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    Atmos Energy Corp (ATO)

    Q2 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$115.67December 31, 2023
    Final Price$118.87March 31, 2024
    Price Change$3.20
    % Change+2.77%

    What went well

    • Atmos Energy increased its fiscal 2024 earnings per share guidance to a range of $6.70 to $6.80, reflecting strong financial performance and confidence in future growth.
    • The company anticipates 6% to 8% earnings per share growth in fiscal 2025, excluding nonrecurring items, signaling solid future growth prospects.
    • Higher-than-expected customer growth and consumption, along with higher throughput revenues due to wider spreads, are positively impacting financial results.

    What went wrong

    • Increased capital expenditures (CapEx) and operating expenses (O&M) may pressure cash flows and financial performance. The company increased its fiscal 2024 CapEx guidance by approximately $200 million to $3.1 billion , driven by safety and reliability investments. Additionally, O&M expenses are expected to be higher in the second half of the fiscal year, with the revised O&M range increased from $780-$800 million to $800-$820 million. These higher expenses could impact margins and cash flow.
    • Negative price spreads on the pipeline business due to maintenance activities are impacting revenues. The company mentioned that maintenance on pipelines is driving negative spreads coming out of Waha, with cash prices at negative $2.30. Further maintenance is expected to continue wider spreads for the next few weeks, which could negatively affect pipeline revenues.
    • Uncertainty regarding future guidance and potential slowing of customer growth. The company acknowledges that trends such as higher mortgage interest rates and their impact on customer growth will be fully reflected in future guidance. This introduces uncertainty regarding future earnings growth and customer additions.

    Q&A Summary

    1. Adjusted EPS Growth Guidance
      Q: Could you quantify the nonrecurring items removed from year-end results?
      A: The company expects a Texas property tax adjustment impact of $0.10 to $0.11 and a Mississippi bad debt adjustment of about $0.07. These amounts will be backed off the GAAP earnings per share to rebase for fiscal '25 guidance, anticipating 6% to 8% growth off the adjusted amount.

    2. Fiscal '24 Guidance Changes
      Q: What is driving changes in the '24 guidance and trends into '25?
      A: The $0.10 to $0.11 impact from Texas property tax is due to final valuations being received this quarter. The Mississippi bad debt expense was a one-time event resulting from a regulatory change, impacting prior periods from April 2022 through end of calendar '23. Going forward, this impact will no longer appear in the P&L. Fiscal '25 guidance will be updated later this calendar year, considering factors like customer growth and mortgage interest rates.

    3. CapEx Guidance Increase
      Q: What is driving the $20 million increase in the '24 CapEx guidance?
      A: The increase is driven by investments in safety and reliability. The company identified several projects to complete before the heating season to enhance reliability. The team continues to evaluate safety projects and pipeline programs across various jurisdictions.

    4. Pipeline Spreads and Negative Prices
      Q: What's causing the negative spreads on the pipeline?
      A: Maintenance on pipelines has reduced takeaway capacity, causing negative spreads out of Waha, with cash prices at negative $2.30. Additional maintenance is expected this month and possibly next, leading to wider spreads in the near term. The situation should clear up toward the summer period.

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