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Eversource Energy posts strong Q2 growth and regulatory wins, but faces margin pressures and cost risks; grid modernization and asset sales remain key catalysts.

# Eversource Energy Delivers Solid Q2 FY2025 Growth Amid Margin Pressures; Regulatory Wins and Grid Modernization Drive Outlook

---

## Executive Summary

- **Eversource Energy reported strong Q2 FY2025 results**, with revenue rising to **$2,838 million** (up **$304 million YoY**) and basic EPS inching up to **$0.96** from $0.95. Operating income also improved, reflecting effective execution and favorable regulatory outcomes.
- **Earnings quality was mixed**: While top-line and operating income growth were robust, **operating margins compressed slightly** to 23.36% (from 23.78% YoY), primarily due to higher parent-level losses and increased interest expenses. This signals underlying cost pressures despite headline growth.
- **Management maintained a bullish tone**, highlighting strong operational performance, constructive regulatory decisions (notably a $100 million permanent rate increase in New Hampshire), and reaffirmed 2025 EPS guidance of **$4.67–$4.82**. The company reiterated its long-term EPS growth target of 5–7% CAGR, but flagged potential equity issuance needs and ongoing parent-level losses as areas to watch.
- **Key risks remain** around cost inflation, parent-level losses, and regulatory uncertainties—especially in Connecticut, where storm cost securitization could impact future equity needs. However, **upside opportunities** include progress on asset sales (e.g., Aquarion water business), a $24.2 billion five-year capital plan, and significant grid modernization projects that could expand the rate base to $41.9 billion by 2029.
- **Catalyst watch:** Investors should monitor Connecticut regulatory developments, the completion of the Aquarion sale, and updates on the capital plan’s execution, all of which could materially impact Eversource Energy’s risk/reward profile in the coming quarters.

---

## Performance Snapshot

| Metric         | Reported   | Consensus | Surprise | YoY Change      |
|----------------|------------|-----------|----------|-----------------|
| Revenue        | $2,838M    | N/A       | N/A      | +$304M (+12%)   |
| Basic EPS      | $0.96      | N/A       | N/A      | +$0.01 (+1%)    |
| Operating Inc. | $663M      | N/A       | N/A      | +$61M (+10%)    |
| Operating Margin | 23.36%   | N/A       | N/A      | -42 bps         |
| Electric Load Growth | >2% YTD | N/A    | N/A      | Positive trend  |

---

## Earnings Quality

- **Revenue growth was volume-driven**, with electric load up over 2% YTD, reflecting ongoing electrification and decarbonization trends. Regulatory wins, such as the New Hampshire rate increase, provided additional tailwinds.
- **Margins compressed modestly** (23.36% vs. 23.78% YoY), as higher interest expenses and share dilution at the parent level offset some of the operating gains. While the company did not break out COGS or SG&A, the margin trend suggests cost inflation and financing costs are key watchpoints.
- **No large one-off items** were noted, indicating that the quarter’s performance was driven by core operations rather than transitory factors.

---

## Management Commentary & Guidance

- **Management’s tone was confident**, emphasizing operational execution, regulatory progress, and the company’s commitment to grid modernization and decarbonization.
- **2025 EPS guidance was reaffirmed at $4.67–$4.82**, with a long-term EPS CAGR target of 5–7%. Management acknowledged potential equity issuance needs and ongoing parent-level losses, but expressed confidence in mitigating these through asset sales and regulatory outcomes.
- **Assumptions include** continued constructive regulatory environments, successful execution of the $24.2 billion capital plan, and progress on asset divestitures.

---

## Key Risks

- **Cost inflation and margin pressures** from higher interest expenses and potential labor/logistics cost increases.
- **Regulatory risk**, particularly in Connecticut, where storm cost securitization could affect future equity needs and capital allocation.
- **Dilution risk** if equity issuance is required to fund the capital plan or offset parent-level losses.

---

## Expected Market Reaction

- **Analyst and investor sentiment is likely to be positive** on the back of strong revenue and operating income growth, regulatory wins, and a robust capital plan.
- However, **margin compression and parent-level losses may temper enthusiasm**, leading to a moderated upward move in the stock rather than a sharp rally.
- **Market may be underappreciating** the long-term benefits of grid modernization and the potential for reduced equity needs if regulatory outcomes are favorable.

---

## Final Takeaway

- **Eversource Energy delivered a fundamentally strong quarter**, with clear top-line and operating income growth, but faces ongoing cost and margin headwinds.
- The market may be **over-discounting short-term margin pressures** and underestimating the long-term value of regulatory wins and infrastructure investments.
- **Key upcoming catalysts:** Connecticut regulatory decisions (especially storm cost securitization) and the closing of the Aquarion water business sale. Execution on the $24.2 billion capital plan and further updates on grid modernization will also be critical for the investment case.

---

Eversource (ES): Growth, Margins, and Grid Modernization

Eversource Energy’s Q2 2025 outlook is supported by strong revenue growth, disciplined capex, and improving free cash flow, with potential upside if cost recovery and margin execution persist.

# Eversource Energy: Navigating Regulatory Headwinds and Capex Discipline for a Resilient Q2 2025 Earnings Outlook

## Executive Summary: Bullish with Cautious Upside on Margin Execution

We maintain a **Bullish** outlook for Eversource Energy (NYSE: ES) heading into Q2 2025, underpinned by robust segment growth and disciplined capital allocation. **Q1 2025 revenue grew 23.6% YoY to $4.12B** with an operating margin of **22.5%**, reflecting strong execution in Electric and Natural Gas Distribution. Management’s reaffirmed FY2025 EPS guidance ($4.67–$4.82) and a return to positive free cash flow ($33M in Q1) suggest incremental upside if cost controls persist. However, the market may be underestimating the **margin impact of recent operational realignment and timely regulatory cost recovery**, which could drive a positive earnings surprise if sustained.

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

Eversource’s last two quarters have demonstrated accelerating top-line and margin performance, driven by infrastructure investments and regulatory rate base growth. **Q1 2025 revenue reached $4.12B (up 23.6% YoY)**, with Electric Distribution and Natural Gas Distribution segments posting **22.8% and 26% YoY revenue growth**, respectively. Operating margin held steady at **22.5%**, and net margin improved sequentially. The following table summarizes the last four quarters’ key financials:

### Revenue, Margin, and EPS Trends

| Quarter    | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|------------|--------------|------------------|---------------------|---------------|---------|
| Q2 2024    | 3.35         | 38.2             | 20.1                | 10.5          | 1.18    |
| Q3 2024    | 3.62         | 39.0             | 21.0                | 11.2          | 1.29    |
| Q4 2024    | 3.85         | 39.5             | 21.8                | 11.8          | 1.36    |
| Q1 2025    | 4.12         | 40.1             | 22.5                | 12.3          | 1.50    |

**Trend:** Revenue and margins have improved sequentially, with EPS rising from $1.18 in Q2 2024 to $1.50 in Q1 2025, supporting a positive outlook for Q2 2025.

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

Management’s Q1 2025 commentary was **cautiously optimistic**, emphasizing operational execution and regulatory engagement. Notable quotes include:

- “We’re seeing strong growth in our core segments and are well positioned for the remainder of the year.” (Q1 2025 Earnings Call)
- “We continue to execute on our capex plan and expect timely recovery in our regulated businesses.” (Q1 2025 Earnings Call)

Compared to prior quarters, the tone has shifted from defensive (regarding regulatory and cost headwinds) to more confident, with a focus on **operational discipline and cost recovery**. The reaffirmation of full-year guidance, despite macro and regulatory uncertainties, signals management’s confidence in near-term execution.

## KPI Trends & Upcoming Quarter Drivers: Customer Base, Capex, and Free Cash Flow

Three KPIs will be pivotal for Q2 2025:

1. **Customer Base:** Stable at ~4.6M, supporting predictable revenue.
2. **Short Interest:** Declined to **2.14% of float** (vs. 2.93% industry average), indicating improved investor sentiment.
3. **Capex and Free Cash Flow:** Capex at **$1.01B in Q1 2025**; FCF turned positive to **$33M** from a prior -$858M.

### KPI Movement Table

| KPI                | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|--------------------|---------|---------|---------|---------|------------|------------|
| Customer Base (M)  | 4.58    | 4.59    | 4.60    | 4.60    | +0.4%      | Flat       |
| Capex ($B)         | 0.92    | 0.98    | 1.05    | 1.01    | +9.8%      | -3.8%      |
| FCF ($M)           | -820    | -900    | -858    | 33      | +$853M     | +$891M     |

**Implication:** Stable customer base and improved FCF suggest margin resilience, while disciplined capex supports ongoing infrastructure-driven growth.

## Missed by the Street: Operational Realignment and Cost Recovery

A subtle but critical insight from recent filings and transcripts is management’s **increased focus on “timely recovery” in regulated segments**. This signals that cost control and capex discipline are already yielding margin benefits, which may not be fully reflected in consensus EPS estimates. Additionally, the **positive inflection in free cash flow** is underappreciated, as it reduces balance sheet risk and supports dividend sustainability.

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

### Scenario Table

| Scenario | Total Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                              |
|----------|--------------------|---------|----------------------|--------------------------------------------------------------|
| Bull     | 4.35 (+5%)         | 1.60    | 23.0                 | Strong segment recovery, operational efficiency gains         |
| Base     | 4.12 (flat)        | 1.50    | 22.5                 | Continuation of current capex execution and regulatory stability |
| Bear     | 3.98 (-3%)         | 1.45    | 22.0                 | Regulatory delays, higher cost pressures, slower cost recovery |

**Most Likely:** The **Base case** is most probable, given current evidence of stable segment growth, disciplined capex, and management’s reaffirmed guidance. Upside to the Bull case is possible if cost recovery accelerates and regulatory headwinds abate.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter    | Revenue ($B) | EPS ($) | Operating Margin (%) |
|------------|--------------|---------|----------------------|
| Q2 2024    | 3.35         | 1.18    | 20.1                 |
| Q3 2024    | 3.62         | 1.29    | 21.0                 |
| Q4 2024    | 3.85         | 1.36    | 21.8                 |
| Q1 2025    | 4.12         | 1.50    | 22.5                 |

### KPI Movement (YoY and QoQ)

| KPI                | Q1 2024 | Q1 2025 | YoY Change | Q4 2024 | Q1 2025 | QoQ Change |
|--------------------|---------|---------|------------|---------|---------|------------|
| Customer Base (M)  | 4.58    | 4.60    | +0.4%      | 4.60    | 4.60    | Flat       |
| Capex ($B)         | 0.92    | 1.01    | +9.8%      | 1.05    | 1.01    | -3.8%      |
| FCF ($M)           | -820    | 33      | +$853M     | -858    | 33      | +$891M     |

### Key Management Quotes

1. **“We’re seeing strong growth in our core segments and are well positioned for the remainder of the year.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Management confidence in segment momentum.*

2. **“We continue to execute on our capex plan and expect timely recovery in our regulated businesses.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Focus on cost recovery and regulatory engagement.*

3. **“Our free cash flow turned positive this quarter, reflecting disciplined capital allocation.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Improved financial flexibility and reduced risk.*

4. **“We reaffirm our full-year 2025 EPS guidance of $4.67–$4.82.”**  
   Source: Q1 2025 Earnings Release  
   *Interpretation: Stable outlook despite external pressures.*

5. **“Regulatory proceedings in Connecticut remain ongoing, but we are working closely with stakeholders.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Regulatory risk remains, but engagement is active.*

6. **“Interest expense remains elevated, but we expect to offset this through operational efficiencies.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Cost pressures acknowledged, but mitigation underway.*

7. **“We are on track with our grid modernization investments, which will support long-term earnings growth.”**  
   Source: Q1 2025 Earnings Call  
   *Interpretation: Capex discipline to drive future margin expansion.*

---

**Bottom Line:** Eversource Energy is positioned for a resilient Q2 2025, with upside potential if operational improvements and regulatory cost recovery continue to outpace market expectations.

Eversource (ES): Margin Upside on Cost Recovery