Iberdrola’s Strategic Shift Powers Growth Amid Profit Dip

Iberdrola reported a 27.4% year-over-year decline in Q1 2025 net profit to €2.00 billion, but the figure masks a stronger underlying story. Stripping out a one-time €750 million gain from Mexico’s gas asset sale in Q1 2024, recurring net profit surged 26% to €2.004 billion, driven by robust operational execution and strategic investments. Meanwhile, revenue rose 1.5% to €12.86 billion, signaling resilience in Iberdrola’s global energy empire.

The profit headwind was largely anticipated: the prior-year’s Mexico windfall skewed comparisons. Excluding that outlier, the results underscore a company pivoting decisively toward regulated assets and renewables—two pillars that now account for 52% of total EBITDA. This shift is paying off, with recurring EBITDA up 12% to €4.64 billion and cash flow growing 11% to €3.5 billion.

The Profit Decline: A One-Time Effect, Not a Structural Issue

The headline profit drop is a mirage. The 2024 Mexico sale inflated comparative results, but even excluding that, Iberdrola’s Q1 2025 performance was strong. Management emphasized that 90% of 2025-2026 investments will generate cash from day one, thanks to regulated contracts and PPA-backed renewables. This focus on predictability is key: regulated networks now contribute €15.5 billion of UK regulated asset base (RAB), up 18% year-over-year after the Electricity North West acquisition.

The Growth Engine: Networks and Renewables Dominate

Iberdrola’s investments are laser-focused on two areas:
1. Regulated Networks: Q1 spending here rose 18% to €1.43 billion, with the U.S. and UK accounting for two-thirds of network outlays. By end-2025, RAB is expected to hit €51 billion, underpinning stable cash flows.
2. Renewables: New capacity additions of 2,600 MW over 12 months—including 660 MW of offshore wind—support a pipeline of 7,000 MW set to come online by 2026. These projects are 85% backed by PPAs or CfDs, ensuring revenue visibility.

Geographically, the U.S. (27% of EBITDA) and UK (20%) remain anchors, but Latin America (16%) is gaining traction. The company’s diversification reduces reliance on any single market.

The Numbers That Matter: Cash, Credit, and Commitments

• Liquidity: At €20.9 billion, covering 19 months of financing needs, Iberdrola’s balance sheet is a fortress.
• Debt Metrics: FFO/adjusted net debt improved to 22.3%, preserving its BBB+ credit rating.
• Future EBITDA Impact: Projects starting in 2025-2026 will add €1.6 billion in annualized EBITDA by 2027, as work-in-progress declines 50% by 2026.

CEO Ignacio S. Galán called the results a “testament to our strategic discipline.” The €13+ billion network investment plan through 2026 reinforces this, targeting markets with regulated returns and inflation-linked pricing.

Conclusion: A Solid Foundation for Long-Term Gains

Iberdrola’s Q1 results confirm its transition to a low-risk, high-predictability utility. While headline profit dipped due to a one-time event, recurring metrics and cash flow tell a story of deliberate growth. With regulated assets and renewables now the core, and a pipeline that locks in future EBITDA, the company is positioned to meet its 2025-2026 targets of 6-8% annual profit growth.

The €49 billion regulated asset base, 85% PPA-backed renewables, and 22.3% FFO coverage all signal financial strength. Investors should focus less on the headline profit decline and more on the structural shift: Iberdrola is no longer a volatile renewable play but a regulated utility giant with global scale. At current valuations, its stock—up 30% year-to-date—reflects this repositioning, but the fundamentals support further upside.

In a sector wary of energy price volatility, Iberdrola’s bet on regulated stability and contractual cash flows is paying dividends. The next two years will see these investments translate into tangible earnings, making this a stock to hold for the long haul.