Hawaiian Electric Industries Earnings: Lowered Guidance Driven by Reduced Expectations at Bank

We are lowering our fair value estimate for narrow-moat Hawaiian Electric Industries HE to $37 per share from $39 after the company reported second-quarter earnings per share of $0.50 compared with $0.48 in the same year-ago period.

Management lowered their full-year earnings guidance range to $2.00-$2.10 per share from $2.15-$2.35.

The company lowered full-year expectations at American Savings Bank, with expectations for a lower net interest margin given higher funding costs, and a lower return on assets than previously forecast. Lowering our estimates for full-year 2023 and future NIMs led to our cut in fair value.

The company also forecasts a higher holding company loss. These were partially offset by a reduced expectation for provision losses. Management’s outlook for the utility was unchanged.

Utility earnings grew slightly from last year to $45.3 million in the second quarter. Earnings benefited from higher revenue from the company’s annual revenue adjustment mechanisms, the company’s fossil fuel cost risk-sharing mechanism, and major project interim-rate-recovery mechanisms. These benefits were mostly offset by higher operating, interest, and depreciation expenses.

Management continues to perform well under performance-based rate regulation. The company’s integrated grid plan filed in May could support additional transmission and distribution infrastructure investments. The earned return on equity at the utilities was 8.2%, flat from the same year-ago quarter.

At American Savings Bank, the $2.7 million increase in net income was attributed to higher noninterest income, lower net interest expenses, and a lower provision for credit losses. These benefits were partially offset by lower net interest income. Importantly, deposits remained steady as the bank has remained healthy despite the banking crisis in March. The percentage of insured deposits and overall credit quality remains healthy.