Sempra's Q3 Net Income Plunges 80% on Hefty Tax Expense

Ticker: SRE · Form: 10-Q · Filed: 2025-11-05T00:00:00.000Z

Sentiment: bearish

Topics: Utilities, Earnings Decline, Income Tax Expense, Revenue Growth, Q3 2025, Regulatory Risk, EPS Drop

Related Tickers: SRE, SREA

TL;DR

**Sempra's Q3 earnings are a red flag, with an 80% net income drop driven by a massive tax hit, making it a tough hold despite revenue growth.**

AI Summary

Sempra reported a significant decline in net income for the three months ended September 30, 2025, falling to $150 million from $759 million in the prior-year period, a decrease of 80.2%. This was primarily driven by a substantial income tax expense of $482 million in Q3 2025, compared to an income tax benefit of $105 million in Q3 2024. Total revenues increased by 13.5% to $3.151 billion from $2.776 billion, with natural gas revenues rising to $1.363 billion from $1.195 billion and electric revenues increasing to $1.260 billion from $1.069 billion. Operation and maintenance expenses saw a slight increase to $1.349 billion from $1.326 billion. For the nine months ended September 30, 2025, net income also decreased significantly to $1.588 billion from $2.511 billion in the same period of 2024, a 36.8% drop, largely due to a $711 million income tax expense compared to a $63 million benefit. Diluted EPS for the quarter was $0.12, down from $1.00 in Q3 2024, reflecting the lower net income and an increase in weighted-average common shares outstanding to 654,009 thousand from 638,061 thousand.

Why It Matters

Sempra's sharp decline in net income, primarily due to a significant income tax expense, signals potential headwinds for investors, impacting profitability and future dividend capacity. The increased revenue across natural gas and electric segments suggests underlying operational strength, but the tax burden overshadows these gains. For customers, rising utility costs, as reflected in higher revenues, could lead to increased rates. In a competitive utility landscape, Sempra's ability to manage tax liabilities and maintain financial health is crucial for its long-term market position and its employees' job security.

Risk Assessment

Risk Level: high — The substantial income tax expense of $482 million in Q3 2025, a stark reversal from a $105 million income tax benefit in Q3 2024, is a significant and immediate financial risk. This shift directly contributed to an 80.2% decrease in net income, from $759 million to $150 million, indicating a material impact on profitability that could persist or recur.

Analyst Insight

Investors should scrutinize the nature of the $482 million income tax expense to determine if it's a one-time event or indicative of ongoing tax liabilities. Consider reducing exposure if the tax burden is structural, as it significantly eroded Q3 profitability despite revenue growth.

Financial Highlights

revenue
$3.151B
net Income
$150M
eps
$0.12
revenue Growth
+13.5%

Revenue Breakdown

SegmentRevenueGrowth
Natural Gas$1,363M+14.1%
Electric$1,260M+17.9%
Energy-related businesses$528M+3.1%

Key Numbers

Key Players & Entities

FAQ

Why did Sempra's net income decrease so significantly in Q3 2025?

Sempra's net income decreased significantly in Q3 2025 primarily due to a substantial income tax expense of $482 million, a sharp contrast to the $105 million income tax benefit recorded in Q3 2024. This shift directly contributed to an 80.2% drop in net income from $759 million to $150 million.

How did Sempra's revenues perform in the third quarter of 2025?

Sempra's total revenues increased by 13.5% to $3.151 billion for the three months ended September 30, 2025, up from $2.776 billion in the same period last year. This growth was driven by increases in both natural gas revenues, which rose to $1.363 billion, and electric revenues, which reached $1.260 billion.

What was Sempra's diluted EPS for Q3 2025?

Sempra's diluted earnings per common share (EPS) for the three months ended September 30, 2025, was $0.12. This represents a significant decrease from the $1.00 diluted EPS reported for the same period in 2024, reflecting the substantial decline in net income.

What were the key expense changes for Sempra in Q3 2025?

Key expense changes for Sempra in Q3 2025 included an increase in operation and maintenance expenses to $1.349 billion from $1.326 billion in Q3 2024. Additionally, interest expense rose to $403 million from $328 million, and depreciation and amortization increased to $662 million from $614 million.

How many common shares did Sempra have outstanding as of October 31, 2025?

As of October 31, 2025, Sempra had 652,681,521 common shares outstanding. This figure is relevant for calculating per-share metrics and indicates an increase in shares compared to the weighted-average common shares outstanding in Q3 2024.

What is the role of San Diego Gas & Electric Company and Southern California Gas Company within Sempra?

San Diego Gas & Electric Company is wholly owned by Enova Corporation, which in turn is wholly owned by Sempra. Southern California Gas Company is wholly owned by Pacific Enterprises, also wholly owned by Sempra. These entities are key consolidated subsidiaries contributing to Sempra's overall utility operations.

What are the primary risks Sempra highlights in its forward-looking statements?

Sempra highlights several primary risks, including potential liability for California wildfires, regulatory actions and denials of cost recovery by bodies like the CPUC and FERC, and the success of business development efforts, construction projects, and divestitures. Cybersecurity threats and the availability and cost of capital resources are also significant concerns.

How did Sempra's net income for the nine months ended September 30, 2025, compare to the prior year?

For the nine months ended September 30, 2025, Sempra's net income was $1.588 billion, a decrease of 36.8% compared to $2.511 billion in the same period of 2024. This decline was largely influenced by an income tax expense of $711 million, contrasting with an income tax benefit of $63 million in the prior year.

What is the significance of the '2025 Wildfire Legislation' mentioned in the filing?

The '2025 Wildfire Legislation,' specifically Senate Bill 254, is significant because it established the Wildfire Fund Continuation Account. This fund is crucial for Sempra and its utility subsidiaries, like SDG&E, as it provides a mechanism for potential recovery of costs related to California wildfires, impacting their financial liability and operational risk.

What is Sempra's strategy regarding its equity interest in SI Partners?

Sempra's strategy includes the planned sale of a portion of its equity interest in SI Partners. This is highlighted as a significant transaction in its forward-looking statements, indicating a potential strategic divestiture aimed at optimizing its portfolio or capital structure, subject to various risks and approvals.

Risk Factors

Industry Context

Sempra operates in the regulated utility and energy infrastructure sector, facing trends such as decarbonization, increasing demand for cleaner energy sources, and the need for grid modernization. The company competes with other major utility providers and energy companies, navigating evolving regulatory landscapes and capital investment requirements for infrastructure upgrades and renewable energy projects.

Regulatory Implications

Sempra's operations are heavily influenced by regulatory bodies that set rates, approve capital expenditures, and enforce environmental standards. Changes in rate-setting methodologies or new environmental regulations could significantly impact profitability and require substantial compliance investments. The substantial income tax expense in the current quarter highlights the sensitivity to tax policy changes.

What Investors Should Do

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Key Dates

Glossary

Equity earnings
Represents Sempra's share of the net income or loss from investments in companies where it has significant influence but not control. (These earnings are a component of Sempra's total net income, and their fluctuation can impact overall profitability, as seen in the $472M in Q3 2025 compared to $454M in Q3 2024.)
Noncontrolling interests
Represents the portion of equity in a subsidiary that is not attributable to the parent company (Sempra). (Changes in earnings attributable to noncontrolling interests, such as the decrease from $110M in Q3 2024 to $55M in Q3 2025, affect the net income available to Sempra's common shareholders.)
Diluted EPS
Earnings per share calculated after accounting for all dilutive potential common shares, such as stock options and convertible securities. (The reported diluted EPS of $0.12 for Q3 2025, down from $1.00 in Q3 2024, reflects the impact of lower net income and an increase in weighted-average common shares outstanding.)
Income tax (expense) benefit
The amount of income taxes attributable to the period, which can be an expense (a cost) or a benefit (a reduction in taxes). (This line item was the primary driver of the net income decline in Q3 2025, showing a significant expense of $482M compared to a benefit of $105M in the prior year.)

Year-Over-Year Comparison

Compared to the prior year's third quarter, Sempra reported a substantial 80.2% decrease in net income, falling to $150 million from $759 million. This was primarily driven by a significant shift from an income tax benefit of $105 million to an expense of $482 million. Despite this, total revenues saw a healthy 13.5% increase to $3.151 billion, fueled by growth in both natural gas and electric segments. Diluted EPS declined sharply to $0.12 from $1.00, reflecting the lower net income and a slight increase in shares outstanding. No new significant risks were explicitly detailed in the provided excerpt, but the existing risks related to regulatory and financial matters remain pertinent.

Filing Stats: 4,589 words · 18 min read · ~15 pages · Grade level 18.1 · Accepted 2025-11-05 16:10:30

Key Financial Figures

Filing Documents

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements 9 Notes to Condensed Consolidated Financial Statements Note 1. General Information and Other Financial Data 29 Note 2. New Accounting Standards 48 Note 3. Revenues 49 Note 4. Regulatory Matters 53 Note 5. Sempra – Investments in Unconsolidated Entities 56 Note 6 . Sempra – Potential Divestitures 58 Note 7 . Debt and Credit Facilities 61 Note 8 . Derivative Financial Instruments 64 Note 9 . Fair Value Measurements 71 Note 10. Sempra – Contingently Redeemable Noncontrolling Interest 78 Note 11. Sempra – Equity and Earnings Per Common Share 79 Note 12. San Onofre Nuclear Generating Station 82 Note 13. Commitments, Contingencies and Guarantees 84 Note 14. Segment Information 89

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 96 Overview 96 Results of Operations by Registrant 97 Capital Resources and Liquidity 117 Critical Accounting Estimates 134 New Accounting Standards 134

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 134

Controls and Procedures

Item 4. Controls and Procedures 136

– OTHER INFORMATION

PART II – OTHER INFORMATION

Legal Proceedings

Item 1. Legal Proceedings 137

Risk Factors

Item 1A. Risk Factors 137

Other Information

Item 5. Other Information 139

Exhibits

Item 6. Exhibits 140

Signatures

Signatures 142 This combined Form 10-Q is separately filed by Sempra, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any one of these individual Registrants is filed by such entity on its own behalf. Each such Registrant makes statements herein only as to itself and its consolidated entities and makes no statement whatsoever as to any other entity. You should read this report in its entirety as it pertains to each respective Registrant. No one section of the report deals with all aspects of the subject matter. A separate Part I – Item 1 is provided for each Registrant, except for the Notes to Condensed Consolidated Financial Statements, which are combined for all the Registrants. All Items other than Part I – Item 1 are combined for the three Registrants. None of the website references in this report are active hyperlinks, and the information contained on or that can be accessed through any such website is not and shall not be deemed to be part of or incorporated by reference in this report or any other document that we file with or furnish to the SEC. 3 Table of Contents The following terms and abbreviations appearing in this report have the meanings indicated below. GLOSSARY AB California Assembly Bill ADIA Black Silverback ZC 2022 LP (assignee of Black River B 2017 Inc.), a wholly owned affiliate of Abu Dhabi Investment Authority AFUDC allowance for funds used during construction amparo an extraordinary constitutional appeal governed by Articles 103 and 107 of the Mexican Constitution and filed in Mexican federal court Annual Report Annual Report on Form 10-K for the year ended December 31, 2024 AOCI accumulated other comprehensive income (loss) ARO asset retirement obligation ASC Accounting Standards Codification ASEA Agencia de Seguridad, Energa y Ambiente (Mexico's National Agency for Safety, Energy, and Environment) ASU Accounting Standards Update ATM at-the-market equity

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS SEMPRA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share amounts; shares in thousands) Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 (unaudited) REVENUES Utilities: Natural gas $ 1,363 $ 1,195 $ 5,195 $ 4,798 Electric 1,260 1,069 3,350 3,269 Energy-related businesses 528 512 1,408 1,360 Total revenues 3,151 2,776 9,953 9,427 EXPENSES AND OTHER INCOME Utilities: Cost of natural gas ( 210 ) ( 99 ) ( 886 ) ( 790 ) Cost of electric fuel and purchased power ( 122 ) 18 ( 265 ) ( 227 ) Energy-related businesses cost of sales ( 117 ) ( 134 ) ( 321 ) ( 297 ) Operation and maintenance ( 1,349 ) ( 1,326 ) ( 3,931 ) ( 3,871 ) Depreciation and amortization ( 662 ) ( 614 ) ( 1,955 ) ( 1,811 ) Franchise fees and other taxes ( 194 ) ( 175 ) ( 555 ) ( 515 ) Other income, net 49 65 199 194 Interest income 17 17 65 47 Interest expense ( 403 ) ( 328 ) ( 1,195 ) ( 944 ) Income before income taxes and equity earnings 160 200 1,109 1,213 Income tax (expense) benefit ( 482 ) 105 ( 711 ) 63 Equity earnings 472 454 1,190 1,235 Net income 150 759 1,588 2,511 Earnings attributable to noncontrolling interests ( 55 ) ( 110 ) ( 103 ) ( 325 ) Preferred deemed dividends ( 11 ) — ( 11 ) — Preferred dividends ( 7 ) ( 11 ) ( 29 ) ( 33 ) Preferred dividends of subsidiary — — ( 1 ) ( 1 ) Earnings attributable to common shares $ 77 $ 638 $ 1,444 $ 2,152 Basic EPS: Earnings $ 0.12 $ 1.01 $ 2.21 $ 3.40 Weighted-average common shares outstanding 652,948 633,752 652,538 633,342 Diluted EPS: Earnings $ 0.12 $ 1.00 $ 2.21 $ 3.38 Weighted-average common shares outstanding 654,009 638,061 653,420 636,566 See Notes to Condensed Consolidated Financial Statements. 9 Table of Contents SEMPRA CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in millions) Sempra shareholders' equity Pretax amount Income tax (expense) benefit Net-of-tax

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