10-QPeriod: Q2 FY2017

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2017

Filed May 4, 2017For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial results for the third quarter and first six months of fiscal year 2017, driven by strong performance in its regulated distribution and pipeline and storage segments. The company successfully completed the sale of its non-regulated natural gas marketing business (AEM) in January 2017, streamlining its operations to focus solely on its regulated utility businesses. This strategic move is expected to enhance focus and potentially improve operational efficiency. Revenue growth was observed across both key segments, supported by favorable rate outcomes from regulatory proceedings and customer growth, particularly in the distribution segment. Despite warmer weather impacting sales volumes, revenue and income from continuing operations showed significant year-over-year increases. The company also continued its robust capital expenditure program, prioritizing investments in safety and infrastructure reliability, which are expected to be recovered through regulated rates.

Financial Highlights

39 data points
Beta

Net Income

$164.73M

EPS (Diluted)

$1.55

Total Assets

$10.36B

Cash & Equivalents

$45.40M

Free Cash Flow

$435.04M

Financial Statements
Beta
Operating Income$285.17M
Interest Expense$26.94M
Net Income$164.73M
EPS (Basic)$1.55
Shares Outstanding (Basic)105.94M

Key Highlights

  • 1Net income from continuing operations increased by 13% year-over-year for the three months ended March 31, 2017, reaching $162.0 million ($1.52 per diluted share).
  • 2Total operating revenues increased to $988.2 million for the three months ended March 31, 2017, up from $890.0 million in the prior year period.
  • 3The company completed the sale of its non-regulated natural gas marketing business (AEM) on January 3, 2017, resulting in a reported gain on sale and the reclassification of AEM's results as discontinued operations.
  • 4Capital expenditures for the six months ended March 31, 2017, totaled $559.4 million, with a significant portion allocated to improving the safety and reliability of distribution and transportation systems.
  • 5Acquisition of EnLink North Texas Pipeline, LP (EnLink Pipeline) for $85.7 million was completed in the first fiscal quarter of 2017, strengthening the company's pipeline network in North Texas.
  • 6Long-term debt increased to $2.31 billion as of March 31, 2017, primarily due to new borrowings under a term loan agreement.
  • 7The Board of Directors increased the quarterly dividend by 7.1% for fiscal 2017, reflecting confidence in sustained financial performance and capital structure.

Frequently Asked Questions

The sale of AEM, completed in January 2017, allowed Atmos Energy to exit the non-regulated natural gas marketing business, simplifying its operations and allowing management to focus on its core regulated utility businesses. The sale resulted in a net gain and reclassified AEM's historical financial results as discontinued operations.

The reported periods experienced warmer-than-normal weather, which generally leads to lower natural gas sales volumes. However, the impact on gross profit was substantially offset by weather normalization adjustments (WNA) in most jurisdictions and by the fact that purchased gas costs are passed through to customers without markup. Revenue and income growth were primarily driven by rate adjustments and customer growth.

Atmos Energy is committed to significant capital investments, prioritizing safety and reliability of its distribution and transportation infrastructure. A substantial portion of capital spending is directed towards modernizing pipelines and expanding its network, with a focus on projects recoverable through regulated rates, reducing the lag time for investment recovery.

The company utilizes a combination of operating cash flows, a commercial paper program, revolving credit facilities, and occasional access to public debt and equity markets to fund its operations and capital expenditures. They aim to maintain a balanced capital structure with a debt-to-capitalization ratio between 45% and 55%. As of March 31, 2017, the company was in compliance with all debt covenants.