Morningstar | Atmos Reports Strong Second-Quarter Earnings and Narrows Guidance
We are increasing our fair value estimate to $93 per share from $92 after Atmos Energy reported strong 2019 second-quarter results versus last year, narrowed its 2019 earnings guidance range, and reaffirmed projected capital expenditures.Earnings in the fiscal second quarter were $1.82 per share versus $1.57 on an adjusted basis in the same period last year. Second-quarter EPS in 2018 were adjusted for the one-time, non-cash income tax benefit from the implementation of tax reform.
Amos narrowed its 2019 EPS guidance range to $4.25-$4.35 from $4.20-$4.35. The range for consolidated net income was reduced by $10 million at the top end to $495 million-$515 million, due in part to expected lower earnings contribution from the distribution segment. However, this was more than offset, at least at the lower end of the EPS guidance range, by Atmos lowering its forecast for 2019 diluted average shares outstanding to a range of 117 million-118 million from 118 million–120 million.
On Feb. 15, Atmos joined the S&P 500. The company had been in the mid-cap index. The demand for shares from this event allowed Atmos to issue new shares for a higher price than anticipated. Thus, the company raised the equity in its 2019 financing plan with fewer shares. Atmos management indicated this nonrecurring event accounted for the lower average shares outstanding guidance for 2019.
The increase in our fair value estimate was mostly due to time-value appreciation since our last update. Based on the strong second-quarter performance and the modest revisions to guidance, we increased our 2019 earnings estimate to $4.30 from $4.28 per share. This change did not have a material impact on our fair value estimate.
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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