Iberdrola’s Q1 Profit Beats Expectations, But What’s Ahead for Renewable Leader?

Iberdrola, one of Europe’s largest renewable energy companies, reported a €2.00 billion net profit for the first quarter of 2025, slightly exceeding analyst expectations of €1.81 billion. While the figure marked a 27.4% year-over-year decline, this was largely due to a one-time gain in 2024 from the sale of Mexican gas assets. Excluding that outlier, adjusted net profit rose 26%, signaling robust operational growth. Let’s dive into the numbers and what they mean for investors.

Key Financial Highlights

• Revenue: Increased 1.5% to €12.86 billion, driven by strong performances in the U.S., Iberia, and regulated networks.
• Recurring EBITDA: Jumped 12% to €4.64 billion, fueled by expanding asset bases in regulated markets like the U.K. and U.S.
• Free Cash Flow: Rose 11% to €3.50 billion, reflecting improved capital management and operational efficiency.
• Dividend: Maintained at €0.404 per share, underscoring Iberdrola’s commitment to shareholder returns despite macroeconomic headwinds.

Operational Strengths: Networks and Renewables Lead the Way

The company’s focus on regulated networks and renewable energy projects continues to pay dividends. Networks, which now account for 51% of total investments, saw earnings surge 43% year-over-year, driven by expanded grid infrastructure in the U.S. and U.K. Meanwhile, renewables—comprising 41% of investments—contributed to a record 43,400 MW of installed capacity**, with projects like the Baltic Eagle offshore wind farm in Germany and St. Brieuc in France nearing completion.

Management highlighted the resilience of its U.S. and Iberia businesses, where long-term power purchase agreements (PPAs) with industrial clients are stabilizing revenue. In the U.K., regulated network returns under the RIIO-2 framework offset margin pressures, while LATAM faced a 10% decline in reported EBITDA (though +3% like-for-like), attributed to currency fluctuations and macroeconomic challenges.

Challenges and Risks

While Iberdrola’s results are encouraging, risks remain:
1. Comparisons to 2024: The prior-year Mexican asset sale created a high base for profit comparisons, distorting YoY metrics.
2. LATAM Volatility: Currency devaluations and economic uncertainty in key markets could pressure margins further.
3. Production Declines: Net energy output fell 13.3% to 35,515 GWh, though management cited seasonal factors rather than systemic issues.

The Road Ahead: Growth and Strategic Priorities

Iberdrola reiterated its mid- to high-single-digit net profit growth target for 2025, excluding U.S. cost adjustments, and hinted at double-digit growth if those impacts are excluded. The company plans to maintain record investments of over €11 billion annually through 2025, prioritizing grid modernization and offshore wind projects.

The September 2025 Capital Markets Day will be critical for investors, as management will outline its long-term strategy and sustainability goals. With pumped-storage hydro projects and green hydrogen initiatives on the horizon, Iberdrola is positioning itself as a leader in the global energy transition.

Conclusion: A Resilient Play on Renewables, but Watch the Details

Iberdrola’s Q1 results confirm its status as a well-run utility with a strong renewables tailwind. The adjusted profit growth and robust free cash flow suggest the company is executing on its strategic priorities, even amid macroeconomic turbulence.

Investors should, however, monitor two key metrics:
1. LATAM performance: Can Iberdrola stabilize margins in its Latin American markets?
2. Regulatory outcomes: Will supportive frameworks in the U.S. and U.K. offset supply chain and tariff risks?

At current valuations, Iberdrola’s dividend yield of 4.3% and exposure to high-growth renewable sectors make it a compelling long-term play. Yet, short-term volatility—driven by comparative metrics and regional headwinds—remains a risk. For investors willing to look past the noise, Iberdrola’s leadership in grids and renewables positions it as a cornerstone of the energy transition.

Final Take: A Hold to Buy rating, with upside potential if the company exceeds its 2025 guidance and resolves regional challenges.

Data as of Q1 2025. Always consult a financial advisor before making investment decisions.