Black Hills Earnings Call Analysis: A Year of Growth and Strategic Initiatives

In the latest earnings call, Black Hills provided an optimistic overview of its financial performance and strategic initiatives for the upcoming year. The company reported a solid year-over-year growth in earnings, driven by operational efficiencies and a strategic merger that promises to enhance its market position. With a strong financial foundation and ambitious growth plans, the company is well-positioned for future success.

Financial Performance

During the call, Kimberly, the company's financial officer, highlighted key metrics that underscore Black Hills' robust financial health. For 2025, the company achieved a GAAP earnings per share (EPS) of $3.98, which included $0.12 of merger-related transaction costs. Adjusting for these costs, the adjusted EPS stood at $4.10, reflecting a 5% increase from $3.91 per share in 2024.

Key financial highlights included:

• Revenue Growth: The company successfully executed its regulatory strategy, delivering $0.95 per share in new rates and rider recovery margin.
• Operating Expenses: Overall operating and maintenance (O&M) expenses increased by $0.36 per share, with merger-related costs accounting for $0.12. Notably, employee and service costs drove an increase of $0.13 per share.
• Debt Management: The company issued $450 million in notes, which helped manage its debt profile while maintaining a strong liquidity position with over $700 million available under its revolving credit facility.

Black Hills successfully maintained its investment-grade credit rating, which is crucial for funding its $900 million capital investment plan for the year. As a result, the company expects to reduce its equity needs significantly for 2026, projecting a requirement between $50 million to $70 million.

Strategic Initiatives

A significant topic during the earnings call was the planned merger with Northwestern Energy, a strategic move the company has pursued for over two decades. This merger is expected to enhance Black Hills' capabilities and capacity, ultimately unlocking additional value for both customers and shareholders.

The company has taken proactive steps in the merger process, including:

• Submitting all necessary applications to regulators in Montana, Nebraska, and South Dakota.
• Filing its form S-4 with the SEC, with shareholder meetings planned for early April.
• Anticipating the finalization of the merger by the second half of 2026.

In addition to the merger, Black Hills is advancing several operational projects aimed at enhancing service reliability and efficiency. During 2025, the company completed its 260-mile Ready Wyoming Transmission project, which is set to improve service reliability and reduce reliance on third-party transmission. Furthermore, the company broke ground on the Lang 2 project, a 99-megawatt natural gas-fired generation resource, expected to go live in Q4 of 2026.

These initiatives reflect the company’s commitment to sustainability and customer-focused innovation, with ongoing projects in clean energy and battery storage also gaining traction.

Future Outlook

Looking ahead, Black Hills provided a robust outlook for 2026, initiating adjusted earnings guidance in the range of $4.25 to $4.45 per share, representing a 6% growth at the midpoint over 2025. The company attributes its confidence to:

• Strong anticipated cash flows driven by strategic capital investments.
• Increasing customer demand, particularly from data centers, which are expected to contribute significantly to earnings.
• New rates and rider recovery that will benefit customers and enhance financial performance.

The company is actively pursuing additional data center pipeline demand, anticipating that investments in generation and transmission infrastructure will support this growth. Notably, Black Hills is already serving major clients like Microsoft and Meta, with plans to meet a 600-megawatt demand from existing data center customers by 2030.

In addition to its ongoing projects, Black Hills is preparing for multiple rate reviews and regulatory filings in the coming months, including a significant review in South Dakota that aims to recover investments and meet customer needs since the last review in 2014. The proactive regulatory strategy is designed to mitigate volatility in future earnings and enhance overall financial stability.

Conclusion

In summary, Black Hills continues to exhibit resilience and growth through strategic initiatives and strong financial performance. The company's commitment to increasing operational efficiencies, coupled with its strategic merger with Northwestern Energy, positions it for significant growth in the coming years. With a focus on customer-centric innovations and the ability to adapt to market demands, Black Hills is poised to enhance shareholder value and maintain its reputation as a trusted energy partner. As the company navigates through 2026 and beyond, stakeholders can expect steady progress and a commitment to delivering long-term value.