Business context and reporting period
Spire Inc.’s unaudited Form 10-Q covers the three months ended December 31, 2022, its fiscal first quarter of 2023, compared with the same quarter in 2021. Spire operates regulated natural gas utilities, a nonregulated gas marketing business, and midstream pipeline and storage businesses. Results are seasonal, with utility earnings typically concentrated in the November–April heating season. This combined filing also reports separately on Spire Missouri Inc. and Spire Alabama Inc.
Key financial metrics
| Spire consolidated | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Operating revenue | $814.0 million | $555.4 million |
| Operating income | $150.2 million | $95.3 million |
| Net income | $91.0 million | $55.7 million |
| Net income available to common shareholders | $87.2 million | $51.9 million |
| Diluted EPS | $1.66 | $1.01 |
| Net economic earnings (non-GAAP) | $85.1 million | $62.6 million |
| Net cash used in operating activities | $170.8 million | $229.9 million |
| Capital expenditures | $154.8 million | $145.7 million |
Operating margin was approximately 18.5% versus 17.2%; net margin was approximately 11.2% versus 10.0%.
- Revenue rose 46.6%, primarily reflecting higher natural gas costs passed through to utility customers. Utility gas-cost recovery increased $175.1 million year over year; this pass-through generally does not directly increase operating income.
- Operating income increased $54.9 million and net income increased $35.3 million. Net economic earnings increased $22.5 million, to $85.1 million; the current quarter included a $7.8 million pre-tax fair-value and timing adjustment, versus a $3.7 million gain in the prior-year quarter.
- Gas Marketing results improved substantially with favorable regional basis differentials and optimization of storage and transportation positions. Midstream net income increased $1.3 million. Gas Utility net income was nearly flat; Spire Alabama’s decline was mostly offset by Spire Missouri growth.
- Spire Missouri reported revenue of $541.2 million and net income of $47.3 million, versus $347.9 million and $45.3 million. Spire Alabama reported revenue of $152.4 million and net income of $9.2 million, versus $126.6 million and $12.2 million.
Liquidity, debt and capital
At December 31, 2022, Spire had $4.8 million of cash and cash equivalents, $1,227.0 million of commercial paper borrowings, and $3,412.9 million of long-term debt including its current portion. Current assets were $1,629.7 million and current liabilities were $2,404.7 million. The company reported $321.0 million of cash provided by financing activities, which funded operating cash use and capital investment. Operating cash use improved by $59.1 million year over year, while capital spending increased $9.1 million.
Spire has a $1.3 billion revolving credit facility, amended to extend through July 2027; there were no borrowings under it at quarter-end. The filing states each borrower’s debt was below 65% of capitalization, against a 70% covenant limit. Management said it expects adequate access to capital and resources. Investment-grade debt ratings were reported, with Moody’s negative outlook for Spire Missouri. Planned FY2023 company capital expenditures are $700 million.
Changes, outlook and material matters
- Spire Missouri’s new base rates, approved in its rate case, took effect December 26, 2022 and are designed to add $78.0 million in annual base-rate revenue, including recovery of deferred overhead costs. The company also filed for an additional $8.8 million of annual ISRS revenue; the request was pending at quarter-end.
- Spire Alabama and Spire Gulf rate adjustments took effect January 1, 2023. Higher gas prices also prompted Spire Alabama gas-supply adjustment increases.
- FERC reissued a permanent certificate for the Spire STL Pipeline on December 15, 2022. The order remained subject to rehearing or appeal; the Environmental Defense Fund requested rehearing in January 2023. Pipeline certificate and regulatory uncertainty are identified risks.
- Spire Missouri’s review of pipeline transportation costs remained contested. A partial settlement approved in January 2023 included a $0.6 million disallowance; pipeline-related issues remained unresolved.
- Spire Marketing has commercial disputes related to Winter Storm Uri. Management recorded estimated potential liabilities, but final settlements could materially differ from the estimates.
- Other risks include weather and catastrophic events, gas-price volatility and margin requirements, supply and pipeline availability, regulatory and litigation outcomes, access to capital, customer collections, cybersecurity, and environmental requirements. The company reported no material change in risk factors from its 2022 annual report.
- Spire Alabama recognized an $8.6 million pension settlement loss in plan measurement, to be amortized under its regulatory tariff; no lump-sum settlement expense was recorded in the quarter. Management reported no significant changes to critical accounting estimates and no material control deficiencies.
Important facts for investors to verify
- Whether Spire can sustain earnings growth as favorable Gas Marketing conditions and heating-season utility performance change.
- How working-capital needs, gas-cost recovery timing, interest rates and commercial-paper balances affect liquidity and financing costs.
- Outcomes of the Spire STL Pipeline rehearing or any appeal, and the remaining Missouri pipeline-cost regulatory proceedings.
- Actual recovery of deferred gas costs and regulatory assets, including the pending ISRS request and any future rate decisions.
- Final exposure from Winter Storm Uri disputes and environmental matters, which the filing says may be uncertain.