across both states, focusing on reliable electric service for a mix of residential, commercial, and industrial users. As a regulated utility, its revenue and investment recovery depend on approval from state and federal regulators.

In recent years, the company's strategic direction has centered on modernizing grid infrastructure, expanding renewable energy, and supporting customer demand growth. Key success factors include managing the regulatory process, executing on large infrastructure projects, and advancing the transition to carbon-free energy sources. Infrastructure investment and the regulatory environment remain critical to sustaining profitability and future growth, alongside cost efficiency and customer load management.

Second quarter performance and notable developments

Q2 2025 results showed higher revenue but considerably weaker earnings, driven largely by increased costs. While revenue rose 2.9%, operating income (GAAP) dropped 31% as operating expenses (GAAP) ballooned to $429.7 million, marking a 12% jump from the prior year. Key cost drivers included the cost of energy, which rose 8.3% year-over-year to $167.6 million in Q2 2025. Administrative and general expenses increased 27.6% year-over-year to $76.0 million in Q2 2025. Depreciation and amortization increased 11.4% year-over-year to $105.2 million in Q2 2025. Interest charges also climbed to $72.0 million.

Performance diverged by business segment. PNM, the New Mexico utility business, posted ongoing (non-GAAP) earnings per share of $0.12 in Q2 2025, down 70.7% from a year earlier. Major factors weighing on results included higher insurance premiums, greater depreciation, higher property and interest expenses linked to new capital investments, and increased demand charges from newly signed energy storage agreements. TNMP, the Texas utility, reported ongoing (non-GAAP) earnings per share of $0.27 in Q2 2025 versus $0.33 a year earlier, with higher retail load and improved rates partly offset by lower weather-driven usage and rising capital recovery expenses. The corporate and other segment remained a net earnings drag in line with the previous year.

Equity dilution added additional pressure to per-share results. The average diluted share count climbed 6% year-over-year in Q2 2025, driven by a $600 million equity issuance over the past year, including $400 million issued to Blackstone Infrastructure in Q2 2025. This expansion of the share base, alongside lower net income, drove marked declines in non-GAAP earnings per share. The quarter also included $19.5 million in acquisition- and merger-related costs, distorting normalized operating results, while GAAP earnings benefited from $16.6 million in net unrealized gains on investment securities.

The company declared a quarterly dividend of $0.4075 per share in Q2 2025, up 5.2% from $0.3875 a year earlier. This maintains its target dividend payout ratio of 50-60% of earnings.

Regulatory progress and investment in infrastructure

The quarter was marked by notable regulatory developments. For PNM, the company secured an unopposed stipulation in its rate case, resulting in a $105 million rate increase, the first phase of which took effect July 1, 2025. In Texas, TNMP achieved approval for a $176 million rate base increase through the DCRF (Distribution Cost Recovery Factor) mechanism and filed for recovery of an additional $115 million of combined rate base in July 2025. These rate adjustments are key for cost recovery and future investment plans, given the capital-intensive nature of utility operations.

On the renewable energy front, PNM received regulatory approval in its 2028 Resource Application to add 450 megawatts of new solar and battery storage capacity, helping accelerate its goal to move toward a carbon-free generation portfolio by 2040. The company also advanced large-scale resource planning, with requests for proposals ongoing that could see deployment of up to 2,900 megawatts of new capacity between 2029 and 2032. These investments are intended to support both rising customer demand and regulatory requirements for renewable adoption.

The broader capital plan remains ambitious, and a $750 million transmission upgrade for the Permian Basin is in the pipeline for completion by 2030. For PNM, $185 million in transmission is planned over the next five years, with the possibility of an additional $4 billion statewide over two decades, contingent on further regulatory approvals.

The ongoing investment in grid modernization and renewables is central to serving both new and existing customers, particularly as demand growth is driven by expanding commercial and data center usage in Texas. However, lower weather-related usage helped mute potential revenue gains from these customer trends.

Financial outlook and acquisition update

For this period, TXNM Energy management did not reaffirm or update prior financial guidance due to the pending acquisition by Blackstone Infrastructure. As announced in May 2025, Blackstone Infrastructure agreed to acquire the company for $61.25 per share in cash, representing an $11.5 billion enterprise valuation with debt. The transaction is expected to close in the second half of 2026, pending federal and state regulatory approvals and shareholder consent.

Financial visibility remains limited until the acquisition process advances further. Special items, including $19.5 million in merger costs and increased equity dilution, contributed meaningfully to bottom-line pressure, complicating investors’ ability to assess core performance. The company’s focus during the period remained on regulatory approval and infrastructure investment, as it positions for long-term growth under new ownership. TXNM Energy does not plan to issue revised earnings guidance while the transaction is pending.

The company declared a quarterly dividend of $0.4075 per share in Q2 2025, a 5.2% increase from $0.3875 a year earlier.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.