CMS ENERGY CORP Q2 2026 earnings call

Thank you, Abby. Good morning, everyone, thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer, and Sri Maddipati, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in the appendix and posted on our website. Now I'll turn the call over to Garrick.

Thank you, Jason, thank you everyone for joining us today. Our investment thesis remains consistent, focused, and durable. It is a simple but powerful business model built on more than two decades of consistent performance, deliberate execution, disciplined capital allocation, and industry-leading results. With our long capital runway, top-tier regulatory environment, and our commitment to affordable customer bills through the CE Way plus digital and other cost savings, CMS Energy continues to deliver. This proven model drives a premium total shareholder return made up of 6%-8% adjusted EPS growth compounded annually and paired with an approximately 3% dividend yield. For you, our investors, it means predictable earnings growth, a competitive dividend, and long-term shareholder value.

Today, I'm going to share with you our plans to further simplify and strengthen our model as we plan to exit non-utility renewables development and focus on what we do best. Following a comprehensive strategic review of NorthStar, we are taking a deliberate step to simplify our business model and sharpen our focus on utility investment. We plan to exit non-utility renewable development while retaining a portfolio of Michigan-based assets, including Dearborn Industrial Generation, or DIG, several small gas peakers, and four commercial solar projects, all of which generate strong cash flow and support our long-term growth strategy. Let me share a little more about how this plan benefits the company and our investors. First, we plan to reallocate capital away from NorthStar and exit non-utility renewables development. Our current five-year plan has approximately $1.7 billion dedicated primarily to non-utility renewables.

This shift of capital will reduce parent funding needs. Second, the retained assets will not require significant capital investment, and they generate strong cash flow, further optimizing parent financing and supporting our large utility capital investment plan. Additionally, as we look to the future, proceeds from the sale of our non-Michigan assets and development projects will further reduce external funding needs at the parent, including equity. Collectively, these three items equate to a reduction of over $500 million of funding through 2030, optimizing parent financing. Beyond 2027, we expect NorthStar's earnings to be driven primarily by DIG and the peakers. On a consolidated basis, this means nearly 100% of our earnings and future growth will be rate base driven within the utility, supporting higher quality growth while simplifying and strengthening our overall business strategy and outlook.

We are targeting the restructuring to be complete by the end of this year and anticipate providing an interim update on future earnings calls as we execute the repositioning of this business. Let's talk about our growth in Michigan. We continue to see momentum across multiple sectors of Michigan's economy. On the data center front, we have made meaningful progress and have taken an additional step, reaching an agreement under our large load tariff. This includes both the extraordinary facilities agreement and the rate agreement. We have one of the most constructive frameworks in the country for data center growth. Our large load tariff ensures new large load customers bear all costs to serve them, supports economic growth, and protects existing customers. In fact, our average residential electric customer could see approximately $7.50 per month of bill benefit with every gigawatt of new large load.

Clear evidence of how disciplined growth supports customer affordability. The next step in the process is for the customer to receive local zoning approval, and we will incorporate the load growth associated with the agreement into our integrated resource plan, or IRP, which we will file in September. I continue to be confident in the progress we see here and the future benefit realized for all our customers. In addition to the large load growth we are seeing, year to date, we have also contracted roughly 135 MW of manufacturing and industrial load. This consistent momentum is a reflection of Michigan's economic growth and why Michigan, for the fourth year in a row, was ranked number six in CNBC's top states for business. We continue to see strong interest from technology, advanced manufacturing, and supply chain companies looking to expand in Michigan.

These opportunities create new jobs, strengthen our communities, and continue to create long-term value for our customers and shareholders. Looking at our regulatory calendar. In June, we filed our electric rate case requesting a $456 million revenue increase, a 10.25% ROE, and a 51.75% equity ratio. We have also requested two-year investment recovery mechanism, or IRM, as we make needed customer investments to harden and strengthen our electric grid. In our gas business, in June, we revised a revenue request in our gas rate case to $232 million, well aligned with staff's position on our distribution spend. We also increased our equity ratio to 51.75% to align with our electric rate case and reflect the need for a higher equity ratio to support affordability and efficient financing. These investments are outlined with clear and deliberate plans focused on continuing to deliver safe, reliable, and affordable energy for our customers.

As I previously highlighted, we have moved our IRP filing to September to reflect the recent data center agreement and ensure we are putting the best plan forward for Michigan. Now, onto the financials. For the first half, we reported adjusted EPS of $1.50 and are executing on our plan to deliver full-year guidance. We are reaffirming our full-year 2026 guidance of $3.83 to $3.90 per share with continued confidence toward the high end. We also have a clearer line of sight on our 2027 guidance given the change in strategy at NorthStar, and our introducing full-year 2027 guidance of $4.08 to $4.17, which maintains growth within our long-term guidance range of 6%-8% off of 2025 actuals. This guidance reinforces and demonstrates our confidence in the continued growth and earnings power of our business post NorthStar restructuring. Longer term, we continue to guide toward the high end of our adjusted EPS growth range of 6%-8%. With that, I'll hand the call over to Sri.

Thank you, Garrick, and good morning, everyone. I want to thank those of you who have reached out over the last few weeks with kind words of support as I've stepped into the Chief Financial Officer role. I've enjoyed getting to reconnect with many of you and look forward to seeing those I haven't over the remainder of the year. Today, I'll focus on three things: first half results, the path to delivering our 2026 guidance, and how our investment and financing plans support durable long-term growth. I'll start on slide eight, where we have the standard waterfall chart, which illustrates the key drivers of our financial performance through the first six months of 2026 and our year-to-go assumptions for meeting our expected guidance range. Through the first half of 2026, the company delivered adjusted net income of $464 million or $1.50 per share.

The $0.23 year-over-year unfavorable variance is primarily due to benefits realized in the first half of 2025 from liability management that were already contemplated in our 2026 plan and do not impact our full-year guidance. Relative to our planned assumptions so far this year, the primary headwind has been the impact of storms, which we have identified actions to offset, including, but not limited to, the pending storm deferral filed with the commission. From a top-line perspective, an unfavorable weather comp from last year and slightly lower cooling and heating degree days in Q2 versus normal resulted in an unfavorable variance of $0.08 for year-to-date results.

New rates, net of investment costs, drove a positive $0.20 of earnings, which continue to move up year to date with the benefits of last year's gas rate order, new electric rates, which commenced in May, and continued investments in renewable projects at the utility. The $0.19 of unfavorable O&M variance was primarily driven by the previously mentioned storm activity. The $0.16 of unfavorable parent and other includes items planned in our full-year guidance, as well as positive sales trends year to date. For the remaining six months to go, we'll continue to plan for normal weather. The unfavorable variance of $0.18 reflects the absence of weather upside in 2025. While July temperatures have been helpful, we don't count on weather upside as part of our planning. However, it does mitigate potential headwinds or allow reinvestment to benefit customers and strengthen the plan for the future.

As I mentioned, we continue to see ongoing benefits from the previously mentioned rate orders and renewable investments. We are also planning a constructive outcome in our pending gas case. In total, we see rates and net investment costs driving $0.22 of positive earnings in the second half. We expect a positive $0.25 of O&M-driven earnings, in part by constructive outcome in the pending storms referral docket, as well as normalized storm activity through the balance of the year. The last piece of the to-go portion of the walk results in a positive variance of $0.16-$0.23 and has several components, including, one, the absence of pull aheads from last year that were funded by favorable weather in 2025. Second, the continued performance of NorthStar, including DIG's higher contribution since last year's outage and new contracts this year.

Third, a conservative assumption for non-weather sales, which, as I mentioned, are trending positively year to date. While Garrick has already affirmed our financial objectives, I'll reiterate my confidence in our ability to deliver on this year's EPS guidance, our 2027 guidance that we have initiated today, and our long-term EPS growth. Turning to slide nine, the foundation of our long-term growth is the robust $24 billion utility investment plan, which drives 10.5% compounded rate base growth. Our decision to reposition NorthStar enables us to efficiently fund the current five-year plan and, over time, allocate incremental capital to the utility, providing high-quality, durable earnings with strong long-term value.

You'll note we are highlighting a $2 billion capital opportunity for utility renewables related to the already approved Renewable Energy Plan, or REP, and an additional $1 billion of electric distribution reliability opportunity represented in the roadmap we've already filed with the commission. These investments are opportunities in the back half of the plan as we continue to improve distribution reliability and meet Michigan's energy law requirements. As we have highlighted in the past, non-rate base earnings differentiate our model from a typical utility and have future growth potential. Energy efficiency incentives and the Financial Compensation Mechanism, or FCM, on power purchase agreements are key parts of Michigan's legislative framework and benefit customers and investors. While energy efficiency remains a component of our long-term plan, it's a relatively mature program.

The FCM has the potential to drive additional opportunity through this decade and the next as we continue to procure electric supply resources that ensure reliability as well as meet the renewable energy, clean energy, and battery storage requirements of Michigan's energy law. Let's move to slide 10, where I'll cover the company's funding needs and progress in 2026. We remain on track to complete our 2026 financing plan, including planned debt issuances at the utility and the remainder of our common equity issuance under our established ATM program. While we don't typically update our long-term financing plans during the year, in the context of the NorthStar decision, I would like to provide direction as to when and how future financings will likely be impacted. Our current five-year plan assumes a total of $3.75 billion of new equity.

This year, we plan to issue $700 million and have already completed nearly $500 million at attractive prices. This leaves approximately $3 billion over the remainder of the plan. As we redeploy cash from NorthStar, we would anticipate reducing at least $350 million of equity from the current plan. We'll provide an update on our financing plan during the Q4 call as part of our normal annual planning process. Turning to slide 10, I want to spend a moment describing what gives us confidence in our investment thesis and how it delivers customer value and maintains affordability. This slide depicts how growth and affordability reinforce one another and do so year in and year out, delivering 6%-8% earnings growth for investors while keeping customer bill growth at or below inflation.

Our utility investments drive 10.5% rate base growth, and those investments help reduce customer costs and drive earnings growth. Long-term investments in our electric supply and natural gas storage allow us to deliver significant cost savings as well as resiliency and reliability benefits to customers during the hottest days of the summer and the coldest days of the winter. We have demonstrated the ability to manage operating costs through our lean operating system, the CE Way. This relentless focus on eliminating waste and driving efficiency through better process and automation enables us to deliver savings year after year, creating the headroom to make needed investments in distribution reliability and gas safety. Support for financially healthy utilities in both legislation and regulation means we can use our balance sheet to make long-term investments and leverage efficient financing to lower costs for our customers.

Finally, with 2%-3% sales growth anticipated and the ongoing customer benefits of energy efficiency, which is up to 2% on the electric side, we see lower customer bills as individual customer consumption is reduced and fixed costs are spread across increasing loads. This proven and durable business model allows us to provide safe, reliable, and affordable service to our customers and deliver consistent financial performance for you, our investors. While I'm new to my role, I'm not new to CMS. The foundation of our business model is strong, and in the 12 years I've been with the company, the opportunities to serve our customers, grow our state, and drive long-term value for our investors have never been better. I'm confident in the strategy we are executing in the years and decades to come. Now, I'll turn it back to Garrick before we take your questions.

Thanks, Sri. At CMS Energy, we deliver 23 years now of consistent industry-leading performance, regardless of circumstances. Year in and year out, you can count on CMS Energy to deliver for all of its stakeholders. With that, Abby, please open the lines for Q&A.