Southwest Gas Holdings, Inc. - 8-K Summary (August 7, 2017)
Business Context and Reporting Period
This Form 8-K, filed on August 7, 2017, reports the second-quarter 2017 earnings for Southwest Gas Holdings, Inc. (NYSE: SWX). The company operates two primary segments: Southwest Gas Corporation, providing natural gas service to approximately 1.99 million customers in Arizona, Nevada, and California, and Centuri Construction Group, Inc., a construction services enterprise for utilities and industrial markets.
Key Financial Metrics
| Metric | Q2 2017 | Q2 2016 | 12 Months Ended June 30, 2017 | 12 Months Ended June 30, 2016 |
|---|---|---|---|---|
| Consolidated Operating Revenues | $560.5 million | $547.7 million | $2,396.7 million | $2,469.8 million |
| Net Income | $17.9 million | $8.9 million | $154.8 million | $145.8 million |
| Basic EPS | $0.38 | $0.19 | $3.26 | $3.08 |
| Natural Gas Operating Margin | $190.7 million | $184.2 million | $935.0 million | $909.6 million |
| Construction Segment Net Income | $8.7 million | $6.6 million | $29.6 million | $32.5 million |
Note: The filing text does not provide specific values for total debt, cash flow from operations, or liquidity ratios in this summary.
Material Changes vs. Prior Period
- Earnings Growth: Consolidated net income doubled in Q2 2017 compared to Q2 2016, driven by a $7.1 million increase in the natural gas segment and a $2.1 million increase in the construction segment.
- Natural Gas Segment: Operating margin increased $6.5 million in Q2 2017. This was primarily due to $5 million in rate relief from Arizona and California jurisdictions and $2 million from customer growth (32,000 net new customers). Depreciation decreased $11 million due to reduced rates in Arizona following a rate case settlement.
- Construction Segment: Revenues increased 3% ($8.2 million) in Q2 2017. However, a temporary work stoppage with a significant customer resulted in a $15.8 million revenue reduction and a $100,000 pre-tax loss for the quarter.
- Unusual Items: The twelve-month period ended June 30, 2017, included $9 million in other income from increases in the cash surrender values of company-owned life insurance (COLI) policies, compared to $1.3 million in the prior year.
Guidance, Outlook, and Risks
- Natural Gas Outlook: Operating income is expected to increase 11% to 13% in 2017. Capital expenditures are estimated at $570 million. Management anticipates COLI cash surrender value increases to range from $3 million to $5 million annually in the long term.
- Construction Outlook: Revenues for 2017 are anticipated to be 2% to 5% higher than 2016 levels, with operating income expected to be approximately 5% of revenues.
- Risks and Contingencies: Forward-looking statements are subject to risks including timing of rate relief, customer growth rates, regulatory changes, construction activity levels, and stock market volatility. The company notes that quarterly results are seasonal and not indicative of full-year earnings.
Investor Verification Checklist
- Verify the impact of the Arizona general rate case settlement on future depreciation and operating margins.
- Monitor the status of the temporary work stoppage with the significant construction customer and its effect on Q3/Q4 revenues.
- Review the volatility of COLI cash surrender values, which contributed significantly to the twelve-month net income increase.
- Confirm the $570 million capital expenditure plan for 2017 and its funding sources.
- Assess the sustainability of the 11-13% operating income growth projection for the natural gas segment.