SPIRE INC annual report, FY2021

Business context and reporting period

Period clarification: The supplied filing is Spire Inc.’s Form 10-K for the fiscal year ended September 30, 2022, filed November 16, 2022—not a report for 2021 Q4. It also contains separate filings for Spire Missouri and Spire Alabama.

Spire is a regulated natural gas utility holding company with a smaller non-regulated Gas Marketing business and midstream operations. Its utilities serve about 1.7 million customers in Missouri, Alabama and Mississippi; utility earnings are seasonal and generally concentrated in the November–April heating season.

Financial performance and position

MetricFY2022FY2021
Operating revenue$2,198.5 million$2,235.5 million
Operating income$408.2 million$450.2 million
Net income$220.8 million$271.7 million
Diluted EPS$3.95$4.96
Net economic earnings, non-GAAP$216.3 million; $3.86 per diluted share$266.3 million; $4.86 per diluted share
Contribution margin, non-GAAP$1,164.8 million$1,195.2 million
Cash from operating activities$55.0 million$249.8 million
Capital expenditures$552.2 million$624.8 million

Operating margin was approximately 18.6% of revenue versus 20.1% in FY2021. Operating cash flow less capital expenditures was approximately negative $497 million, compared with negative $375 million the prior year. Management attributed cash-flow variability in part to regulatory timing and working capital movements.

At September 30, 2022, consolidated long-term debt principal was $3,258.9 million, including $281.2 million due in FY2023; notes payable were $1,037.5 million. Cash and cash equivalents were $6.5 million. The company reported 46% equity in long-term consolidated capitalization, investment-grade ratings, and no borrowings against its $1.3 billion revolving credit facility. The facility was extended to July 2027. Moody’s outlook for Spire Missouri was negative; other listed debt outlooks were stable.

Material changes versus the prior comparable period

  • Revenue fell $37.0 million, operating income fell $42.0 million, and net income fell $50.9 million. Higher operating costs, interest expense and lower contribution margin weighed on results.
  • Gas Utility contribution margin declined $16.0 million, primarily due to lower Spire Missouri off-system sales and weather-related usage effects, partly offset by rate adjustments. FY2021 had benefited from Winter Storm Uri-related activity.
  • Gas Marketing contribution margin declined $14.3 million as FY2021 had unusually strong results from Uri-driven regional price differentials and storage optimization. FY2022 revenue rose with higher commodity prices, but that increase did not translate into higher margin.
  • Interest expense increased $13.2 million, reflecting higher short-term borrowing levels, higher average short-term rates (1.1% versus 0.4%) and net long-term debt issuance.
  • Operating cash flow dropped $194.8 million. Capital expenditures decreased $72.6 million from FY2021, but remained substantial.

Outlook, management commentary, risks and unusual items

  • Capital plans: Management planned $700 million of FY2023 capital expenditures. Spire Storage’s approved expansion is expected to require $195 million of capital spending from FY2023 through FY2025, targeting 39 Bcf of capacity by 2025 from 23 Bcf at year-end 2022.
  • Missouri rates: Spire Missouri’s April 2022 rate-case filing sought $151.9 million in annual revenue increases. After year-end, parties filed a unanimous stipulation proposing $78.0 million of new base-rate revenue, effective no later than January 1, 2023, subject to MoPSC approval. The filing reports a hearing was scheduled for November 18, 2022.
  • Pipeline authorization: Spire STL Pipeline was operating under temporary FERC certificates after a court vacated its permanent certificate and remanded the matter. Spire Missouri relies on the pipeline for eastern Missouri supply. The pipeline’s assets were carried at more than $270 million; interruption could affect supply, operations and asset values.
  • Winter Storm Uri: Spire Missouri settled marketer claims over 2021 gas purchases and penalties. The amount due from three marketers was reduced to approximately $42 million from an initial $195.8 million invoiced; the MoPSC approved the settlement in May 2022. Separate annual gas-cost prudence reviews covering Uri remained pending.
  • Other significant exposure: Gas Marketing had commercial disputes related to Uri; management recorded estimated potential liabilities, but final settlements could differ materially. Other risks include regulatory cost-recovery decisions, weather and supply disruptions, commodity-price and counterparty risk, pipeline safety, cyber incidents, pension funding and environmental remediation.
  • Dividend: Spire reported 19 consecutive years of annualized common-dividend increases through 2022, but future dividends remain at the Board’s discretion. Annualized dividends based on the November 10, 2022 declaration were estimated at $165.9 million.
  • The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Rate-regulated accounting and judgments about future regulatory recovery were identified as a critical audit matter.

Most important facts for investors to verify

  • Confirm the applicable reporting period: this is FY2022, despite the request metadata specifying 2021 Q4.
  • Check the final MoPSC disposition and effective rates from the Spire Missouri rate-case stipulation, including treatment of deferred overhead costs.
  • Track FERC’s permanent authorization decision for Spire STL Pipeline and any resulting supply, operating or impairment consequences.
  • Review collections under the Uri marketer settlement and outcomes of the remaining gas-cost prudence reviews and Gas Marketing disputes.
  • Assess funding for planned capital spending, FY2023 debt maturities, rising borrowing costs and the effect of weak operating cash flow on liquidity and dividends.