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PG&E's Q2 2025 saw an EPS miss and margin pressures, but data center growth and sustainability progress offer long-term upside despite ongoing regulatory and wildfire risks.

# PG&E Q2 2025: EPS Miss and Margin Pressures Offset by Data Center Growth and Sustainability Momentum

---

## Executive Summary

- **PG&E (PCG) reported Q2 2025 revenue of $5,898M, a slight YoY decline, and GAAP EPS of $0.24, missing consensus by $0.08.** Core EPS was flat at $0.31, with no material volume or price growth, and performance was buoyed by a $40M one-off customer capital investment.
- **Margins remain under pressure,** with operating margin slipping to 18.6% (from 18.9%) and O&M expenses rising 3.7% YoY to $2,860M, despite $200M in annualized cost savings. Wildfire-related costs continue to escalate, offsetting efficiency gains.
- **Management’s tone was mixed:** While highlighting robust data center segment growth and significant sustainability progress (notably a 42% methane reduction since 2015), they flagged regulatory headwinds, wildfire liabilities, and the lingering impact of past equity dilution.
- **2025 core EPS guidance was reaffirmed at $1.48–$1.52,** implying ~10% YoY growth, but GAAP EPS guidance was trimmed to $1.26–$1.32, reflecting a more conservative stance on non-core charges and uncertainties.
- **Key risks include regulatory uncertainty, wildfire liabilities, and a high debt/equity ratio (2.06),** while opportunities lie in data center demand, cost discipline, and sustainability initiatives. **Short-term market reaction may be negative** due to the EPS miss, but undervaluation (P/E 12.4 vs. industry 19.1) and operational improvements could attract value-focused investors.

---

## Performance Snapshot

| Metric         | Reported | Consensus | Surprise | YoY Change |
|----------------|----------|-----------|----------|------------|
| Revenue        | $5,898M  | $5,950M   | -$52M    | -1.5%      |
| GAAP EPS       | $0.24    | $0.32     | -$0.08   | -25%       |
| Core EPS       | $0.31    | $0.31     | $0.00    | 0%         |
| Operating Margin | 18.6%  | 18.8%     | -0.2pp   | -0.3pp     |
| O&M Expenses   | $2,860M  | —         | —        | +3.7%      |
| Debt/Equity    | 2.06     | —         | —        | +0.04      |

---

## Earnings Quality

PG&E’s Q2 2025 earnings quality was mixed. **Revenue was flat, with no underlying volume or price growth, and the quarter benefited from a $40M one-off customer capital investment.** Margins remain under pressure, as operating margin declined to 18.6% and O&M expenses increased 3.7% YoY, despite management’s cost-cutting efforts. **Wildfire-related costs and regulatory expenses continue to weigh on profitability,** and the lack of detailed COGS or SG&A breakdowns leaves some uncertainty around the sustainability of cost controls. The divergence between flat sales and rising costs highlights the fragility of current earnings power.

---

## Management Commentary & Guidance

Management struck a **cautiously optimistic tone** on the call. They emphasized **strong growth in the data center segment** and progress on sustainability, including a 42% reduction in methane emissions since 2015. However, they were explicit about **regulatory headwinds (notably CPUC decisions), rising wildfire-related expenses, and the impact of past equity dilution.** 

**2025 core EPS guidance was reaffirmed at $1.48–$1.52,** suggesting confidence in underlying operations and a ~10% YoY increase. However, **GAAP EPS guidance was lowered to $1.26–$1.32,** reflecting a more conservative approach to non-core charges and ongoing uncertainties. Management reiterated their commitment to cost discipline and confirmed there are no current plans for further equity issuance.

---

## Key Risks

- **Cost inflation and margin pressures:** O&M expenses are rising faster than revenue, and wildfire-related costs are escalating.
- **Regulatory risk:** CPUC decisions and other regulatory uncertainties could impact future earnings and capital allocation.
- **Financial leverage:** A high debt/equity ratio (2.06) limits flexibility and increases sensitivity to interest rates and credit conditions.
- **Demand-side risk:** While data center growth is strong, broader utility demand remains flat.

---

## Expected Market Reaction

**The initial market reaction is likely to be negative** due to the headline EPS miss and ongoing cost pressures. However, the reaffirmed core EPS guidance, lack of new equity issuance, and a below-industry-average P/E ratio (12.4 vs. 19.1) may attract value-oriented investors. **Volatility is expected** as the market digests the mixed signals from the quarter.

---

## Final Takeaway

**Q2 2025 was a fragile quarter for PG&E,** with flat core earnings, margin pressures, and rising costs offsetting operational improvements and growth in strategic segments. The market may be underpricing the long-term upside from data center demand and sustainability initiatives, while overemphasizing near-term wildfire and regulatory risks. 

**Upcoming catalysts:**  
- CPUC regulatory decisions in H2 2025  
- Progress updates on data center and sustainability initiatives in Q3/Q4

PG&E remains a fundamentally undervalued utility with significant execution risk, but also meaningful long-term opportunity for patient investors.

PG&E (PCG): Margin Pressures vs. Data Center Upside

PG&E (PCG) is expected to deliver modest revenue growth and stable margins in Q2 2025, with operational improvements and wildfire mitigation efforts providing potential upside amid ongoing regulatory risks.

# PG&E Corp: Navigating Regulatory Hurdles and Operational Momentum—Q2 2025 Earnings Outlook

## Executive Summary

We maintain a **Neutral** outlook on **PG&E Corp (PCG)** for the upcoming Q2 2025 earnings quarter. While **revenue growth remains modest** (Q1 FY2025: $5.98B, up ~2% YoY), and **gross margins are stable at 85%**, the company’s recent miss on analyst expectations (by ~2.5%) tempers near-term optimism. However, **operational KPIs—such as the addition of over 3,000 new electric customers and significant wildfire mitigation progress—signal underlying resilience**. The market may be underestimating the **margin benefits from reduced PSPS (Public Safety Power Shutoff) events and accelerated undergrounding**, which could provide a buffer against ongoing regulatory and legislative risks.

## Recent Trends Signal What’s Next

PG&E’s last two quarters highlight a **pattern of steady, if unspectacular, top-line growth** and **margin stability**. Q1 FY2025 revenue reached **$5.98B** (up ~2% YoY), with **gross margin at 85%** and **operating margin at 20.5%**. Despite a slight revenue miss, the company’s cost discipline and operational improvements have helped maintain profitability. The following table summarizes the last four quarters, illustrating a trend of **stable margins and incremental revenue growth**:

### Quarterly Financial Trends

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | EPS (GAAP) |
|--------------|--------------|------------------|----------------------|------------|
| Q2 FY2024    | 5.85         | 84.7             | 20.1                 | 0.28       |
| Q3 FY2024    | 5.92         | 85.0             | 20.3                 | 0.29       |
| Q4 FY2024    | 5.95         | 85.1             | 20.4                 | 0.30       |
| Q1 FY2025    | 5.98         | 85.0             | 20.5                 | 0.30       |

**Key takeaway:** The company is likely to deliver another quarter of **modest revenue growth and stable margins**, with upside potential if operational KPIs continue to improve.

## Management’s Forward Tone and Positioning

Management’s recent communications have struck a **cautiously optimistic tone**. In the Q1 2025 earnings call, the CEO stated, **“We’ve never felt more confident about our long-term trajectory, even as we navigate near-term regulatory headwinds.”** This is a notable shift from the prior quarter’s more defensive language, which focused on “managing through uncertainty.” The emphasis on **“affordability” and “resilience”** signals a focus on cost control and operational execution, while the reiteration of full-year guidance (GAAP EPS: $1.29–$1.35) suggests management is positioning for stability rather than aggressive growth. The subtle caution around legislative risks (e.g., AB 1054) is new, indicating a more balanced communication strategy.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q2 2025 are **new electric customer additions, data center load pipeline progress, and PSPS event frequency**. In Q1, PG&E added **over 3,000 new electric customers** and advanced its **data center load pipeline to 8.7 GW (with 1.4 GW in final engineering)**. PSPS events were reduced from **6 to 3 YoY**, reflecting improved wildfire mitigation.

### Key KPI Movements

| KPI                        | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| New Electric Customers     | 2,800     | 2,950     | 3,050     | +9%        | +3%        |
| Data Center Load Pipeline* | 7.9 GW    | 8.3 GW    | 8.7 GW    | +10%       | +5%        |
| PSPS Events                | 6         | 4         | 3         | -50%       | -25%       |

*Total pipeline; 1.4 GW in final engineering as of Q1 FY2025.

**Implications:**  
- **Customer growth** and **pipeline expansion** support incremental revenue gains.
- **Fewer PSPS events** should reduce interruption costs, supporting margin stability.
- **Execution on these KPIs** is critical for offsetting regulatory and cost headwinds.

## Missed by the Street

A key overlooked signal is the **accelerated pace of wildfire mitigation**: PG&E completed **24 miles of urban undergrounding and 26 miles of pole strengthening in Q1 alone**. This operational progress, combined with a **50% YoY reduction in PSPS events**, is not fully reflected in consensus margin expectations. As management noted, **“We’re operating in a more constructive regulatory environment than in years past”** (Q1 2025 call), suggesting that the company’s risk profile is improving faster than the Street appreciates.

## Scenarios for the Upcoming Quarter

### Q2 2025 Scenario Table

| Scenario | Revenue ($B) | EPS (GAAP) | Operating Margin (%) | Key Assumptions                                                                 |
|----------|--------------|------------|----------------------|---------------------------------------------------------------------------------|
| Bull     | 6.10         | 0.32       | 21.0                 | Strong KPI execution, further PSPS reduction, positive regulatory developments   |
| Base     | 6.00         | 0.30       | 20.5                 | Steady customer growth, stable cost control, no major regulatory surprises       |
| Bear     | 5.90         | 0.28       | 20.0                 | Regulatory setbacks, delayed pipeline projects, higher cost inflation            |

**Most Likely Scenario:**  
The **Base case** is most probable, given current evidence of steady operational execution and a stable, if cautious, regulatory environment. Upside is possible if wildfire mitigation continues to outpace expectations.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS (GAAP) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|------------|------------------|----------------------|
| Q2 FY2024    | 5.85         | 0.28       | 84.7             | 20.1                 |
| Q3 FY2024    | 5.92         | 0.29       | 85.0             | 20.3                 |
| Q4 FY2024    | 5.95         | 0.30       | 85.1             | 20.4                 |
| Q1 FY2025    | 5.98         | 0.30       | 85.0             | 20.5                 |

### KPI Movement Table

| KPI                        | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| New Electric Customers     | 2,800     | 2,950     | 3,050     | +9%        | +3%        |
| Data Center Load Pipeline  | 7.9 GW    | 8.3 GW    | 8.7 GW    | +10%       | +5%        |
| PSPS Events                | 6         | 4         | 3         | -50%       | -25%       |

### Key Management Quotes

1. **“We’ve never felt more confident about our long-term trajectory, even as we navigate near-term regulatory headwinds.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Management is signaling optimism despite short-term risks.

2. **“Bright skies ahead for our operational execution.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Positive outlook on operational KPIs.

3. **“Affordability and resilience remain our top priorities.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Focus on cost control and system reliability.

4. **“We’re operating in a more constructive regulatory environment than in years past.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Regulatory risk may be moderating.

5. **“We expect to deliver on our full-year guidance, barring unforeseen legislative changes.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Guidance is stable, but legislative risk remains.

6. **“Wildfire mitigation progress is ahead of schedule, with 50 miles completed this quarter.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Operational execution is outpacing expectations.

7. **“Our data center load pipeline now stands at 8.7 GW, with 1.4 GW in final engineering.”**  
   - Source: Q1 2025 Earnings Call  
   - Interpretation: Growth in high-value customer segments is accelerating.

---

**Bottom Line:**  
PG&E’s Q2 2025 results will hinge on continued operational execution and the ability to navigate regulatory uncertainty. While the company is not without risk, **improving KPIs and margin resilience are likely underappreciated by the market**—setting the stage for a potentially positive surprise if execution remains strong.

PG&E (PCG): Stable Margins, Regulatory Overhangs Q2 2025