Morningstar | Atmos Reports Modestly Weaker Results for 2Q: Five-Year Capital Expenditure Plan Reaffirmed
We are reaffirming our $85 per share fair value estimate after Atmos Energy reported modestly weaker results for the 2018 fiscal-year third quarter, reaffirmed earnings guidance, and reaffirmed its $1.4 billion capital expenditure forecast.Earnings for the quarter were $0.64 per share versus $0.67 per share in the same period last year. As we expected, distribution expenses in the quarter were $12.3 million higher, to $111.9 million, due in part to costs related to the gas leak incidents in northwest Dallas in February. Other expenses were in line with our expectations considering the higher spending and depreciation related to system integrity and safety.
Although Atmos reaffirmed its five-year capital expenditure forecast of $8 billion, we believe focus on replacing bare steel, cast iron and vintage plastic pipe will continue because of the gas line explosions earlier this year. The estimated $100 million of customer savings from tax reform provides headroom in rates to continue the accelerated capital expenditure program for pipe replacement. Our five-year capital expenditure forecast of $8.5 billion remains $500 million higher than Atmos’ guidance.
Atmos indicated during the earnings conference call that it expects to be near the middle of its 2018 guidance range of $3.85-$4.05 per share. Our 2018 earnings estimate of $3.95 per share is unchanged.
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Atmos Energy is engaged in the regulated natural gas distribution and pipeline and storage businesses. The company delivers natural gas through regulated sales and transportation arrangements to residential, commercial, public-authority and industrial customers. The company's segments are: Distribution, which is comprised of its regulated natural gas distribution and related sales operations; and Pipeline and Storage, which consists of the pipeline and storage operations of its Atmos Pipeline-Texas Division (APT) and its natural gas transmission operations in Louisiana. APT has intrastate pipeline operations in Texas with a focus on the natural gas-producing areas of central, northern and eastern Texas.
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