10-QPeriod: Q2 FY2018

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2018

Filed May 2, 2018For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial results for the six months ended March 31, 2018, with income from continuing operations increasing significantly to $493.1 million, or $4.47 per diluted share, compared to $276.1 million, or $2.61 per diluted share, in the prior year period. This growth was driven by a combination of factors including positive rate outcomes, colder weather leading to higher gas consumption, customer growth, and the favorable impact of the Tax Cuts and Jobs Act (TCJA) on the company's effective income tax rate. The company's capital expenditure program remains robust, with $694 million invested in the first six months of fiscal 2018, primarily for system safety and reliability improvements, and is expected to reach approximately $1.4 billion for the full fiscal year. Despite the strong performance, investors should note the impact of the TCJA, which resulted in a significant remeasurement of deferred tax liabilities, with a substantial portion ($737.8 million) being recorded as a regulatory liability to be returned to customers. The company also experienced increased operating expenses, partly due to a planned system outage in Northwest Dallas following gas-related incidents. However, Atmos Energy's financial position remains strong, supported by a healthy equity-to-total-capitalization ratio and a consistent dividend policy, with the quarterly dividend increased for fiscal 2018.

Financial Highlights

43 data points
Beta

Revenue

$1.22B

Net Income

$178.99M

14.7% Net Margin

EPS (Diluted)

$1.60

Total Assets

$11.36B

Cash & Equivalents

$71.07M

Free Cash Flow

$578.13M

Financial Statements
Beta
Revenue$1.22B
Operating Income$270.90M
Interest Expense$27.30M
Net Income$178.99M
EPS (Basic)$1.60
EPS (Diluted)$1.60
Shares Outstanding (Basic)111.71M
Shares Outstanding (Diluted)111.71M

Key Highlights

  • 1Net income from continuing operations for the six months ended March 31, 2018, significantly increased to $493.1 million ($4.47 per diluted share) from $276.1 million ($2.61 per diluted share) in the prior year.
  • 2Capital expenditures totaled $694.0 million for the first six months of fiscal 2018, with over 80% dedicated to improving the safety and reliability of distribution and transportation systems.
  • 3The Tax Cuts and Jobs Act (TCJA) led to a reduction in the net deferred tax liability by $903.5 million, with $737.8 million recognized as a regulatory liability for customer refunds.
  • 4Operating expenses increased due to a planned system outage and associated costs in Northwest Dallas, impacting the distribution segment's profitability for the quarter.
  • 5The company successfully completed nine regulatory proceedings during the first six months of fiscal 2018, resulting in a $18.4 million increase in annual operating income.
  • 6Atmos Energy's balance sheet remains strong, with total debt representing approximately 41% of total capitalization as of March 31, 2018, well within debt covenant limits.
  • 7The quarterly dividend was increased by 7.8% for fiscal 2018, reflecting the company's sustained financial performance and confidence in future cash flows.

Frequently Asked Questions

The significant increase in net income from continuing operations was driven by a combination of factors including positive rate outcomes from regulatory proceedings, colder weather leading to higher gas consumption and related revenues, customer growth in the distribution business, and the favorable impact of the Tax Cuts and Jobs Act (TCJA) on the company's effective income tax rate.

The TCJA has had a multifaceted impact. It reduced the federal statutory income tax rate, leading to a remeasurement of Atmos Energy's net deferred tax liability, reducing it by $903.5 million. A substantial portion ($737.8 million) was recorded as a regulatory liability to be returned to customers, while the remainder ($165.7 million) was recognized as a one-time, non-cash income tax benefit in the current period. The lower tax rates are also being flowed through to customers via rate adjustments.

Atmos Energy incurred significant operating expenses related to a planned system outage and extensive repair work in Northwest Dallas following gas-related incidents and an unexplained increase in leaks. The company has replaced the affected pipeline system and provided financial assistance to affected residents. While these events temporarily impacted profitability, management is focused on recovering costs through regulatory mechanisms where appropriate and maintaining system integrity to prevent future occurrences.

Atmos Energy plans to invest approximately $1.4 billion in capital expenditures for fiscal year 2018, with over 80% allocated to enhancing the safety and reliability of its distribution and transportation systems. These expenditures are primarily funded through internally generated cash flows from operations, which were strong in the reported period. The company also utilized proceeds from a recent equity offering to support capital spending and general corporate purposes.