10-QPeriod: Q3 FY2016

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2016

Filed August 3, 2016For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial performance for the nine months ended June 30, 2016, demonstrating an 8% increase in net income to $315.9 million, or $3.06 per diluted share, compared to the prior year. This growth was primarily driven by the regulated distribution segment, which benefited from positive rate outcomes and customer growth, effectively offsetting warmer weather conditions. The company continued its strategic investment in infrastructure, with capital expenditures totaling $796 million for the period, focused on enhancing safety and reliability. Financially, Atmos Energy maintained a strong position with its debt-to-capitalization ratio at 49% as of June 30, 2016, well within its target range. The company also benefited from an upgrade in its debt ratings by Standard & Poor's, reflecting its robust financial performance and effective capital investment recovery. Additionally, Atmos Energy continued to return value to shareholders through a 7.7% increase in its quarterly dividend, underscoring its confidence in its stable earnings and capital structure.

Financial Highlights

43 data points
Beta

Net Income

$71.19M

EPS (Diluted)

$0.69

Total Assets

$9.73B

Cash & Equivalents

$66.21M

Free Cash Flow

$176.99M

Financial Statements
Beta
Gross Profit$407.31M
Operating Expenses$270.15M
Operating Income$128.40M
Interest Expense$27.68M
Net Income$71.19M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)103.75M

Key Highlights

  • 1Net income for the nine months ended June 30, 2016, increased by 8% to $315.9 million ($3.06 per diluted share) compared to the prior year.
  • 2The regulated distribution segment drove income growth, with positive rate outcomes and customer growth offsetting warmer weather.
  • 3Capital expenditures for the nine months totaled $796 million, primarily invested in safety and reliability improvements for distribution and transportation systems.
  • 4The company's debt-to-capitalization ratio was 49% as of June 30, 2016, demonstrating a healthy capital structure.
  • 5Standard & Poor's upgraded Atmos Energy's senior unsecured debt rating to 'A' and short-term debt rating to 'A-1' in May 2016.
  • 6The quarterly dividend was increased by 7.7% for fiscal year 2016, reflecting confidence in stable earnings.
  • 7Nonregulated operations experienced a decrease in gross profit due to losses on financial positions amidst falling gas prices, though unrealized margins increased.

Frequently Asked Questions

The primary driver of Atmos Energy's earnings growth was the strong performance of its regulated distribution segment. This segment benefited from successful regulatory proceedings that resulted in rate increases and continued customer growth, which collectively offset the impact of warmer weather compared to the prior year.

Atmos Energy is funding its capital expenditures through a combination of internally generated funds from operations, net short-term borrowings, and proceeds from the issuance of common stock. The company also has an 'at-the-market' (ATM) equity distribution program allowing it to issue shares up to $200 million, with approximately $98.7 million raised in the third fiscal quarter of 2016.

Atmos Energy maintains a healthy capital structure, with a debt-to-capitalization ratio of 49% as of June 30, 2016. The company's credit ratings were recently upgraded by Standard & Poor's, reflecting its strong financial performance and ability to recover capital investments. The company's long-term debt is considered investment grade by major rating agencies (S&P, Moody's, Fitch).

Warmer weather, particularly during the heating season, can lead to lower natural gas sales volumes and revenues. However, Atmos Energy mitigates this impact through weather normalization adjustments (WNA) in many of its service areas, which allow it to recover a significant portion of the margin impact from deviations in weather from historical averages.