Atmos Energy Corporation (ATO) — Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2024; year-over-year comparisons are to the periods ended March 31, 2023. The company operates regulated natural-gas distribution and pipeline and storage businesses, serving more than 3.3 million customers in eight states. Interim results are seasonal and are not necessarily indicative of full-year results.
Financial performance and position
- Quarter: Revenue was $1.647 billion, up 6.9%; operating income was $551.0 million, up 30.4%; net income was $432.0 million, up 20.8%; diluted EPS was $2.85 versus $2.48. Operating margin was approximately 33.5%, compared with 27.4%.
- Six months: Revenue was $2.806 billion, down 7.2%, while operating income rose 27.7% to $950.1 million and net income rose 18.1% to $743.3 million. Diluted EPS increased to $4.93 from $4.40. Operating margin was approximately 33.9%, versus 24.6%.
- Drivers: Higher rates, including outcomes associated with safety and reliability investment, and lower bad-debt expense supported earnings. Lower gas costs reduced reported six-month revenue and purchased gas expense; gas costs are generally passed through to customers. Higher depreciation and interest expense partly offset earnings growth. A $14.7 million year-to-date benefit came from Texas property-tax legislation; Mississippi regulatory approval also reduced bad-debt expense by $13.9 million.
- Cash flow and investment: Six-month operating cash flow was $991.9 million, versus $2.893 billion a year earlier. The decline primarily reflects $2.02 billion of Texas securitization-related cash received in the prior-year period. Capital expenditures were $1.416 billion, making operating cash flow less capital expenditures approximately negative $423.7 million. About 81% of capital expenditures supported system safety and reliability.
- Debt and liquidity: Long-term debt, net, was $7.445 billion at March 31, up from $6.554 billion at September 30, 2023; short-term debt was zero. Equity was 60.9% of capitalization, and the contractual debt-to-capitalization covenant ratio was 40% against a 70% maximum. Management reported approximately $4.2 billion of total liquidity, including cash, equity forward proceeds and undrawn credit capacity. The company issued $900 million of senior notes in October 2023 and replaced or expanded revolving credit facilities in March 2024.
- Shareholder returns: Six-month dividends paid were $241.6 million; the declared quarterly dividend per share was $0.805, up from $0.740. Share count increased, including through equity issuances and forward sales.
Changes, outlook and significant matters
- Management said implemented or approved ratemaking actions increased annual operating income; its executive summary reports $165.4 million, with $178.8 million of additional efforts in progress. Detailed distribution tables report different totals and scopes, including $138.4 million of completed actions and $96.4 million pending. APT separately requested an $82.4 million increase in its February 2024 GRIP filing.
- Management expects available liquidity to be sufficient for working capital and the capital expenditure program through the remainder of fiscal 2024 and expects continued access to financing on reasonable terms. The filing provides no specific earnings or EPS guidance.
- Moody’s reaffirmed the company’s investment-grade ratings on April 1, 2024, but placed them on negative outlook; S&P’s outlook remained stable. Management cited potential financing access and borrowing-cost effects if credit conditions or performance deteriorate.
- The NTSB is investigating two January 2024 incidents in Jackson, Mississippi, which resulted in one fatality. The company is cooperating with regulators; the filing says any loss beyond recorded accruals was possible but not reasonably estimable and that management did not expect litigation or environmental matters to materially adversely affect results.
- Other relevant risks include regulation and rate recovery, pipeline safety and integrity, weather, gas supply and price volatility, capital-market access, interest rates, cybersecurity, climate-related requirements and customer economic conditions. The annual goodwill impairment assessment found no impairment; debt covenants were met.
Important facts for investors to verify
- Progress, timing and final allowed returns for pending rate filings, and reconciliation of the differing ratemaking totals and scopes disclosed in the MD&A.
- Developments in the Jackson incident investigation and any resulting safety, regulatory or financial consequences.
- Execution and funding of the capital program, including ongoing reliance on debt and equity financing and the company’s liquidity position.
- Effects of Moody’s negative outlook on financing costs, ratings and access to capital markets.
- Whether earnings growth persists after the effects of rate changes, lower bad-debt expense and the Texas property-tax benefit, while depreciation and interest costs rise.