Q4 2024 Earnings Summary
- Atmos Energy continues to see steady inquiries from large industrial customers across various sectors—including metals, healthcare, and distilling—driving growth on the industrial side.
- There is potential upside from new large customers, such as a potential 2.3 gigawatt combined cycle plant in Northern Louisiana, which is not yet included in their plan, indicating possible additional growth opportunities.
- The company plans to invest an incremental $15 billion over the next 5 years, with a balanced financing approach of 50% equity and 50% long-term debt, aiming to maintain the strength of their balance sheet while supporting their increased capital expenditure program.
- Uncertainty in securing large new customers: Executives could not provide specifics about a potential large 2.3 gigawatt combined cycle natural gas customer in Northern Louisiana, indicating possible delays or challenges in securing new large-scale industrial clients. ,
- Increased operating expenses: The projected increase in O&M expenses from 3.5% to 4% annually is driven by higher compliance-related spending, system monitoring, and employee costs, which could pressure profit margins. ,
- Potential rise in bad debt expenses: Although the company anticipates bad debt expenses to remain flat over the next five years, there is an acknowledgment that bad debt expense may rise as a function of revenue, posing a risk if economic conditions worsen.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EPS | FY 2024 | "$6.70 to $6.80 (higher end)" | 6.83 (sum of Q1: 2.08+ Q2: 2.85+ Q3: 1.07+ Q4: 0.83) | Beat |
O&M Expenses | FY 2024 | "$800 million to $820 million" | $819 million (sum of Q1: 166,345+ Q2: 199,899+ Q3: 211,309+ Q4: 241,584) | Met |
Capital Expenditures (CapEx) | FY 2024 | "~$3.1 billion" | $2.94 billion (sum of Q1: 769,650+ Q2: 645,876+ Q3: 713,611+ Q4: 807,987) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
6%-8% EPS Growth Guidance | Emphasized in Q3 (adjusted EPS for FY24 with $0.17 one-time items) , Q2 (excludes $0.10-$0.11 property tax, $0.07 bad debt) , no mention in Q1 | Reiterated focus on 6%-8% EPS growth, projecting $9.15-$9.55 by FY29 | Consistent except Q1 |
Strong Customer Growth in Texas | Q3: +57k customers (45k in TX), +10 industrial ; Q2: +56k (43k in TX), +11 industrial ; Q1: +58k (44k in TX), +11 industrial | Added 59k new residential/commercial (46k in TX), plus 39 industrial customers (8.4 Bcf) | Mentioned every quarter |
Rising O&M Expenses | Q3: No 4% projection, O&M at $800M-$820M ; Q2: Similar range with Mississippi bad debt adjustment ; Q1: Reaffirmed 3%-3.5% range, $19M decrease yoy | CAGR raised to 4%; $840M-$860M expected in FY25, with $20M tied to system safety amortization | New higher CAGR |
Pipeline Spread Dynamics Around Waha | Q3: Maintenance lowered takeaway capacity, Matterhorn in-service in early fall ; Q2: Negative spreads, contributed $8M to revenue ; Q1: No mention | Negative Waha pricing on 63% of trading days, unplanned maintenance widened spreads, expects normalization | Repeated Q2–Q4 topic |
Temporary Property Tax Benefits | Q3: $0.10 Texas property tax benefit + $0.07 Mississippi bad debt (excluded from FY25 guidance) ; Q2: Same one-time items discussed ; Q1: Not mentioned | FY24 EPS of $6.83 included $0.17 one-time benefits, with no specific mention of further continuation | Phasing out |
Matterhorn Pipeline | Introduced in Q3 as coming online in September/October, potentially affecting spreads ; not mentioned in Q2 or Q1 | No mention | Introduced in Q3 only |
Large Industrial Demand | Not mentioned in Q3, Q2, or Q1 | Enhanced spotlight on metals, healthcare, distilling; strong pipeline of industrial projects | New emphasis in Q4 |
Sentiment Shift on Pipeline Spreads | Q3: Elevated spreads to revert to mean ; no explicit shift mentioned in Q2 or Q1 | Expects normalization to temper earnings contributions | Increasing caution |
Rate Base Growth vs EPS Growth | No mention in Q3, Q2, or Q1 | Acknowledged 13%-15% rate base vs 6%-8% EPS, citing conservative approach and higher O&M | First mention in Q4 |
Equity Issuance & Dilution | Q3: Typically $600M-$800M/year; $551M priced by June. Q2: Renewed credit facilities to $3.1B, $890M from ATM. Q1: $1.1B total financing, fully priced for FY24 | Plans to meet needs through ATM; $1.4B priced, preparing new $8B shelf, $1.7B ATM program | Consistent across periods |
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CapEx Increase
Q: What's driving the higher CapEx plan?
A: The company is experiencing robust growth with nearly 60,000 new customers added this past fiscal year, consistent with recent years. This strong growth across residential, commercial, and industrial segments necessitates increased investment to stay ahead of demand. Additionally, risk models indicate the need for accelerated pipe replacement programs to maintain safety and reliability. Significant projects on the APT system, including completing Line S-2, WA Loop, and Bethel to Groesbeck, as well as storage enhancements, also contribute to higher capital expenditure. -
Financing Strategy
Q: How will you finance the higher capital plan?
A: Over the next five years, we have an incremental $15 billion financing assumption. We'll maintain a strong balance sheet by funding approximately 50% with equity and 50% with long-term debt, spread evenly over the period. Equity needs will be slightly lower in fiscal '25 and will ramp up in '26 and beyond. We believe we'll meet our equity requirements through the ATM program and continued issuance of long-term debt. -
EPS Growth vs. Rate Base
Q: Why is EPS growth not matching rate base growth?
A: While we're projecting 13% to 15% rate base growth, our 6% to 8% EPS growth guidance accounts for factors like equity dilution and increased operating expenses. We've also raised the O&M CAGR from 3.5% to 4%, which moderates the EPS growth relative to rate base growth. We approach our plan conservatively, considering global uncertainties, and feel comfortable within this range. -
O&M Expense Increase
Q: What's causing the higher O&M growth to 4%?
A: Between '24 and '25, there's a step-up due to the SSI rider, with flow-through increasing from roughly $6–7 million in fiscal '24 to $20–25 million in 2025. We're planning for increased compliance-related spending, including system surveys and real-time monitoring with 16 AMLD units across eight states, as well as additional employee costs to service our growing customer base. The growth in line locates, driven by infrastructure expansion in Texas, also contributes to higher O&M expenses. -
Impact of Waha Spread
Q: How will the Waha spread affect next year's earnings?
A: We have a new rider revenue benchmark of approximately $107 million for this year. While spreads have moderated since the summer, we expect them to normalize moving forward. Most demand on APT is for LDC customers, so any additional activities will be during off-peak periods. We'll continue to monitor weather impacts but are planning based on normalized conditions. -
Interest Expense Guidance
Q: Why is interest expense decreasing despite higher debt?
A: The decrease is due to higher AFUDC (Allowance for Funds Used During Construction) or capitalized interest as our spending increases. This raises the portion of capitalized interest, reducing net interest expense. Our all-in weighted average cost of debt remains relatively flat at 4.1%, ticking up very slightly year-over-year. -
Potential Large Customer
Q: Any details on the large Louisiana customer?
A: We can't share specifics about the potential 2.3 GW combined cycle customer in Northern Louisiana at this time. We generally don't discuss such projects until we have certainty around contractual obligations. However, we continue to see steady inquiries from various industrial sectors across our territory. -
Bad Debt Expense Assumptions
Q: What's your assumption for bad debt expense?
A: We're anticipating bad debt expense to be fairly flat year-over-year in the five-year plan. After adjusting for changes in recording uncollectible accounts in Mississippi, we're normalizing to pre-pandemic levels. While it may rise slightly with revenue growth, our comprehensive collection strategies should mitigate significant increases. -
Customer Growth in Texas
Q: What's assumed for Texas customer growth?
A: We've assumed a growth rate consistent with recent trends over the past few years. Continued residential growth, along with the subsequent commercial impact, is expected to persist in our five-year plan. -
O&M Expense Timing
Q: Is the 4% O&M growth lumpy over time?
A: Year-over-year, the 4% O&M growth is expected to be fairly steady. There might be some quarterly variations as we adjust work schedules to address system needs, but overall, we anticipate consistent annual growth.