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Introduction & Market Context
Pinnacle West Capital Corporation (NYSE:PNW) released its second-quarter 2025 financial results on August 6, showing a year-over-year earnings decline but maintaining its full-year guidance. The company’s stock traded slightly higher in premarket trading, up 0.06% to $92.40, following the release of its quarterly presentation.
The Arizona-based utility continues to position itself for long-term growth despite near-term earnings pressure, leveraging the state’s robust economic expansion and industrial development. This follows a challenging first quarter when the company reported an unexpected loss of $0.04 per share.
Quarterly Performance Highlights
Pinnacle West reported earnings per share of $1.58 for Q2 2025, down from $1.76 in the same period last year, representing a 10.2% decrease. The company’s presentation provided a detailed breakdown of the factors contributing to this decline.
As shown in the following chart detailing the quarterly performance comparison:
The $0.18 EPS decrease was attributed to several factors, including a $0.06 reduction in pension and OPEB non-service credits and an $0.08 decrease in the "All Other" category, which was primarily impacted by share dilution ($0.08) and income taxes ($0.04). These negative factors were partially offset by improvements in operating revenue less fuel and purchased power ($0.06) and reductions in operations and maintenance expenses ($0.09).
The company noted that income taxes were negatively impacted this quarter due to the absence of a one-time benefit recognized in Q2 2024 related to the Los Alamitos ITC (NSE:ITC) purchase, along with timing differences in when ongoing permanent tax items and credits are recognized.
Forward-Looking Statements
Despite the quarterly earnings decline, Pinnacle West maintained its full-year 2025 EPS guidance range of $4.40 to $4.60, suggesting confidence in stronger performance for the remainder of the year. The guidance is based on several key assumptions, as illustrated in the following slide:
The company’s 2025 guidance incorporates adjusted gross margin of $3.13-$3.19 billion, retail customer growth of 1.5%-2.5%, and weather-normalized retail electricity sales growth of 4.0%-6.0%. Notably, the sales growth projection includes a substantial 3.0%-5.0% contribution from new large manufacturing facilities and data centers, highlighting Arizona’s industrial expansion.
Looking beyond 2025, Pinnacle West outlined its long-term growth strategy with an EPS growth target of 5%-7% based on the original 2024 midpoint. The company’s total sales growth has shown variability in recent years but is expected to stabilize in the 4.0%-6.0% range, as shown in this chart:
Strategic Initiatives
Pinnacle West’s presentation emphasized its ambitious capital expenditure plan, totaling $9.66 billion for the period 2024-2027, representing a 24% increase from the previous plan outlined in Q4 2023. This investment strategy focuses on generation, transmission, and distribution infrastructure to support Arizona’s growing economy.
The following chart details the capital plan breakdown by year and category:
The company expects this significant capital investment to drive rate base growth of 6-8% annually from 2023 to 2027, with the rate base projected to increase from $11.2 billion in 2023 to approximately $14.4 billion by 2027.
To support this growth while maintaining financial stability, Pinnacle West outlined its optimized financing plan, which includes a balanced approach to funding through cash from operations, debt, and equity issuances:
The company is also focused on operational efficiency and cost control, with guidance showing reduced year-over-year core operations and maintenance expenses excluding planned outages:
A key component of Pinnacle West’s strategy involves its 2025 rate case application filed with the Arizona Corporation Commission. The application requests a net revenue increase of $580 million, with rates expected to become effective in the second half of 2026. If approved, this would result in a 13.99% net revenue impact on customers on day one.
Competitive Industry Position
Pinnacle West continues to benefit from Arizona’s robust economic growth and industrial development. The state has emerged as a hub for several high-growth industries, including semiconductors, data centers, and advanced manufacturing.
The following map illustrates the diversity of Arizona’s commercial and industrial growth across various sectors:
The company highlighted that Phoenix was ranked #1 out of 15 top growth markets for manufacturing by Newmark Group (NASDAQ:NMRK) and remains the best-positioned industrial real estate market according to the Commercial Café Report. This economic backdrop provides Pinnacle West with significant growth opportunities, particularly in serving energy-intensive industries like semiconductor manufacturing and data centers.
To support this industrial growth, the company is executing an ambitious transmission expansion plan with multiple strategic projects scheduled through 2030:
These transmission projects are critical to ensuring grid reliability and capacity as Arizona continues to attract large industrial customers with substantial energy requirements.
Forward Outlook
Looking ahead, Pinnacle West appears well-positioned to capitalize on Arizona’s economic growth despite near-term earnings pressure. The company’s maintained credit ratings from major agencies (Moody’s, S&P, and Fitch) provide financial flexibility to execute its capital plan while managing costs.
The company’s focus on formula rate mechanisms and system reliability benefit surcharges aims to reduce regulatory lag and improve the timely recovery of investments. These regulatory tools, combined with the pending rate case, are expected to support Pinnacle West’s financial performance in the coming years.
While the Q2 2025 results showed a year-over-year decline, the maintained full-year guidance suggests management’s confidence in the company’s ability to navigate challenges and deliver on its long-term growth objectives. Investors will be watching closely to see if Pinnacle West can execute its ambitious capital plan while managing costs and regulatory relationships effectively.
Full presentation:
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