Spire Inc. Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended June 30, 2019, and the nine months ended June 30, 2019—not 2018 Q3 as stated in the request metadata. The interim financial statements are unaudited. Spire is a regulated natural-gas utility with a nonregulated gas-marketing business; results are seasonal, with earnings generally concentrated in November through April.
Key financial results
| Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Nine months ended June 30, 2019 | Nine months ended June 30, 2018 |
|---|---|---|---|---|
| Operating revenue | $321.3 million | $350.6 million | $1,726.8 million | $1,725.8 million |
| Operating income | $13.3 million | $58.9 million | $327.9 million | $313.0 million |
| Net income (loss) | $(3.0) million | $25.9 million | $218.9 million | $240.1 million |
| Diluted earnings per common share | $(0.09) | $0.52 | $4.27 | $4.91 |
| Net cash from operating activities | Not presented for quarter | Not presented for quarter | $440.6 million | $511.3 million |
| Capital expenditures | Not presented for quarter | Not presented for quarter | $608.5 million | $334.3 million |
Quarterly operating margin was approximately 4.1%, compared with 16.8% a year earlier; nine-month operating margin was approximately 19.0%, compared with 18.1%. These are calculated from reported revenue and operating income. The filing’s non-GAAP net economic earnings were $5.0 million ($0.07 per diluted share) for the quarter and $218.8 million ($4.27 per diluted share) for nine months.
Material changes and management’s explanation
- Quarterly GAAP results weakened sharply: revenue fell $29.3 million and net income declined $28.9 million year over year. Management attributed the earnings decline primarily to lower Missouri utility earnings, warmer comparative-period weather, Missouri rate-design effects, and lower Gas Marketing results. Gas Marketing’s quarter included a $26.7 million decline in derivative activity and fair-value measurements versus the prior year.
- For nine months, net income was down $21.2 million, despite higher operating income. The comparison included a $54.0 million prior-year benefit from the Tax Cuts and Jobs Act (TCJA), partly offset by prior-year Missouri rate-case write-offs. Excluding those items, management reported $9.2 million of net income growth.
- Nine-month Gas Utility contribution margin, a company-defined non-GAAP measure, rose $23.4 million to $819.5 million. The principal drivers included Missouri’s 2018 rate redesign and higher infrastructure surcharges; TCJA-related customer rate reductions partly offset growth.
- Quarterly Gas Utility contribution margin decreased $1.2 million to $195.3 million. The Missouri rate reset and TCJA customer givebacks outweighed higher infrastructure surcharges and favorable Alabama rate-stabilization adjustments.
Cash, debt, liquidity, and financing
- At June 30, 2019, Spire reported cash of $5.8 million, total assets of $7.332 billion, current liabilities of $1.220 billion, long-term debt of $2.042 billion excluding current maturities, current long-term debt of $165.0 million, and commercial paper borrowings of $434.0 million.
- Nine-month operating cash flow fell to $440.6 million from $511.3 million. Investing cash outflow increased to $623.5 million, primarily reflecting higher capital spending. Financing provided $167.3 million, including $242.0 million net proceeds from preferred stock and $190.0 million of long-term debt issuance.
- The company completed a $242.0 million net preferred-stock offering in May: 5.90% Series A cumulative perpetual preferred stock. It also sold 59,630 common shares under its ATM program in the quarter for $4.9 million net proceeds; the program permits up to $150 million of common-stock sales.
- Spire had a $975 million syndicated revolving credit facility, with no borrowings outstanding under it at June 30. Commercial paper and the revolver support seasonal working-capital needs. Debt-to-capitalization ratios under the credit facility were 50% for consolidated Spire, 47% for Spire Missouri, and 37% for Spire Alabama; the covenant limit is 70%.
- Management stated that capital-market access and capital resources were adequate. Spire’s and its utility subsidiaries’ debt ratings were investment grade with stable outlooks. The filing reports no covenant defaults.
Outlook, regulatory matters, and risks
- Management expected fiscal 2019 capital expenditures of approximately $780 million. Spire STL Pipeline construction was underway, with completion anticipated by the end of calendar 2019; Spire Missouri is its foundational shipper.
- Spire Storage’s development and path to sustained profitability were taking longer than planned. Management expected further investment through the 2019–2020 winter heating season. The segment reported a $12.5 million nine-month loss.
- Missouri infrastructure surcharge recovery remained subject to regulatory and legal proceedings, including disputes over eligibility of plastic-pipe replacement costs. A July 2019 filing requested $14.4 million of surcharge revenue, with an $11.0 million alternative; new rates were required by November 12, 2019.
- Spire Storage withdrew a proposed Wyoming pipeline prior-notice request after FERC staff protested for insufficient documentation of compliance with the National Historic Preservation Act.
- Risks identified include weather and catastrophic events, gas-price and supply volatility, pipeline availability, regulatory decisions, litigation, financing access and costs, customer retention and collections, pension costs, cybersecurity, and environmental and pipeline-safety obligations. The filing describes environmental and other legal matters, including former manufactured-gas-plant sites and pending Alabama incident claims; management did not expect the cited matters to materially affect financial condition or results, while noting uncertainty.
- Management said the TCJA’s treatment of accumulated deferred taxes for Spire Alabama, Spire Gulf, and Spire Mississippi remained to be determined by regulators. Missouri had begun returning excess deferred taxes to customers through rates.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q3 and nine months of fiscal 2019, not 2018.
- Review the sources of the quarter’s sharp GAAP earnings deterioration, particularly Gas Marketing derivatives and Missouri utility rate-design and weather effects; compare GAAP results with management’s non-GAAP adjustments.
- Track execution, costs, financing, and regulatory exposure for Spire STL Pipeline and Spire Storage, including Storage’s expected additional investment and path to profitability.
- Monitor Missouri surcharge proceedings and rate recovery, and confirm the timing and outcome of pending rehearing and appeal requests.
- Assess funding needs and leverage against the substantial capital program, seasonal borrowing requirements, preferred dividends, and the $150 million ATM authorization.