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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 www.atmosenergy.com. 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 http://www.atmosenergy.com, Facebook, Twitter, Instagram and YouTube.

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

 

Contacts:

Analysts and Media Contact:
Jennifer Hills (972) 855-3729

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