Business context and reporting period
Spire Inc. filed this combined unaudited Form 10-Q for the three months ended December 31, 2023, its first fiscal quarter of 2024. Spire operates regulated natural gas utilities, non-regulated gas marketing, and midstream storage and pipeline businesses. Earnings are typically concentrated in the November–April heating season, so this quarter is not necessarily indicative of full-year results.
Financial results and key metrics
Unless noted, figures are for consolidated Spire and in millions of dollars. Comparisons are with the three months ended December 31, 2022.
| Metric | Q1 FY2024 | Prior period |
|---|---|---|
| Operating revenue | $756.6 | $814.0 |
| Operating income | $139.2 | $150.2 |
| Net income | $85.1 | $91.0 |
| Net income available to common shareholders | $81.3 | $87.2 |
| Diluted EPS | $1.52 | $1.66 |
| Net economic earnings, non-GAAP | $82.7 | $85.1 |
| Contribution margin, non-GAAP | $358.5 | $364.4 |
| Operating cash flow | $70.0 | $(170.8) |
| Capital expenditures | $226.5 | $154.8 |
- Revenue declined 7.1% and net income declined 6.5% year over year. Operating margin was approximately 18.4%, compared with 18.5%.
- Gas Utility net economic earnings were $75.8 versus $62.9; Gas Marketing was $7.2 versus $25.7; Midstream was $2.4 versus $3.8; Other was a loss of $2.7 versus a loss of $7.3.
- Spire Missouri reported revenue of $535.4 and net income of $57.0, compared with $541.2 and $47.3. Spire Alabama reported revenue of $142.1 and net income of $11.1, compared with $152.4 and $9.2.
- Cash flow less capital expenditures was negative $156.5, versus negative $325.6 in the prior-year quarter. The improvement in operating cash flow reflected working-capital and regulatory timing changes.
- At December 31, 2023, Spire had $4.8 cash and cash equivalents, $3,704.8 long-term debt including current maturities, and $1,047.5 notes payable. Restricted cash of $20.5 brought cash, cash equivalents, and restricted cash to $25.3. The $1,300 revolving credit facility had no borrowings; reported debt-to-capitalization for each borrower was below 65%, against a 70% covenant limit.
Material changes versus the prior period
- Warmer weather reduced utility usage and gas-cost recoveries. Spire Missouri’s service area was 18.0% warmer than a year earlier and 18.7% warmer than normal; Spire Alabama’s was 9.5% warmer year over year and 14.4% warmer than normal.
- Utility contribution margin improved, mainly due to the Missouri 2022 rate order and Alabama rate stabilization adjustments, partly offset by lower usage.
- Gas Marketing earnings fell as unusually favorable prior-year regional basis differentials and storage/transport optimization opportunities did not recur; current markets were more normalized.
- Interest expense rose to $50.6 from $43.6, reflecting higher short-term rates and higher long-term debt levels. The weighted-average short-term borrowing rate was 5.7%, versus 4.4% a year earlier.
- Common shares issued increased by 1.745 million in the quarter through settled ATM forward sales, generating $112.2 net proceeds.
Outlook, management commentary, risks and unusual items
- Management planned fiscal 2024 capital expenditures of $765 and stated it expects adequate access to capital and sufficient resources to meet anticipated requirements. The filing gives no consolidated earnings or EPS guidance.
- Spire Missouri’s proposed ISRS increase of up to $17.3 in annualized revenue remained under regulatory review, tentatively expected to take effect in July 2024. Spire Alabama’s annual RSE rates designed to increase revenue by $14.3 took effect January 1, 2024.
- On January 20, 2024, after quarter-end, a Midstream subsidiary acquired MoGas Pipeline and Omega Pipeline for preliminary cash consideration of $177.6, subject to working-capital adjustments. The company expected to record acquired assets and liabilities at fair value.
- An $8.2 realized interest-rate-swap gain was recorded in Other Income after management concluded the anticipated debt issuance was no longer probable and discontinued hedge accounting. This unusual gain supported current-period results.
- A Spire Missouri gas-cost audit related to Winter Storm Uri remains pending on an off-system sale disallowance; management considers an unfavorable outcome remote. The Missouri staff withdrew its proposed imbalance cash-out disallowance under an unopposed settlement stipulation.
- Risks include weather and catastrophic events, gas-price and supply volatility, regulatory and rate decisions, litigation, financing access and interest rates, environmental obligations, customer collections, and operational or cybersecurity disruptions. Spire Marketing also has commercial disputes and estimated potential liabilities related to Winter Storm Uri.
- Environmental remediation exposure at former manufactured-gas sites is uncertain; recorded estimates were described as immaterial, but future costs could vary. The company reported investment-grade ratings, with negative outlooks except Moody’s stable outlooks for Spire Inc. and Spire Missouri.
Important facts for investors to verify
- Whether warmer weather and lower utility volumes persist, and how rate mechanisms offset usage and gas-cost recovery changes.
- Gas Marketing segment performance under normalized commodity and basis-market conditions.
- Regulatory outcomes and timing for the Missouri ISRS request and the remaining Winter Storm Uri-related audit issue.
- Funding needs, interest expense, debt maturities, covenant headroom, and the effect of the January 2024 term loan and MoGas/Omega acquisition.
- Execution of the $765 fiscal 2024 capital plan and the continued use and dilution impact of the ATM equity authorization, including the new authorization of up to $200 through January 2027.
- Exposure to environmental remediation and Winter Storm Uri commercial disputes; the filing does not provide a clear quantified maximum potential loss for these matters.