The recently concluded year-end 2014 earnings season highlights the continuation of a strong earnings trend in the sector, according to Fitch Ratings. Median earnings grew by 6% over 2013 for Fitch Ratings’ sample of utilities, power, and gas companies. Maturation of investment projects, rate increases, a sales rebound and cost control were some of the key drivers of the earnings growth. Several utilities announced step ups to their 2015 dividend per share, demonstrating confidence in their longer term outlooks.
A majority of utility companies provided 2015 earnings guidance, which suggests a modest 2%-4% earnings growth over 2014. Normalization for weather, staid industrial growth assumptions after a strong 2014, weaker outlooks for commodity-sensitive businesses, and general conservatism seem to be included in 2015 expectations. Several companies noted pension expense headwinds from actuarial changes to mortality rates and assumption of lower interest rate to discount pension obligations.
Key credit metrics across the sector remain on track and broadly in line with Fitch’s expectations on a trailing 12-month basis. The FFO fixed-charge coverage ratio continues to improve for the sector as a whole, boosted by utilities’ refinancing initiatives and the low interest rates.
A special report, “A Strong Year in the Rear View Mirror: 2014 Year-End Earnings Calls Wrap-Up,” released today discusses key takeaways from the year-end earnings conference calls.
Additional information is available on www.fitchratings.com.