Business context and reporting period
This combined, unaudited Form 10-Q covers Spire Inc., Spire Missouri Inc. and Spire Alabama Inc. The filing reports the quarter and six months ended March 31, 2020, compared with the corresponding 2019 periods. Although the request metadata says “2019 Q2,” the filing itself is for fiscal 2020 Q2. Spire is primarily a regulated natural-gas utility, with a nonregulated gas-marketing business. Results are seasonal, with earnings typically concentrated in the November–April heating season.
Key financial results
| Spire consolidated | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Six months ended March 31, 2020 | Six months ended March 31, 2019 |
|---|---|---|---|---|
| Operating revenue | $715.5 million | $803.5 million | $1,282.4 million | $1,405.5 million |
| Operating income | $210.5 million | $209.5 million | $312.8 million | $314.6 million |
| Net income | $133.6 million | $154.6 million | $200.6 million | $221.9 million |
| Diluted EPS | $2.54 | $3.04 | $3.77 | $4.36 |
| Net economic earnings, non-GAAP | $144.0 million | $147.9 million | $215.8 million | $213.8 million |
| Net economic earnings per diluted share, non-GAAP | $2.75 | $2.90 | $4.06 | $4.20 |
- Quarterly consolidated contribution margin, a non-GAAP measure, was $380.5 million versus $387.3 million; six-month contribution margin was $660.9 million versus $662.7 million.
- Six-month operating cash flow was $321.7 million, compared with $297.5 million. Capital expenditures were $346.1 million, versus $376.8 million, leaving operating cash flow below investment spending.
- At March 31, 2020, cash and cash equivalents were $108.4 million, notes payable were $560.6 million, and long-term debt including current maturities was $2,490.2 million. The company reported debt at 54% of total capitalization under its credit agreement definition; equity was 52% of consolidated long-term capitalization.
- Spire had a $975 million revolving credit facility and a $975 million commercial-paper program. Management said it believed available financing and temporary cash investments provided sufficient access to cash. The company’s, Missouri’s and Alabama’s debt ratings remained investment grade with stable outlooks.
Material changes versus the prior comparable periods
- Quarterly revenue fell $88.0 million and six-month revenue fell $123.1 million, principally because lower wholesale gas costs and lower utility usage reduced gas-utility billings. The revenue decline largely reflects gas-cost pass-through and should not be read as a comparable decline in underlying utility margin.
- Quarterly net income declined $21.0 million, while six-month net income declined $21.3 million. The quarter’s decrease reflected weaker gas-marketing results and higher other expense, partly offset by lower gas costs and utility operating expenses.
- Gas Marketing recorded unfavorable fair-value and derivative effects; management identified a $20.3 million quarterly decline in derivative activity and fair-value measurements and a $26.2 million six-month year-over-year decline. These adjustments were excluded from net economic earnings.
- Missouri weather was 19% warmer than the prior-year quarter and 13% warmer for the six-month period. Missouri contribution margin decreased $3.0 million for the quarter and $3.3 million for six months; weather-related usage was a major factor.
- Spire Alabama’s net income increased to $57.8 million from $56.7 million for the quarter and to $71.0 million from $67.0 million for six months, supported in part by rate stabilization and equalization adjustments.
- Six-month net economic earnings increased $2.0 million despite lower GAAP net income, reflecting improved results from Spire STL Pipeline and Spire Storage, offset in part by lower Gas Marketing earnings. Preferred dividends and additional common shares also reduced reported EPS versus the prior year.
Outlook, management commentary and risks
- Management expected fiscal 2020 capital expenditures of approximately $640 million. The filing does not provide a clear earnings or EPS guidance range.
- COVID-19 had limited reported operating impact through March 31, 2020. Spire suspended utility disconnections and late-payment charges, adopted workforce and customer-safety measures, and had not recorded COVID-related regulatory assets or cost deferrals at quarter-end. Management said the full effects were uncertain and could materially affect demand, costs, liquidity and results if economic disruption persisted.
- Spire Missouri’s ISRS recovery is subject to regulatory and court risk. The Missouri Supreme Court declined review of three appellate rulings, remanding the matter to the MoPSC to determine any refunds. Spire recorded provisions, including $4.2 million of additional provisions and $0.6 million for potential interest in the first six months of fiscal 2020; the final refund amount remained uncertain. A proposed additional $11.1 million in annualized ISRS revenue was subject to MoPSC approval at the filing date.
- Two parties sought judicial review of FERC orders concerning the Spire STL Pipeline; Spire and Spire Missouri intervened. Regulatory and litigation outcomes could affect pipeline operations or utility cost recovery.
- A $21.0 million pension settlement loss was recognized in the quarter after lump-sum payments triggered plan remeasurement. Spire also reported mark-to-market losses on interest-rate swaps, including $60.7 million on a swap for the six-month period; these figures are not presented as equivalent cash losses.
- Other disclosed risks include weather and catastrophic events, gas-price and supply volatility, access to capital, customer collections, regulatory decisions, environmental obligations, pension funding, and operational or cybersecurity disruptions. Management stated that ordinary-course litigation and environmental matters were not expected to have a material financial effect, while noting uncertainty in future remediation costs and outcomes.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2019 Q2, but this filing covers the quarter ended March 31, 2020.
- Review the reconciliation of GAAP net income and EPS to non-GAAP net economic earnings, especially the effect of gas-marketing derivative valuation and ISRS provisions.
- Track MoPSC determinations on ISRS refunds, approval and potential refund exposure for new surcharge revenues, and the status of related legislation and appeals.
- Assess COVID-19 effects after quarter-end, including customer collections, disconnection policies, demand, regulatory deferrals and access to capital.
- Compare planned capital spending with operating cash generation and monitor debt, short-term borrowings, covenant headroom and financing costs.
- Review the pension settlement, swap valuations and associated cash or earnings implications, as well as the continuing FERC review of the Spire STL Pipeline.