ATO Atmos Energy Corporation

Atmos Energy Corporation Reports Earnings for Fiscal 2019 Third Quarter; Reaffirms Fiscal 2019 Earnings Guidance

Atmos Energy Corporation (NYSE: ATO) today reported consolidated results for its third quarter ended June 30, 2019.

  • Consolidated net income for the three months ended June 30, 2019 was $80.5 million or $0.68 per diluted share, compared with consolidated net income of $71.2 million, or $0.64 per diluted share for the same period last year.
  • Capital expenditures rose 10 percent to $1,199.2 million for the nine months ended June 30, 2019, with approximately 87 percent of that spending related to system safety and reliability investments.
  • Fiscal 2019 earnings expected to be at the higher end of the tightened range of $4.25 to $4.35 per diluted share. Capital expenditures are expected to remain in the previously announced range of $1.65 billion to $1.75 billion in fiscal 2019.
  • The company's Board of Directors has declared a quarterly dividend of $0.525 per common share. The indicated annual dividend for fiscal 2019 is $2.10, which represents an 8.2% increase over fiscal 2018.

For the nine months ended June 30, 2019, consolidated net income was $453.0 million or $3.88 per diluted share, compared with consolidated net income of $564.3 million, or $5.09 per diluted share for the same period last year. Adjusted net income for the nine months ended June 30, 2018, which excludes a one-time income tax benefit related to the TCJA of $165.5 million, or $1.49 per diluted share, was $398.8 million, or $3.60 per diluted share.

“We remain focused on deploying new technologies and building scale in our operations as we increase our capital investment to enhance the safety and reliability of our system,” said Mike Haefner, chief executive officer of Atmos Energy Corporation. “With most of our significant rate activities for the fiscal year concluded and strong visibility into the remainder of the year, we maintain our outlook for fiscal 2019 earnings to be in the range of $4.25 to $4.35 per diluted share,” Haefner concluded.

Results for the Three Months Ended June 30, 2019

Operating income declined by $2.1 million to $122.2 million for the three months ended June 30, 2019 compared to the prior-year quarter due to higher operating expenses. Increased Contribution Margins driven by positive rate case outcomes, customer growth in our distribution segment and higher margins in our pipeline and storage segment were offset by lower consumption, higher operation and maintenance and depreciation expenses in the current-year quarter.

Distribution Contribution Margin increased $0.8 million to $305.4 million for the three months ended June 30, 2019, compared with $304.6 million in the prior-year quarter. Contribution Margin reflects a net $7.1 million increase in rates, primarily in our Mid-Tex and West Texas divisions and a $2.9 million increase from customer growth, primarily in our Mid-Tex division. These increases were partially offset by a net $3.8 million decrease in consumption.

Pipeline and storage Contribution Margin increased $22.2 million to $149.3 million for the three months ended June 30, 2019, compared with $127.1 million in the prior-year quarter. This increase is attributable to a net $16.5 million increase in rates, due to the GRIP filings approved in fiscal 2018 and 2019, and a net increase of $4.5 million due to wider spreads and positive supply and demand dynamics in the Permian Basin.

Operation and maintenance expense for the three months ended June 30, 2019, was $164.5 million, compared with $143.7 million for the prior-year quarter. This $20.8 million increase was primarily driven by increased pipeline maintenance and related activities and higher employee and training costs in the current-year quarter.

Results for the Nine Months Ended June 30, 2019

Operating income increased $19.0 million to $656.3 million for the nine months ended June 30, 2019, compared to $637.3 million in the prior-year period, which primarily reflects positive rate outcomes, customer growth in the distribution business and higher volumes and margins in our pipeline and storage segment, partially offset by higher operation and maintenance, depreciation and property tax expenses in the current-year period.

Distribution Contribution Margin increased $20.2 million to $1,194.1 million for the nine months ended June 30, 2019, compared with $1,173.9 million in the prior-year period. Contribution Margin reflects a net $23.8 million increase in rates, primarily in the Mid-Tex, Mississippi, West Texas and Louisiana divisions. In addition, customer growth increased $10.6 million, primarily in our Mid-Tex division. These increases were partially offset by decreases of $8.7 million in pass-thru taxes and consumption of $4.7 million, primarily in our Mid-Tex division.

Pipeline and storage Contribution Margin increased $46.8 million to $419.9 million for the nine months ended June 30, 2019, compared with $373.1 million in the prior-year period. This increase is primarily attributable to a net $33.3 million increase in revenue from GRIP filings approved in fiscal 2018 and 2019. In addition, transportation revenues and volumes increased Contribution Margin by a net $9.4 million due to wider spreads and positive supply and demand dynamics impacting the Permian Basin.

Operation and maintenance expense for the nine months ended June 30, 2019 was $452.6 million, compared with $432.0 million for the prior-year period. This $20.6 million increase primarily reflects increased pipeline maintenance and related activities, higher employee and training costs, and software license fees in the current-year period, partially offset by the absence of costs incurred for the Northwest Dallas outage in the prior-year period.

Capital expenditures increased $110.7 million to $1,199.2 million for the nine months ended June 30, 2019, compared with $1,088.5 million in the prior-year period, due to continued spending for infrastructure replacements and enhancements.

For the nine months ended June 30, 2019, the company generated operating cash flow of $808.9 million, a $226.4 million decrease compared with the nine months ended June 30, 2018. The period-over-period decrease is primarily attributable to working capital changes, particularly in our distribution segment resulting from the timing of payments for natural gas purchases and deferred gas cost recoveries.

Our equity capitalization ratio at June 30, 2019 was 60.2%, compared with 56.7% at September 30, 2018. The increase primarily reflects the effects of our fiscal 2019 financing activities and lower short-term debt at June 30, 2019.

Outlook

The leadership of Atmos Energy remains focused on enhancing system safety and reliability through infrastructure investment while delivering shareholder value and consistent earnings growth. Atmos Energy expects fiscal 2019 earnings to be at the higher end of the range of $4.25 to $4.35 per diluted share. Capital expenditures for fiscal 2019 are expected to range between $1.65 billion and $1.75 billion.

Conference Call to be Webcast August 8, 2019

Atmos Energy will host a conference call with financial analysts to discuss the fiscal 2019 financial results on Thursday, August 8, 2019, at 10:00 a.m. Eastern Time. The domestic telephone number is 877-407-3088 and the international telephone number is 201-389-0927. Mike Haefner, President and Chief Executive Officer and Chris Forsythe, Senior Vice President and Chief Financial Officer will participate in the conference call. The conference call will be webcast live on the Atmos Energy website at . A playback of the call will be available on the website later that day.

Forward-Looking Statements

The matters discussed in this news release may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this news release are forward-looking statements made in good faith by the company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this news release or in any of the company's other documents or oral presentations, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “projection,” “seek,” “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this news release, including the risks and uncertainties relating to regulatory trends and decisions, the company's ability to continue to access the credit and capital markets and the other factors discussed in the company's reports filed with the Securities and Exchange Commission. These factors include the risks and uncertainties discussed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018 and in subsequent filings with the Securities and Exchange Commission.

Although the company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The historical financial information in this news release utilizes certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP). Specifically, the company uses Contribution Margin, defined as operating revenues less purchased gas cost, to discuss and analyze its financial performance. Its operations are affected by the cost of natural gas, which is passed through to its customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees, along with hedging settlements. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, the company believes Contribution Margin is a more useful and relevant measure to analyze its financial performance than operating revenues. The term Contribution Margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance, and is not necessarily comparable to similarly titled measures reported by other companies.

In addition, the enactment of the TCJA required the company to remeasure its deferred tax assets and liabilities at its new federal statutory income tax rate as of December 31, 2017, which resulted in the recognition of a non-cash income tax benefit during the nine months ended June 30, 2018. Due to the non-recurring nature of this benefit, the company believes that net income and diluted earnings per share before the one-time, non-cash income tax benefit, provides a more useful and relevant measure to analyze its financial performance than net income and diluted earnings per share in order to allow investors to better analyze the company's core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the discussion and analysis of the company's financial performance will reference adjusted net income and adjusted diluted earnings per share, which is calculated as follows:

 

 

 

 

 

 

 

Nine Months Ended June 30

 

2019

 

2018

 

Change

 

(In thousands, except per share data)

Net income

$

453,000

 

 

$

564,317

 

 

$

(111,317

)

TCJA non-cash income tax benefit

 

 

(165,522

)

 

165,522

 

Adjusted net income

$

453,000

 

 

$

398,795

 

 

$

54,205

 

 

 

 

 

 

 

Diluted net income per share

$

3.88

 

 

$

5.09

 

 

$

(1.21

)

Diluted EPS from TCJA non-cash income tax benefit

 

 

(1.49

)

 

1.49

 

Adjusted diluted net income per share

$

3.88

 

 

$

3.60

 

 

$

0.28

 

About Atmos Energy

Atmos Energy Corporation is the nation’s largest fully regulated, natural gas-only distributor of safe, clean, efficient and affordable energy. As part of our vision to be the safest provider of natural gas services, we are modernizing our business and our infrastructure while continuing to invest in safety, innovation, environmental sustainability and our communities. An S&P 500 company headquartered in Dallas, Atmos Energy serves more than 3 million distribution customers in over 1,400 communities across eight states and manages proprietary pipeline and storage assets, including one of the largest intrastate natural gas pipeline systems in Texas. Find us online at , , , and .

This news release should be read in conjunction with the attached unaudited financial information.

 

Atmos Energy Corporation

Financial Highlights (Unaudited)

 

 

 

 

 

Statements of Income

 

Three Months Ended June 30

(000s except per share)

 

2019

 

2018

Operating revenues

 

 

 

 

Distribution segment

 

$

444,944

 

 

$

535,488

 

Pipeline and storage segment

 

149,198

 

 

127,633

 

Intersegment eliminations

 

(108,404

)

 

(100,876

)

 

 

485,738

 

 

562,245

 

Purchased gas cost

 

 

 

 

Distribution segment

 

139,518

 

 

230,887

 

Pipeline and storage segment

 

(96

)

 

561

 

Intersegment eliminations

 

(108,096

)

 

(100,562

)

 

 

31,326

 

 

130,886

 

Contribution Margin

 

454,412

 

 

431,359

 

Operation and maintenance expense

 

164,545

 

 

143,748

 

Depreciation and amortization

 

97,700

 

 

90,671

 

Taxes, other than income

 

69,965

 

 

72,620

 

Total operating expenses

 

332,210

 

 

307,039

 

Operating income

 

122,202

 

 

124,320

 

Other non-operating income (expense)

 

1,645

 

 

(3,330

)

Interest charges

 

19,592

 

 

23,349

 

Income before income taxes

 

104,255

 

 

97,641

 

Income tax expense

 

23,789

 

 

26,448

 

Net income

 

$

80,466

 

 

$

71,193

 

 

 

 

 

 

Basic net income per share

 

$

0.68

 

 

$

0.64

 

Diluted net income per share

 

$

0.68

 

 

$

0.64

 

Cash dividends per share

 

$

0.525

 

 

$

0.485

 

Basic weighted average shares outstanding

 

118,075

 

 

111,851

 

Diluted weighted average shares outstanding

 

118,430

 

 

111,851

 

 

 

 

 

 

 

 

Three Months Ended June 30

Summary Net Income by Segment (000s)

 

2019

 

2018

Distribution

 

$

32,398

 

 

$

35,344

 

Pipeline and storage

 

48,068

 

 

35,849

 

Net income

 

$

80,466

 

 

$

71,193

 

 

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

 

Statements of Income

 

Nine Months Ended June 30

(000s except per share)

 

2019

 

2018

Operating revenues

 

 

 

 

Distribution segment

 

$

2,341,668

 

 

$

2,595,571

 

Pipeline and storage segment

 

419,318

 

 

375,051

 

Intersegment eliminations

 

(302,821

)

 

(299,776

)

 

 

2,458,165

 

 

2,670,846

 

Purchased gas cost

 

 

 

 

Distribution segment

 

1,147,598

 

 

1,421,698

 

Pipeline and storage segment

 

(544

)

 

1,906

 

Intersegment eliminations

 

(301,887

)

 

(298,841

)

 

 

845,167

 

 

1,124,763

 

Contribution Margin

 

1,612,998

 

 

1,546,083

 

Operation and maintenance expense

 

452,572

 

 

431,952

 

Depreciation and amortization

 

290,537

 

 

268,426

 

Taxes, other than income

 

213,546

 

 

208,400

 

Total operating expenses

 

956,655

 

 

908,778

 

Operating income

 

656,343

 

 

637,305

 

Other non-operating expense

 

(1,846

)

 

(8,054

)

Interest charges

 

74,390

 

 

82,162

 

Income before income taxes

 

580,107

 

 

547,089

 

Income tax expense (benefit)

 

127,107

 

 

(17,228

)

Net income

 

$

453,000

 

 

$

564,317

 

 

 

 

 

 

Basic net income per share

 

$

3.89

 

 

$

5.09

 

Diluted net income per share

 

$

3.88

 

 

$

5.09

 

Cash dividends per share

 

$

1.575

 

 

$

1.455

 

Basic weighted average shares outstanding

 

116,485

 

 

110,707

 

Diluted weighted average shares outstanding

 

116,673

 

 

110,707

 

 

 

 

 

 

 

 

Nine Months Ended June 30

Summary Net Income by Segment (000s)

 

2019

 

2018

Distribution

 

$

318,976

 

 

$

429,686

 

Pipeline and storage

 

134,024

 

 

134,631

 

Net income

 

$

453,000

 

 

$

564,317

 

 

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

Condensed Balance Sheets

 

June 30,

 

September 30,

(000s)

 

2019

 

2018

Net property, plant and equipment

 

$

11,340,596

 

 

$

10,371,147

 

Cash and cash equivalents

 

46,163

 

 

13,771

 

Accounts receivable, net

 

285,433

 

 

253,295

 

Gas stored underground

 

106,014

 

 

165,732

 

Other current assets

 

65,924

 

 

46,055

 

Total current assets

 

503,534

 

 

478,853

 

Goodwill

 

730,419

 

 

730,419

 

Deferred charges and other assets

 

306,549

 

 

294,018

 

 

 

$

12,881,098

 

 

$

11,874,437

 

 

 

 

 

 

Shareholders' equity

 

$

5,641,996

 

 

$

4,769,951

 

Long-term debt

 

3,529,135

 

 

2,493,665

 

Total capitalization

 

9,171,131

 

 

7,263,616

 

Accounts payable and accrued liabilities

 

206,500

 

 

217,283

 

Other current liabilities

 

494,932

 

 

547,068

 

Short-term debt

 

74,942

 

 

575,780

 

Current maturities of long-term debt

 

125,000

 

 

575,000

 

Total current liabilities

 

901,374

 

 

1,915,131

 

Deferred income taxes

 

1,280,307

 

 

1,154,067

 

Regulatory excess deferred taxes

 

709,974

 

 

739,670

 

Deferred credits and other liabilities

 

818,312

 

 

801,953

 

 

 

$

12,881,098

 

 

$

11,874,437

 

 

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

 

Condensed Statements of Cash Flows

 

Nine Months Ended June 30

(000s)

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

Net income

 

$

453,000

 

 

$

564,317

 

Depreciation and amortization

 

290,537

 

 

268,426

 

Deferred income taxes

 

120,220

 

 

139,852

 

One-time income tax benefit

 

 

 

(165,522

)

Other

 

9,649

 

 

18,007

 

Changes in assets and liabilities

 

(64,478

)

 

210,216

 

Net cash provided by operating activities

 

808,928

 

 

1,035,296

 

Cash flows from investing activities

 

 

 

 

Capital expenditures

 

(1,199,199

)

 

(1,088,472

)

Proceeds from the sale of discontinued operations

 

4,000

 

 

3,000

 

Debt and equity securities activities, net

 

(4,041

)

 

(7,857

)

Other, net

 

3,839

 

 

6,105

 

Net cash used in investing activities

 

(1,195,401

)

 

(1,087,224

)

Cash flows from financing activities

 

 

 

 

Net decrease in short-term debt

 

(500,838

)

 

(202,968

)

Proceeds from issuance of long-term debt, net of premium/discount

 

1,045,221

 

 

 

Net proceeds from equity offering

 

593,731

 

 

395,092

 

Issuance of common stock through stock purchase and employee retirement plans

 

14,128

 

 

15,850

 

Settlement of interest rate swaps

 

(90,141

)

 

 

Repayment of long-term debt

 

(450,000

)

 

 

Cash dividends paid

 

(181,982

)

 

(160,007

)

Debt issuance costs

 

(11,254

)

 

 

Other

 

 

 

(1,518

)

Net cash provided by financing activities

 

418,865

 

 

46,449

 

Net increase (decrease) in cash and cash equivalents

 

32,392

 

 

(5,479

)

Cash and cash equivalents at beginning of period

 

13,771

 

 

26,409

 

Cash and cash equivalents at end of period

 

$

46,163

 

 

$

20,930

 

 

 

Three Months Ended June 30

 

Nine Months Ended June 30

Statistics

 

2019

 

2018

 

2019

 

2018

Consolidated distribution throughput (MMcf as metered)

 

76,192

 

 

82,448

 

 

404,370

 

 

386,783

 

Consolidated pipeline and storage transportation volumes (MMcf)

 

181,292

 

 

180,371

 

 

517,188

 

 

484,456

 

Distribution meters in service

 

3,284,722

 

 

3,249,780

 

 

3,284,722

 

 

3,249,780

 

Distribution average cost of gas

 

$

3.35

 

 

$

4.68

 

 

$

4.06

 

 

$

5.27

 

 

 

EN
07/08/2019

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