Sempra's Q3 Net Income Plummets 80% Despite Revenue Growth

TL;DR

**Sempra's Q3 net income got absolutely crushed by a massive tax hit, making revenue growth meaningless for the bottom line.**

AI Summary

SAN DIEGO GAS & ELECTRIC CO (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, a decrease of 80.2%. For the nine months ended September 30, 2025, net income also decreased substantially to $1,588 million from $2,511 million in 2024, a 36.8% drop. Total revenues, however, saw an increase, reaching $3,151 million for the quarter, up from $2,776 million in 2024 (13.5% increase), and $9,953 million for the nine-month period, up from $9,427 million (5.6% increase). This revenue growth was driven by increases in both natural gas and electric utility revenues. A major factor in the net income decline was a substantial income tax expense of $(482) million for the quarter, compared to an income tax benefit of $105 million in the same period last year. Operation and maintenance expenses also rose slightly to $(1,349) million from $(1,326) million, and interest expense increased to $(403) million from $(328) million. The company's strategic outlook is influenced by potential liabilities from California wildfires and regulatory decisions by the CPUC and FERC.

Why It Matters

This filing reveals a sharp decline in Sempra's profitability, primarily due to a significant shift from an income tax benefit to a substantial expense, which directly impacts investor returns and dividend sustainability. The rising revenues in utilities suggest strong demand, but increased operating and interest expenses, alongside the tax burden, are eroding the bottom line. For customers, this could signal future rate adjustments to offset rising costs and potential wildfire liabilities. Competitively, Sempra's ability to manage these financial pressures will be crucial in a regulated utility market where cost recovery and operational efficiency are paramount, especially against other California IOUs like PG&E and Southern California Edison.

Risk Assessment

Risk Level: high — The risk level is high due to the significant 80.2% drop in net income for the three months ended September 30, 2025, primarily driven by a $(482) million income tax expense compared to a $105 million benefit in the prior year. Additionally, the filing explicitly lists 'California wildfires, including potential liability for damages regardless of fault' as a primary risk factor, indicating substantial unquantified financial exposure.

Analyst Insight

Investors should scrutinize the drivers behind the massive income tax expense and assess its recurring nature. Given the significant net income decline despite revenue growth, consider a 'hold' position until more clarity emerges on Sempra's ability to manage its tax burden and mitigate wildfire-related liabilities, which are explicitly highlighted as a major risk.

Financial Highlights

revenue

$3,151M

net Income

$150M

eps

$0.12

revenue Growth

+13.5%

Revenue Breakdown

Key Numbers

• $150M — Net income for Q3 2025 (Decreased 80.2% from $759 million in Q3 2024)
• $1,588M — Net income for nine months ended Sep 30, 2025 (Decreased 36.8% from $2,511 million in 2024)
• $3,151M — Total revenues for Q3 2025 (Increased 13.5% from $2,776 million in Q3 2024)
• $9,953M — Total revenues for nine months ended Sep 30, 2025 (Increased 5.6% from $9,427 million in 2024)
• $(482)M — Income tax expense for Q3 2025 (Significant shift from a $105 million income tax benefit in Q3 2024)
• $(1,349)M — Operation and maintenance expense for Q3 2025 (Increased from $(1,326) million in Q3 2024)
• $(403)M — Interest expense for Q3 2025 (Increased from $(328) million in Q3 2024)
• $0.12 — Basic EPS for Q3 2025 (Decreased from $1.01 in Q3 2024)
• 652,948 — Weighted-average common shares outstanding for Q3 2025 (Increased from 633,752 in Q3 2024)
• 80.2% — Percentage decrease in Q3 2025 net income (Reflects the significant decline from the prior year)

Key Players & Entities

• SAN DIEGO GAS & ELECTRIC CO (company) — Registrant
• Sempra (company) — Parent company and primary Registrant
• Southern California Gas Company (company) — Subsidiary Registrant
• CPUC (regulator) — California Public Utilities Commission, a key regulatory body
• FERC (regulator) — Federal Energy Regulatory Commission, a key regulatory body
• Enova Corporation (company) — Wholly owned by Sempra, owns SDG&E
• Pacific Enterprises (company) — Wholly owned by Sempra, owns SoCalGas
• Barclays Capital Inc. (company) — Sales agent for ATM Equity Offering
• Goldman Sachs & Co. LLC (company) — Sales agent for ATM Equity Offering
• New York Stock Exchange (regulator) — Exchange where Sempra's common stock is registered

FAQ

Risk Factors

• California Wildfire Liabilities [high — legal]: The company faces potential liabilities stemming from California wildfires. These events can lead to significant financial claims and reputational damage, impacting profitability and operational stability.
• CPUC and FERC Regulatory Decisions [high — regulatory]: Decisions by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC) significantly influence the company's operating environment, including rate setting, capital investments, and compliance requirements. Adverse rulings can negatively affect financial performance.
• Operation and Maintenance Expenses [medium — operational]: Operation and maintenance expenses increased to $(1,349) million in Q3 2025 from $(1,326) million in Q3 2024. Rising costs in these areas can pressure margins if not offset by revenue or efficiency gains.
• Increased Interest Expense [medium — financial]: Interest expense rose to $(403) million in Q3 2025 from $(328) million in Q3 2024. Higher borrowing costs can reduce net income and increase financial leverage.
• Significant Income Tax Expense [high — financial]: The company reported a substantial income tax expense of $(482) million for Q3 2025, a sharp reversal from an income tax benefit of $105 million in Q3 2024. This shift is a primary driver of the net income decline.

Industry Context

San Diego Gas & Electric operates in a heavily regulated utility sector, facing increasing demands for grid modernization and renewable energy integration. The competitive landscape is characterized by established utilities and emerging energy service providers, with a constant focus on reliability and customer service.

Regulatory Implications

The company is subject to significant regulatory oversight from the CPUC and FERC, which impacts its ability to set rates, recover costs, and make capital investments. Recent wildfire liabilities and evolving environmental regulations present ongoing challenges and potential financial risks.

What Investors Should Do

1. Monitor regulatory decisions closely.
2. Analyze the impact of tax expense changes.
3. Assess wildfire-related liabilities and mitigation efforts.

Glossary

Equity earnings

The portion of the earnings of an unconsolidated subsidiary or investee company that is attributable to the investor, based on its ownership percentage. (This line item significantly impacts Sempra's reported net income, as seen in the substantial equity earnings of $472 million for Q3 2025.)

Noncontrolling interests

The portion of equity in a subsidiary that is not attributable to the parent company. It represents the ownership stake of outside shareholders. (Earnings attributable to noncontrolling interests reduced net income available to common shareholders by $55 million in Q3 2025.)

Basic EPS

Earnings per share calculated using the weighted-average number of outstanding common shares over a period, without considering the dilutive effect of potential common shares. (Basic EPS dropped significantly to $0.12 in Q3 2025 from $1.01 in Q3 2024, reflecting the sharp decline in net income.)

Weighted-average common shares outstanding

The average number of a company's common shares that have been issued and are held by shareholders during a reporting period, adjusted for stock splits and dividends. (An increase in weighted-average shares outstanding from 633,752 in Q3 2024 to 652,948 in Q3 2025 contributed to the lower EPS, even before considering the net income drop.)

Year-Over-Year Comparison

Compared to the prior year's third quarter, San Diego Gas & Electric reported a substantial 80.2% decrease in net income, falling to $150 million from $759 million. This was driven by a significant income tax expense of $(482) million, a reversal from a $105 million benefit, and increased interest expenses. While total revenues grew by 13.5% to $3,151 million, fueled by higher natural gas and electric utility revenues, this growth was insufficient to offset the sharp decline in profitability. Operation and maintenance expenses also saw a slight increase.

Key Financial Figures

• $25 — 75% Junior Subordinated Notes Due 2079, $25 par value SREA New York Stock Exchange

Filing Documents

• sre-20250930.htm (10-Q) — 5574KB
• sempra-93025xex101.htm (EX-10.1) — 10KB
• sempra-93025xex102.htm (EX-10.2) — 9KB
• sempra-93025xex311.htm (EX-31.1) — 9KB
• sempra-93025xex312.htm (EX-31.2) — 9KB
• sempra-93025xex313.htm (EX-31.3) — 9KB
• sempra-93025xex314.htm (EX-31.4) — 9KB
• sempra-93025xex315.htm (EX-31.5) — 9KB
• sempra-93025xex316.htm (EX-31.6) — 9KB
• sempra-93025xex321.htm (EX-32.1) — 5KB
• sempra-93025xex322.htm (EX-32.2) — 5KB
• sempra-93025xex323.htm (EX-32.3) — 5KB
• sempra-93025xex324.htm (EX-32.4) — 5KB
• sempra-93025xex325.htm (EX-32.5) — 5KB
• sempra-93025xex326.htm (EX-32.6) — 5KB
• socalgasa.jpg (GRAPHIC) — 103KB
• sre-20250930_g1.jpg (GRAPHIC) — 79KB
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• 0001032208-25-000065.txt ( ) — 30529KB
• sre-20250930.xsd (EX-101.SCH) — 165KB
• sre-20250930_cal.xml (EX-101.CAL) — 199KB
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– 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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