Spire Inc. Form 10-Q Summary
Reporting period: Three months ended December 31, 2021, Spire’s fiscal first quarter. The combined filing covers Spire Inc., Spire Missouri Inc., and Spire Alabama Inc.; financial statements are unaudited. Spire is primarily a regulated natural gas utility, with a smaller nonregulated gas-marketing business. Earnings are seasonal and typically concentrated in the November–April heating season, so this quarter is not necessarily indicative of full-year results.
Key Financial Results
Unless noted otherwise, amounts are in millions of dollars. Comparisons are with the quarter ended December 31, 2020.
| Spire consolidated metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Operating revenue | $555.4 | $512.6 |
| Operating income | $95.3 | $132.9 |
| Net income | $55.7 | $88.9 |
| Net income available to common shareholders | $51.9 | $85.1 |
| Diluted earnings per share | $1.01 | $1.65 |
| Net economic earnings, non-GAAP | $62.6 | $76.9 |
| Net economic earnings per diluted share, non-GAAP | $1.14 | $1.42 |
| Contribution margin, non-GAAP | $284.3 | $309.7 |
| Net cash from operating activities | $(229.9) | $7.6 |
| Capital expenditures | $145.7 | $163.6 |
- Revenue increased $42.8, while operating income fell $37.6 and net income fell $33.2. The decline in net income primarily reflected lower Gas Marketing results and weaker Gas Utility performance.
- Gas Utility contribution margin was $271.6, down $0.6. Gas Marketing contribution margin was a loss of $0.3, versus income of $24.1 a year earlier; lower derivative and fair-value results were a major factor.
- Cash used in operations increased substantially, primarily reflecting regulatory timing and working-capital movements, including a $187.3 cash outflow from changes in regulatory assets and liabilities. Financing provided $376.9, including $300.0 of long-term debt issuance and $174.0 of net short-term debt issuance.
Financial Position and Liquidity
- At December 31, 2021, total assets were $9,650.5 and shareholders’ equity was $2,669.8. Long-term debt, including its current portion, was $3,238.0 on the balance sheet; notes payable were $846.0. Cash and cash equivalents were $8.2. Cash, cash equivalents, and restricted cash totaled $15.2 in the cash-flow statement.
- Current assets of $1,435.3 were below current liabilities of $1,720.7. The company cites seasonal working-capital needs, including the timing of gas purchases and customer collections.
- Spire can use a commercial-paper program or revolving credit facility of up to $975.0. Management stated it expects adequate access to capital, and reported investment-grade debt ratings with stable outlooks except for Moody’s negative outlook on Spire Missouri.
- Spire declared a common dividend of $0.685 per share for the quarter. Spire Missouri issued $300.0 of floating-rate first mortgage bonds due December 2024.
Material Changes and Management Commentary
- Weather across the utility territories was 19% warmer than the prior-year quarter and 26% warmer than normal. Management attributed lower Gas Utility earnings primarily to unseasonably warm weather and higher depreciation and amortization from infrastructure investment.
- Gas Marketing revenue rose with higher volumes and commodity prices, but margin declined due principally to a $19.6 unfavorable year-over-year change in derivative activity and fair-value measurements, as well as less favorable market conditions and lower storage margins.
- Spire Missouri net income fell to $45.3 from $56.6; Spire Alabama net income fell to $12.2 from $13.7. Spire Missouri’s operating revenues declined $7.6, while Spire Alabama’s rose $13.0.
- Fiscal 2022 capital expenditures are planned at $570. The filing provides no consolidated earnings or EPS guidance.
Regulatory Matters, Risks, and Contingencies
- Missouri rate order: New tariffs effective December 23, 2021, were designed to raise annual gross base-rate revenue by $72.2, including $24.9 of incremental revenue and $47.3 already collected through the infrastructure surcharge. The MoPSC also ordered Spire Missouri to stop capitalizing certain non-operational overhead costs pending an audit. The company estimates the resulting pre-tax earnings impact at $20–$30 annually; it reported $1.0 in the first quarter. Spire Missouri’s rehearing request was denied in January 2022, and it filed notice of intent to pursue a new rate case.
- Winter Storm Uri: Spire Missouri invoiced noncompliant marketers $195.8 for gas costs and penalties; $3.2 had been collected by the filing date. The three largest counterparties had not paid, and lawsuits remained pending. Related complaints and a MoPSC investigation also remained open. Management stated collection was probable, but the timing and ultimate recovery remain uncertain.
- Spire STL Pipeline: A federal appeals court vacated the pipeline’s certificate in June 2021 and remanded the matter to FERC. Temporary certificates allowed continued operation while FERC considers a permanent certificate; a supplemental environmental review was underway. The company said there was no impairment at quarter-end, but loss of service could adversely affect results and expose more than $270 of pipeline assets to impairment risk, as well as affect gas supply capacity for Missouri customers.
- Gas Marketing and other exposures: Spire Marketing recorded an estimate for potential liabilities arising from Winter Storm Uri commercial and regulatory disputes; final amounts could materially differ. Environmental and other legal contingencies are also discussed, though management did not expect the identified MGP matters to have a material impact based on current estimates.
- Other disclosed risks include weather and catastrophic events, gas-price and supply volatility, regulatory and litigation outcomes, access to financing, cybersecurity and operational disruptions, and environmental or pipeline-safety requirements. Management reported COVID-19 effects on operations as minimal.
Important Facts for Investors to Verify
- Progress and quantified earnings effects of the Missouri overhead-capitalization audit, and whether a subsequent rate case permits recovery.
- Collections, litigation outcomes, and regulatory treatment of the $195.8 Winter Storm Uri marketer invoices.
- FERC’s permanent authorization decision and environmental review for the Spire STL Pipeline, including any change to impairment or supply risk.
- Cash-flow and funding needs through the heating season, including short-term borrowing, gas-cost recovery timing, and the planned $570 fiscal-year capital program.
- Whether Gas Marketing dispute estimates, commodity-market conditions, and derivative-related earnings volatility change materially.