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Atmos Energy Corporation Reports Earnings for Fiscal 2019; Initiates Fiscal 2020 through Fiscal 2024 Guidance; Raises Dividend 9.5 Percent

Atmos Energy Corporation (NYSE: ATO) today reported consolidated results for its fourth quarter ended September 30, 2019.

  • Fiscal 2019 consolidated net income was $511.4 million or $4.35 per diluted share, compared with consolidated net income of $603.1 million, or $5.43 per diluted share for the same period last year. Adjusted net income for the year ended September 30, 2018, was $444.3 million, or $4.00 per diluted share, after excluding the effects of implementing the Tax Cuts and Jobs Act of 2017 (TCJA) from the prior year.
  • Capital expenditures rose 15 percent to $1.7 billion for the year ended September 30, 2019, with approximately 87 percent of that spending related to system safety and reliability investments.
  • Atmos Energy expects fiscal 2020 earnings to be in the range of $4.58 to $4.73 per diluted share. Capital expenditures are expected to be in the range of $1.85 billion to $1.95 billion in fiscal 2020.
  • The company's Board of Directors has declared a quarterly dividend of $0.575 per common share. The indicated annual dividend for fiscal 2020 is $2.30, which represents a 9.5% increase over fiscal 2019.

Fiscal 2019 fourth quarter net income was $58.4 million or $0.49 per diluted share, compared with adjusted net income of $45.5 million, or $0.41 per diluted share for the same period last year, after excluding the effects of the TCJA in the prior-year quarter.

“Our investment strategy continues to improve the safety and reliability of our system, provide value to our customers and drive our financial performance,” said Kevin Akers, president and chief executive officer of Atmos Energy Corporation. “As we continue to modernize our natural gas distribution, transmission and storage systems, we remain well positioned to continue delivering annual earnings per share growth in the six to eight percent range,” Akers concluded.

Results for the Fiscal Year Ended September 30, 2019

Operating income increased $18.2 million to $746.1 million for the year ended September 30, 2019, compared to $727.9 million in the prior year, 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.

Distribution Contribution Margin increased $33.7 million to $1,476.9 million for the year ended September 30, 2019, compared with $1,443.2 million in the prior year. Contribution Margin reflects a net $33.0 million increase in rates, primarily in the Mid-Tex, Mississippi, West Texas and Louisiana divisions. In addition, customer growth increased $12.8 million, primarily in our Mid-Tex division. These increases were partially offset by decreases of $9.6 million in pass-thru taxes and consumption of $2.3 million, primarily in our Mid-Tex division.

Pipeline and storage Contribution Margin increased $61.7 million to $567.4 million for the year ended September 30, 2019, compared with $505.7 million in the prior year. This increase is primarily attributable to a net $46.5 million increase in revenue from GRIP filings approved in fiscal 2018 and 2019. In addition, transportation revenues increased Contribution Margin by a net $12.2 million due to wider spreads and positive supply and demand dynamics impacting the Permian Basin.

Operation and maintenance expense for the year ended September 30, 2019 was $630.3 million, compared with $594.8 million for the prior year. The $35.5 million increase primarily reflects increased pipeline maintenance and related spending as well as employee, training and software license expenses in the current year, partially offset by the absence of expenses incurred for the Northwest Dallas outage in the prior year.

Capital expenditures increased $225.9 million to $1,693.5 million for the year ended September 30, 2019, compared with $1,467.6 million in the prior year, due to continued spending for infrastructure replacements and enhancements.

For the year ended September 30, 2019, the company generated operating cash flow of $968.8 million, a $155.9 million decrease compared with the year ended September 30, 2018. The year-over-year 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 September 30, 2019 was 59.0%, 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 September 30, 2019.

Results for the Three Months Ended September 30, 2019

Operating income decreased $0.9 million to $89.7 million for the three months ended September 30, 2019 compared to the prior-year quarter primarily due to higher operating expenses. Increased Contribution Margins in both our distribution and pipeline and storage segments were more than offset by higher operation and maintenance and depreciation expenses in the current-year quarter.

Distribution Contribution Margin increased $13.5 million to $282.8 million for the three months ended September 30, 2019, compared with $269.3 million in the prior-year quarter. Contribution Margin reflects a net $9.3 million increase in rates, primarily in our Mid-Tex, Louisiana and West Texas divisions, a $2.4 million increase in consumption and a $2.2 million increase from customer growth, primarily in our Mid-Tex division.

Pipeline and storage Contribution Margin increased $14.9 million to $147.5 million for the three months ended September 30, 2019, compared with $132.6 million in the prior-year quarter. This increase is attributable to a net $13.1 million increase in rates, due to the GRIP filings approved in fiscal 2018 and 2019, and a net increase of $2.0 million due to wider spreads and positive supply and demand dynamics in the Permian Basin.

Operation and maintenance expense for the three months ended September 30, 2019, was $177.7 million, compared with $162.8 million for the prior-year quarter. This $14.9 million increase was primarily driven by increased pipeline maintenance and related activities and higher employee and training costs in the current-year quarter.

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 2020 earnings to be in the range of $4.58 to $4.73 per diluted share. Capital expenditures for fiscal 2020 are expected to range between $1.85 billion and $1.95 billion.

Conference Call to be Webcast November 7, 2019

Atmos Energy will host a conference call with financial analysts to discuss the fiscal 2019 financial results on Thursday, November 7, 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. Kevin Akers, 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 22, 2017, which resulted in the recognition of a non-cash income tax benefit during the year ended September 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:

Three Months Ended September 30

2019

2018

Change

(In thousands, except per share data)

Net income

$

58,406

$

38,747

$

19,659

TCJA non-cash income tax expense

6,740

(6,740

)

Adjusted net income

$

58,406

$

45,487

$

12,919

Diluted net income per share

$

0.49

$

0.35

$

0.14

Diluted EPS from TCJA non-cash income tax expense

0.06

(0.06

)

Adjusted diluted net income per share

$

0.49

$

0.41

$

0.08

Year Ended September 30

2019

2018

Change

(In thousands, except per share data)

Net income

$

511,406

$

603,064

$

(91,658

)

TCJA non-cash income tax benefit

(158,782

)

158,782

Adjusted net income

$

511,406

$

444,282

$

67,124

Diluted net income per share

$

4.35

$

5.43

$

(1.08

)

Diluted EPS from TCJA non-cash income tax benefit

(1.43

)

1.43

Adjusted diluted net income per share

$

4.35

$

4.00

$

0.35

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

Year Ended September 30

(000s except per share)

2019

2018

Operating revenues

Distribution segment

$

2,745,461

$

3,003,047

Pipeline and storage segment

567,024

507,713

Intersegment eliminations

(410,637

)

(395,214

)

2,901,848

3,115,546

Purchased gas cost

Distribution segment

1,268,591

1,559,836

Pipeline and storage segment

(360

)

1,978

Intersegment eliminations

(409,394

)

(393,966

)

858,837

1,167,848

Contribution Margin

2,043,011

1,947,698

Operation and maintenance expense

630,308

594,795

Depreciation and amortization

391,456

361,083

Taxes, other than income

275,189

263,886

Total operating expenses

1,296,953

1,219,764

Operating income

746,058

727,934

Other non-operating income (expense)

7,404

(10,144

)

Interest charges

103,153

106,646

Income before income taxes

650,309

611,144

Income tax expense

138,903

8,080

Net income

$

511,406

$

603,064

Basic net income per share

$

4.36

$

5.43

Diluted net income per share

$

4.35

$

5.43

Cash dividends per share

$

2.10

$

1.94

Basic weighted average shares outstanding

117,200

111,012

Diluted weighted average shares outstanding

117,461

111,012

Year Ended September 30

Summary Net Income by Segment (000s)

2019

2018

Distribution

$

328,814

$

442,966

Pipeline and storage

182,592

160,098

Net income

$

511,406

$

603,064

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

Statements of Income

Three Months Ended September 30

(000s except per share)

2019

2018

Operating revenues

Distribution segment

$

403,793

$

407,476

Pipeline and storage segment

147,706

132,662

Intersegment eliminations

(107,816

)

(95,438

)

443,683

444,700

Purchased gas cost

Distribution segment

120,993

138,138

Pipeline and storage segment

184

72

Intersegment eliminations

(107,507

)

(95,125

)

13,670

43,085

Contribution Margin

430,013

401,615

Operation and maintenance expense

177,736

162,843

Depreciation and amortization

100,919

92,657

Taxes, other than income

61,643

55,486

Total operating expenses

340,298

310,986

Operating income

89,715

90,629

Other non-operating income (expense)

9,250

(2,090

)

Interest charges

28,763

24,484

Income before income taxes

70,202

64,055

Income tax expense

11,796

25,308

Net income

$

58,406

$

38,747

Basic net income per share

$

0.49

$

0.35

Diluted net income per share

$

0.49

$

0.35

Cash dividends per share

$

0.525

$

0.485

Basic weighted average shares outstanding

119,345

111,926

Diluted weighted average shares outstanding

119,824

111,926

Three Months Ended September 30

Summary Net Income by Segment (000s)

2019

2018

Distribution

$

9,838

$

13,280

Pipeline and storage

48,568

25,467

Net income

$

58,406

$

38,747

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

 

Condensed Balance Sheets

September 30,

September 30,

(000s)

2019

2018

Net property, plant and equipment

$

11,787,669

$

10,371,147

Cash and cash equivalents

24,550

13,771

Accounts receivable, net

230,571

253,295

Gas stored underground

130,138

165,732

Other current assets

72,772

46,055

Total current assets

458,031

478,853

Goodwill

730,706

730,419

Deferred charges and other assets

391,213

294,018

$

13,367,619

$

11,874,437

Shareholders' equity

$

5,750,223

$

4,769,951

Long-term debt

3,529,452

2,493,665

Total capitalization

9,279,675

7,263,616

Accounts payable and accrued liabilities

265,024

217,283

Other current liabilities

474,697

547,068

Short-term debt

464,915

575,780

Current maturities of long-term debt

575,000

Total current liabilities

1,204,636

1,915,131

Deferred income taxes

1,300,015

1,154,067

Regulatory excess deferred taxes

705,101

739,670

Deferred credits and other liabilities

878,192

801,953

$

13,367,619

$

11,874,437

Atmos Energy Corporation

Financial Highlights, continued (Unaudited)

 

Condensed Statements of Cash Flows

Year Ended September 30

(000s)

2019

2018

Cash flows from operating activities

Net income

$

511,406

$

603,064

Depreciation and amortization

391,456

361,083

Deferred income taxes

132,004

158,271

One-time income tax benefit

(158,782

)

Other

10,589

26,165

Changes in assets and liabilities

(76,686

)

134,861

Net cash provided by operating activities

968,769

1,124,662

Cash flows from investing activities

Capital expenditures

(1,693,477

)

(1,467,591

)

Proceeds from the sale of discontinued operations

4,000

3,000

Debt and equity securities activities, net

(2,784

)

(8,325

)

Use tax refund

790

Other, net

8,601

8,560

Net cash used in investing activities

(1,683,660

)

(1,463,566

)

Cash flows from financing activities

Net increase (decrease) in short-term debt

(110,865

)

128,035

Proceeds from issuance of long-term debt, net of premium/discount

1,045,221

Net proceeds from equity offering

694,103

395,092

Issuance of common stock through stock purchase and employee retirement plans

19,323

19,563

Settlement of interest rate swaps

(90,141

)

Repayment of long-term debt

(575,000

)

Cash dividends paid

(245,717

)

(214,906

)

Debt issuance costs

(11,254

)

Other

(1,518

)

Net cash provided by financing activities

725,670

326,266

Net increase (decrease) in cash and cash equivalents

10,779

(12,638

)

Cash and cash equivalents at beginning of period

13,771

26,409

Cash and cash equivalents at end of period

$

24,550

$

13,771

Three Months Ended September 30

Year Ended September 30

Statistics

2019

2018

2019

2018

Consolidated distribution throughput (MMcf as metered)

66,184

64,600

470,554

451,383

Consolidated pipeline and storage transportation volumes (MMcf)

204,810

179,444

721,998

663,900

Distribution meters in service

3,291,835

3,256,336

3,291,835

3,256,336

Distribution average cost of gas

$

3.68

$

4.44

$

4.02

$

5.19

 

Contacts:

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

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