Iberdrola Earnings Call Highlights Networks-Led Growth

Iberdrola ((IBDRY)) has held its Q1 earnings call. Read on for the main highlights of the call.

Iberdrola struck an overall upbeat tone in its latest earnings call, underscoring double-digit adjusted net profit growth and the resilience of its regulated networks. Management acknowledged currency headwinds, pressure in its Power & Customers arm and rising gross debt, but argued that robust regulated cash flows, improved credit metrics and an upgraded 2026 outlook more than offset these challenges.

Adjusted Net Profit Growth

Adjusted net profit climbed 11% year on year to €1,865 million in the first quarter of 2026, confirming Iberdrola’s ability to grow earnings despite macro and regulatory noise. Management stressed that excluding around €99 million of negative foreign exchange effects, adjusted net profit would have risen by roughly 17%, highlighting the underlying strength of the business.

Adjusted EBITDA and Networks Strength

Group adjusted EBITDA reached €4.1 billion, up 2.4% versus the same period last year, with regulated networks again doing the heavy lifting. Networks EBITDA grew 9% to €2,048 million, or about 14% at constant currency, driven by standout contributions from the U.K., where earnings jumped 32% to £447 million, and the U.S., where they rose 22% to $612 million.

Robust Investment Program and RAB Expansion

Iberdrola invested €2,705 million in the quarter and €14.5 billion over the past 12 months, channeling more than half of that into networks in the U.K. and U.S. This heavy spending pushed the regulated asset base to €53 billion, roughly 8% higher year on year, while transmission assets expanded even faster, with transmission RAB up about 29% to €14 billion.

Asset Rotation and Balance Sheet Improvements

The completion of the Mexico asset rotation marked a key milestone, delivering expected capital gains of several hundred million euros and helping to trim leverage on a pro forma basis. Including this transaction, pro forma net debt stood at €50.3 billion versus reported net debt of €51.9 billion, while liquidity reached €21.4 billion, sufficient to cover around 23 months of financing needs.

Upgraded 2026 Guidance

Management upgraded its 2026 guidance and now expects adjusted net profit to grow more than 8%, excluding capital gains from asset rotations, with regulated networks as the main engine. The outlook rests on continued heavy investment, supportive interest-rate dynamics, strong hedging and a growing renewables portfolio, giving investors clearer visibility on medium-term earnings.

Renewables and Operational Output Gains

Renewables performance improved sharply, with offshore wind production up 42% year on year and U.K. wind output rising 40%, supported by favorable wind conditions and new capacity. The company added about 3,300 megawatts in the last 12 months, including around 2 gigawatts of wind, 1 gigawatt of solar and more than 300 megawatts of storage, while hydro reserves stood at record levels.

Improving Credit Metrics and Cash Flow

Funds from operations increased 7%, underpinning a notable improvement in key leverage ratios despite the sizable capex program. Adjusted net debt to EBITDA fell to 3.4 times from 3.7 times a year earlier, adjusted FFO to net debt improved to about 24% from 21.2%, and adjusted leverage dropped to roughly 44% from 47%, presenting a healthier credit profile.

AI and Digital Efficiency Initiatives

Iberdrola outlined an ambitious artificial intelligence push, with more than 300 and approaching 400 initiatives under way, roughly 70% of which involve generative AI and a similar share developed internally. Management expects these projects to boost operational efficiency and open new revenue streams, signaling that digitalization will be an increasingly important driver of future profitability.

Power & Customers Business Pressure

In contrast to networks, the Power & Customers segment came under pressure, with EBITDA slipping about 3% to €2.0 billion. Iberia’s EBITDA declined 3.2% to €1,002 million as higher ancillary service costs, regulated gas tariff effects and lower prices eroded margins, while U.S. Power EBITDA fell 32% to $196 million due to weaker wind and thermal contributions and adverse timing factors.

Foreign Exchange Headwinds

Currency moves weighed on reported performance, with the U.S. dollar weakening roughly 11.4% against the euro, the pound about 4.2% and the Brazilian real around 1%. Management quantified negative FX impacts of about €99 million on adjusted net profit and €267 million at the gross margin level, noting that most core metrics would have shown stronger growth at constant exchange rates.

Net Debt Increase and 2026 Expectations

Reported net debt rose to €51.9 billion, up €1.7 billion from year-end 2025 as capital expenditure and dividends outpaced cash inflows in the quarter. Looking ahead to 2026, management signaled that net debt is expected to reach around €55 billion as the company maintains high investment levels, though this will be anchored by the expansion of the regulated asset base.

Higher Ancillary Costs and Iberia System Issues

Ancillary service costs in Iberia climbed following a system operator decision to run the grid under reinforced operation after last year’s blackout. Iberdrola described these costs as largely nonrecurring but acknowledged they have temporarily reduced Power & Customers profitability and could have ongoing operational and regulatory implications depending on how future charges are set.

Regulatory and Legal Uncertainties

The company highlighted regulatory risks on both sides of the Atlantic, including potential increases in ancillary charges in Spain and pending U.S. regulatory reviews such as possible cuts to allowed returns for New England transmission owners. These issues could create uncertainty around future returns and might lead to legal disputes or retroactive assessments, though management emphasized the long-term attractiveness of regulated networks.

Higher Depreciation and Provisions

Depreciation, amortization and provisions climbed about 9% to €1,476 million, reflecting the expansion of the asset base and a normalization of provisions after unusually favorable recoveries in the prior-year quarter. This higher non-cash burden is pressuring near-term net income metrics but is consistent with the company’s ongoing growth in regulated and renewable infrastructure.

Forward-Looking Guidance and Outlook

Iberdrola reaffirmed its stronger guidance with net profit expected to grow more than 8% by 2026, underpinned by €14.5 billion of investment over the last 12 months and a pipeline that includes commissioning a further 2.7 gigawatts in 2026 on top of 1 gigawatt already delivered this year. The company plans to keep net debt near €55 billion while relying on hedges that fully cover 2026 production, roughly 80% of 2027 and 75% of 2028, and expects its effective tax rate to move toward 20%.

Iberdrola’s earnings call painted the picture of a utility leaning hard into regulated networks and renewables while managing through currency, regulatory and customer-margin headwinds. For investors, the key takeaways are solid underlying earnings momentum, improving credit metrics and a clearer medium-term growth path, offset by higher leverage and lingering regulatory uncertainties in Spain and the U.S.