TXNM Energy Q1 Earnings Fall, Revenue Rises; 2025 Outlook Reaffirmed

TXNM Energy (NYSE: TXNM) reported mixed results for the first quarter of 2025, with revenue growth outpacing margin performance amid rising operational costs. While the company reaffirmed its full-year earnings guidance and long-term growth targets, the quarter highlighted the challenges of balancing aggressive capital investments with profitability.

Revenue Surges, but Margins Suffer

Q1 revenue rose 10.5% year-over-year to $482.79 million, surpassing analyst estimates of $456.2 million. The increase stemmed from higher retail load in Texas and New Mexico, driven by data center demand and weather-related usage. However, this growth was overshadowed by a sharp decline in operating income to $71.89 million from $80.59 million in Q1 2024, with the operating margin contracting to 14.9% from 18.4%.

GAAP net earnings fell to $8.9 million ($0.10 diluted EPS) from $47.2 million ($0.52 diluted EPS) in the prior-year period. The drop was attributed to a $8.2 million unrealized loss on investment securities (versus $12.2 million in gains in 2024), higher interest expenses tied to increased debt, and rising operational costs. Non-GAAP "ongoing earnings," which exclude non-recurring items, also declined to $18.1 million ($0.19 diluted EPS) from $37.0 million ($0.41 diluted EPS).

Cost Pressures and Strategic Investments

The margin squeeze was driven by multiple factors:
- Energy Costs: Cost of energy surged 28% to $169.18 million due to demand charges from energy storage agreements and market volatility.
- Capital Spending: Depreciation and amortization jumped 12% to $104.55 million, reflecting investments in grid resiliency and the Permian Basin Reliability Study.
- Debt Burden: Interest charges rose to $63.55 million, up 18% from 2024, as total debt reached $5.8 billion, with a debt-to-equity ratio of 2.3.

These costs underscore TXNM’s focus on long-term infrastructure projects. The company has allocated $546 million through 2027 for extreme weather preparedness and $750 million by 2030 for the Permian Basin’s grid reliability. Management emphasized that these investments align with its 7–9% annual EPS growth target, supported by rate-base expansion and regulatory recovery mechanisms.

Segment Performance and Regulatory Progress

• TNMP (Texas): Ongoing EPS rose to $0.24, aided by rate recovery via the Distribution Cost Recovery Factor (DCRF) and Transmission Cost of Service (TCOS). However, margins faced headwinds from rising depreciation and property taxes.
• PNM (New Mexico): Ongoing EPS dipped to $0.09 as lower transmission margins and regulatory delays offset higher retail load. A key positive was the unopposed rate case stipulation for PNM, which, if approved, could stabilize future earnings.

CEO Pat Collawn stated: “Earnings results in the first quarter are on track with full-year expectations,” citing progress on rate cases and capital projects.

Risks and Challenges Ahead

• Free Cash Flow: Negative $739 million over the past 12 months due to capital spending, raising concerns about debt sustainability.
• Regulatory Delays: PNM’s rate case approval (expected in July 2025) and wildfire liability rules could impact costs and timelines.
• Market Volatility: Energy prices and interest rates remain unpredictable, adding uncertainty to earnings stability.

Outlook Reaffirmed Amid Uncertainty

Despite these challenges, TXNM maintained its 2025 ongoing EPS guidance of $2.74–$2.84 and its long-term growth target. Management highlighted the $2.7 billion rate base growth by 2028 as a key driver, alongside regulatory tailwinds like Texas’ DCRF and TCOS mechanisms.

Conclusion: A Growth Story with Near-Term Pain

TXNM Energy’s Q1 results reflect a company prioritizing long-term infrastructure over short-term profitability. While margins contracted due to debt servicing and capital costs, the revenue growth and reaffirmed guidance suggest confidence in its regulated utility model. Investors should weigh the risks of elevated leverage and negative free cash flow against the potential rewards of rate-base expansion and strategic investments.

The stock’s performance will hinge on regulatory approvals, execution of capital projects, and whether earnings can rebound in later quarters. For now, TXNM’s story remains tied to its ability to navigate the trade-off between growth and profitability—a balancing act that could define its value for years to come.