Business context and reporting period
The supplied filing is a combined Form 10-Q for The Laclede Group, Inc., Laclede Gas Company and Alabama Gas Corporation—not a filing under the name Spire Inc. It covers the three months ended December 31, 2014, the first quarter of fiscal 2015. Laclede Group acquired Alagasco in August 2014, so the current-quarter consolidated results include Alagasco while the prior-year comparison does not. The regulated gas utilities’ earnings are seasonal and typically concentrated in the November–April heating season.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2014 | Prior-year quarter |
|---|---|---|
| Consolidated operating revenue | $619.6 million | $468.6 million |
| Operating income | $87.3 million | $62.9 million |
| Net income | $47.1 million | $35.6 million |
| Diluted EPS | $1.09 | $1.09 |
| Net economic earnings, non-GAAP | $45.7 million; $1.06 per diluted share | $36.3 million; $1.11 per diluted share |
| Operating cash flow | $(34.1) million | $(15.7) million |
| Capital expenditures | $60.0 million | $34.6 million |
Revenue rose about 32% and net income about 32%, primarily reflecting Alagasco’s inclusion and improved Gas Marketing GAAP earnings. Diluted EPS was unchanged; non-GAAP earnings per share declined, reflecting 10.4 million shares issued in June 2014 to help finance the acquisition. Consolidated operating margin, a non-GAAP measure excluding gas costs and gross receipts taxes, was $231.4 million versus $156.8 million.
At December 31, 2014, consolidated cash was $13.4 million, short-term borrowings $397.5 million, and long-term debt including its current portion $1,851.0 million. Current assets were $816.1 million and current liabilities $1,082.3 million. Cash used in operating activities and capital spending were funded in part by $110.4 million of net short-term debt issuance. Management said the group and utilities retained investment-grade ratings and expected adequate access to capital markets and sufficient resources for anticipated needs.
Material changes versus the prior period
- Gas Utility operating margin increased $71.6 million, including $67.9 million from Alagasco. Laclede Gas margin improved $3.8 million, primarily from rate and infrastructure-surcharge changes.
- Alagasco net income fell to $10.6 million from $19.8 million. Management cited a prior-year $10.9 million gain related to sale of its Metro Operations Center, lower gas-cost pass-through revenue and RSE adjustments, including a lower allowed return on equity.
- Missouri Utilities’ service-area temperatures were 7.2% warmer than the prior-year quarter, although 0.3% colder than normal. System therms sold and transported declined to 544.0 million from 562.4 million.
- Interest charges increased $8.7 million, primarily due to acquisition-related financing and Alagasco interest expense. Short-term borrowings also increased as seasonal working-capital needs and receivable balances used cash.
Outlook, risks and unusual items
- The filing provides no specific earnings guidance. Management emphasizes the utilities’ seasonality and notes interim results are not necessarily indicative of full-year results.
- Alagasco was acquired for $1.6 billion, including cash and assumed debt. A $8.6 million post-closing payment was made in January 2015; the filing says this increased the net purchase price and goodwill.
- Alagasco redeemed $34.7 million of 5.7% notes in January 2015. It also received regulatory approval in February 2015 to issue up to $80 million of debt to prepare to refinance a $80 million December 2015 maturity.
- Environmental exposures include Missouri former manufactured-gas-plant sites, with estimated future costs across 19 sites of $8.1–$39.3 million based on current information. Alagasco is identified as a potentially responsible party at the 35th Avenue Superfund Site; the filing says it could not determine its potential liability. Management did not expect these matters to have a material financial impact, but outcomes remain uncertain.
- Alagasco faces lawsuits relating to a December 2013 apartment-complex incident involving a fatality, injuries and property damage. Management said pending and threatened litigation was not considered material based on information then available, while noting uncertainty in claims and outcomes.
- Key risks cited include weather, natural-gas prices and supply, regulatory decisions, litigation, access to financing, customer retention, environmental and safety matters, and pension costs. The Company’s disclosure-control evaluation excluded Alagasco internal controls during the first year after acquisition; management concluded disclosure controls were effective.
Investor facts to verify
- Confirm the intended issuer: the supplied 10-Q names The Laclede Group, Inc., not Spire Inc.
- Assess how much reported growth reflects Alagasco consolidation versus underlying comparable utility performance, and track diluted EPS and non-GAAP reconciliations.
- Monitor seasonal working-capital needs, short-term borrowing levels, debt maturities and refinancing plans.
- Follow Alagasco’s RSE allowed-return framework and the impact of regulatory adjustments on earnings.
- Track developments and potential costs at the 35th Avenue Superfund Site, Missouri former gas-plant sites, and the Alagasco incident-related litigation.