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Edison International beat Q2 revenue expectations but suffered margin compression and an EPS miss, with ongoing regulatory and wildfire risks offset by strong cash flow and reaffirmed long-term growth guidance.

# Edison International Q2 FY2025: Revenue Beat Overshadowed by Margin Compression and EPS Miss

---

## Executive Summary

- **Edison International delivered Q2 FY2025 revenue of $4,543M, up 4.5% YoY and ahead of consensus,** but both GAAP EPS ($0.89) and Core EPS ($0.97) fell short of expectations, declining 22% and 21% YoY, respectively.  
- **Earnings quality was impacted by significant margin compression,** with operating margins dropping to 17.1% from 20.8% a year ago, as inflationary pressures, higher O&M costs, and increased interest expense outpaced revenue growth.  
- **Management maintained a cautiously optimistic tone, reaffirming 2025 Core EPS guidance ($5.94–$6.34) and long-term growth targets (5–7% CAGR through 2028),** while highlighting progress in regulatory matters and grid modernization initiatives such as the AWARE project.  
- **Key risks remain around wildfire liabilities and regulatory outcomes,** particularly pending decisions on the General Rate Case, but strong operating cash flow ($2,106M YTD) and robust rate base growth (6–8% CAGR expected) provide a foundation for future upside.  
- **Catalyst watch:** Final regulatory decisions, wildfire claims resolution, and tangible progress on grid safety investments will be critical for near-term sentiment and longer-term valuation.

---

## Performance Snapshot

| Metric         | Reported | Consensus | Surprise | YoY Change |
|----------------|----------|-----------|----------|------------|
| Revenue        | $4,543M  | $4,480M   | +1.4%    | +4.5%      |
| GAAP EPS       | $0.89    | $1.05     | -15%     | -22%       |
| Core EPS       | $0.97    | $1.12     | -13%     | -21%       |
| Operating Margin | 17.1%  | 19.5%     | -2.4pp   | -3.7pp     |
| Net Cash from Ops (YTD) | $2,106M | $1,950M | +8% | +6% |

---

## Earnings Quality

- **Revenue growth was driven by underlying business activity, not one-off items,** but was not enough to offset a $332M YoY increase in operating expenses, primarily from higher O&M, depreciation/amortization, and interest costs.
- **Margin compression was pronounced,** with operating margin falling to 17.1% (from 20.8%), reflecting the impact of cost inflation and regulatory headwinds.
- **Profitability lagged sales growth,** as higher costs outpaced the top-line increase, resulting in a double-digit decline in both GAAP and Core EPS.

---

## Management Commentary & Guidance

- **Management’s tone was cautiously optimistic,** acknowledging near-term margin and earnings pressures but reaffirming both 2025 Core EPS guidance ($5.94–$6.34) and long-term 5–7% EPS CAGR targets through 2028.
- **Guidance assumptions reflect a balance of caution and confidence,** with management citing constructive regulatory progress, ongoing wildfire mitigation, and investments in grid safety and technology (notably the AWARE project).
- **Focus remains on rate base growth and capital expenditure discipline,** with management emphasizing robust cash flow and a clear path to long-term value creation.

---

## Key Risks

- **Wildfire liabilities and regulatory uncertainty** (especially pending General Rate Case decisions) remain the most significant near-term risks, with potential to further pressure margins and earnings.
- **Cost inflation and elevated interest expense** could persist, challenging profitability even as revenue grows.
- **Demand-side risks** are relatively contained, but any adverse regulatory or legal developments could materially impact the outlook.

---

## Expected Market Reaction

- **Analysts and investors are likely to react cautiously,** with the EPS and margin misses prompting modest near-term weakness in Edison International’s stock.
- **However, strong operating cash flow and reaffirmed guidance may limit downside,** especially if regulatory progress and grid modernization initiatives show tangible results in coming quarters.

---

## Final Takeaway

- **Q2 FY2025 was a mixed quarter for Edison International:** revenue growth and cash flow were strong, but margin compression and EPS misses highlight ongoing cost and regulatory challenges.
- **The market may be underestimating the company’s robust cash flow and long-term rate base growth,** while overemphasizing near-term earnings headwinds.
- **Upcoming catalysts:** Final General Rate Case decisions, wildfire claims resolution, and progress on grid safety investments will be key for sentiment and valuation in the next 6–12 months.

Edison International: Margin Pressure Tempers Revenue Beat

Edison International's Q1 2025 saw a dramatic margin rebound driven by wildfire cost recoveries and regulatory progress, positioning EIX for stable earnings and improved free cash flow, though regulatory risks remain.

# Edison International: Margin Recovery and Regulatory Tailwinds Set the Stage for a Pivotal Quarter

## Executive Summary: Bullish Outlook Anchored by Margin Expansion and Regulatory Progress

We are **Bullish** on Edison International (EIX) for the upcoming quarter, driven by a sharp rebound in operating margins and positive regulatory developments. **Q1 2025 operating margin surged to 57.8% (vs. 6.4% YoY)**, primarily on the back of wildfire-related cost recoveries, while **total revenue of $3.811 billion** signals stabilization despite ongoing regulatory headwinds. Management’s reaffirmed **core EPS guidance of $5.94–$6.34 for FY25** and improved free cash flow trajectory suggest the market may be underestimating the durability of recent margin gains. A key underappreciated risk remains the potential for regulatory reversals on wildfire cost recovery, which could reintroduce earnings volatility.

## Recent Trends Signal What’s Next: Margin Rebound and Revenue Stabilization

Edison International’s last two quarters highlight a decisive shift in profitability, even as top-line growth remains challenged. **Q1 2025 revenue declined 6.5% YoY to $3.811 billion**, but this was offset by a **dramatic improvement in SCE operating margin to 57.8%** (from 6.4% YoY), reflecting the impact of wildfire cost recoveries and disciplined cost management. Free cash flow improved to **–$184 million** (from –$236 million YoY), and capex remained robust at **$1.408 billion**.

### Table: Key Financial Trends (Last 4 Quarters)

| Quarter    | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|------------|--------------|------------------|---------------------|---------------|---------|
| Q2 2024    | 4.05         | 32.1             | 8.2                 | 4.5           | 1.12    |
| Q3 2024    | 4.21         | 33.0             | 9.0                 | 5.0           | 1.18    |
| Q4 2024    | 3.98         | 31.5             | 7.5                 | 4.2           | 1.09    |
| Q1 2025    | 3.81         | 34.0             | 57.8                | 38.5          | 1.37    |

**Trend:** Revenue has modestly declined, but margin expansion in Q1 2025 is a clear outlier, driven by one-off recoveries that could persist if regulatory trends hold.

## Management’s Forward Tone and Positioning: Cautious Optimism with Emphasis on Execution

Management’s recent commentary reflects a **measured but optimistic stance**. In the Q1 2025 call, the CEO stated, “We are confident in meeting our full-year guidance, supported by ongoing regulatory engagement and operational execution.” This contrasts with the more defensive tone in prior quarters, where management emphasized “navigating uncertainty” and “managing through volatility.” The shift to language such as “manageable wildfire liability” and “ongoing capital execution” signals a belief that the worst of the volatility is behind them, and that cost recovery mechanisms are functioning as intended.

## KPI Trends & Upcoming Quarter Drivers: Wildfire Recovery, Grid Hardening, and Customer Scale

Three KPIs stand out as critical for next quarter’s results:

- **Wildfire Cost Recovery:** Net recoveries jumped to **$1.3 billion in Q1 2025** (from $615 million YoY), directly boosting margins and reducing earnings risk.
- **Grid Hardening Progress:** **88% of planned wildfire mitigation hardening is complete**, supporting regulatory compliance and future cost containment.
- **Customer Accounts:** Nearly **5 million customer accounts** provide scale and revenue stability.

### Table: KPI Movements (YoY and QoQ)

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Wildfire Cost Recovery ($M)| 615     | 1,050   | 1,300   | +111%      | +24%       |
| Grid Hardening (%)         | 70      | 82      | 88      | +18 pts    | +6 pts     |
| Customer Accounts (M)      | 4.95    | 4.98    | 5.00    | +1%        | +0.4%      |

**Implication:** Sustained progress on these KPIs should underpin margin stability and limit downside risk to revenue and EPS.

## Missed by the Street: Free Cash Flow Inflection and Working Capital Management

A key insight overlooked by consensus is the **improving free cash flow trend**. While still negative at **–$184 million in Q1 2025**, this is a marked improvement from **–$236 million YoY**. Management highlighted a “working capital inflow of $44 million,” suggesting that liquidity constraints are easing and that the company is better positioned to fund capex and absorb shocks. This subtle shift in cash dynamics could support a positive surprise in the next quarter’s results.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear Cases

### Table: Scenario Analysis for Q2 2025

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                         |
|----------|--------------|---------|----------------------|---------------------------------------------------------|
| Bull     | 3.9          | 1.45    | 58                   | Wildfire recovery persists, regulatory uplift, no delays |
| Base     | 3.8          | 1.37    | 56                   | Steady execution, cost control, guidance met            |
| Bear     | 3.7          | 1.30    | 54                   | Project delays, regulatory pushback, muted recovery      |

**Most Likely Scenario:** The **Base case** is most probable, given current evidence of operational progress, regulatory engagement, and management’s reaffirmed guidance. Upside exists if wildfire recoveries remain robust, but regulatory risk tempers the bull case.

## Appendix – Data Tables & Management Quotes

### Table: Quarterly Revenue, EPS, and Margin Trends

| Quarter    | Revenue ($B) | EPS ($) | Operating Margin (%) |
|------------|--------------|---------|----------------------|
| Q2 2024    | 4.05         | 1.12    | 8.2                  |
| Q3 2024    | 4.21         | 1.18    | 9.0                  |
| Q4 2024    | 3.98         | 1.09    | 7.5                  |
| Q1 2025    | 3.81         | 1.37    | 57.8                 |

### Table: KPI Movements

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Wildfire Cost Recovery ($M)| 615     | 1,050   | 1,300   | +111%      | +24%       |
| Grid Hardening (%)         | 70      | 82      | 88      | +18 pts    | +6 pts     |
| Customer Accounts (M)      | 4.95    | 4.98    | 5.00    | +1%        | +0.4%      |

### Key Management Quotes

1. **“We are confident in meeting our full-year guidance, supported by ongoing regulatory engagement and operational execution.”**  
   *Source: Q1 2025 Earnings Call*  
   *Interpretation: Management expects stable performance and sees regulatory risk as manageable.*

2. **“Manageable wildfire liability and ongoing capital execution remain our focus.”**  
   *Source: Q1 2025 Earnings Call*  
   *Interpretation: Emphasis on cost control and risk containment.*

3. **“Working capital inflow of $44 million this quarter supports our liquidity position.”**  
   *Source: Q1 2025 10-Q*  
   *Interpretation: Improving cash flow could surprise to the upside.*

4. **“We have completed 88% of our planned wildfire mitigation hardening.”**  
   *Source: Q1 2025 Earnings Call*  
   *Interpretation: Operational execution is on track, reducing future risk.*

5. **“We are seeing early signs of normalization in demand across our service territory.”**  
   *Source: Q1 2025 Earnings Call*  
   *Interpretation: Demand headwinds may be easing, supporting revenue stability.*

6. **“Our GAAP EPS guidance has increased, reflecting non-core settlement gains.”**  
   *Source: Q1 2025 Earnings Call*  
   *Interpretation: One-off items are boosting reported earnings, but core trends remain solid.*

7. **“Pending General Rate Case decisions are expected to provide further clarity on cost recovery.”**  
   *Source: Q1 2025 10-Q*  
   *Interpretation: Regulatory outcomes remain a key swing factor for next quarter.*

---

**Conclusion:** Edison International enters the next quarter with strong margin momentum, improving cash flow, and a more constructive regulatory backdrop. While risks remain, especially around regulatory reversals, the balance of evidence supports a bullish stance for Q2 2025.

Edison (EIX): Margin Recovery and Regulatory Tailwinds