10-QPeriod: Q3 FY2018

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2018

Filed August 8, 2018For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial performance for the nine months ended June 30, 2018, with income from continuing operations of $564.3 million, or $5.09 per diluted share. This represents a significant increase from the prior year, largely driven by rate increases and colder weather patterns, partially offset by the impact of the Tax Cuts and Jobs Act (TCJA) of 2017. The company has adjusted its operations and accounting to reflect the TCJA, including a non-cash income tax benefit of $165.5 million. Capital expenditures remain substantial, with approximately $1.1 billion invested in the nine-month period, primarily for safety and reliability improvements in its distribution and transportation systems. The company expects to continue significant capital investment, projecting approximately $1.4 billion for fiscal year 2018. Funding for these investments is primarily from operating cash flows and equity financing, with the company maintaining a strong equity-to-total-capitalization ratio. Dividend growth also reflects the company's sustained financial performance.

Financial Highlights

45 data points
Beta

Revenue

$562.25M

76.7% Gross Margin

Net Income

$71.19M

12.7% Net Margin

EPS (Diluted)

$0.64

Total Assets

$11.51B

Cash & Equivalents

$20.93M

Free Cash Flow

$283.93M

Financial Statements
Beta
Revenue$562.25M
Cost of Revenue$130.89M
Gross Profit$431.36M
Operating Income$124.32M
Interest Expense$23.35M
Net Income$71.19M
EPS (Basic)$0.64
EPS (Diluted)$0.64
Shares Outstanding (Basic)111.85M
Shares Outstanding (Diluted)111.85M

Key Highlights

  • 1Income from continuing operations for the nine months ended June 30, 2018, was $564.3 million ($5.09/share), up significantly from $346.9 million ($3.27/share) in the prior year.
  • 2The company recognized a $165.5 million non-cash income tax benefit related to the Tax Cuts and Jobs Act (TCJA) of 2017.
  • 3Capital expenditures for the nine months totaled $1.1 billion, focused on safety and reliability improvements, with approximately $1.4 billion expected for the full fiscal year 2018.
  • 4Distribution segment revenues increased primarily due to rate adjustments and colder weather, while the Pipeline and Storage segment saw growth driven by rate increases.
  • 5The company maintained a strong balance sheet with an equity-to-total-capitalization ratio of 59.0% as of June 30, 2018.
  • 6The quarterly dividend was increased by 7.8% for fiscal 2018, reflecting sustained financial performance and improved cash flows.
  • 7Atmos Energy is actively managing regulatory proceedings to ensure timely recovery of investments and to adjust rates in light of the TCJA.

Frequently Asked Questions

The TCJA, enacted in December 2017, significantly lowered the federal corporate income tax rate from 35% to 21%. For Atmos Energy, this resulted in a remeasurement of its deferred tax liabilities, leading to a $165.5 million non-cash income tax benefit recognized in the nine months ended June 30, 2018. Additionally, the company established regulatory liabilities to reflect the lower tax rate in its customer rates, which reduced revenues. The ultimate benefit of the tax rate reduction for regulated operations is expected to be passed on to customers through adjusted rates.

Atmos Energy is undertaking substantial capital expenditures, estimated at $1.4 billion for fiscal year 2018, primarily to enhance the safety and reliability of its distribution and transmission systems. The company funds these investments through a combination of internally generated cash flows from operations (over $1.0 billion in the nine months ended June 30, 2018) and external financing. Recent equity issuances, including a $400 million common stock offering, have been used to support capital spending and manage its debt levels, aiming to maintain an equity-to-total-capitalization ratio between 50% and 60%.

Atmos Energy operates in regulated environments and prioritizes timely recovery of its investments through various rate mechanisms. The company actively engages in regulatory proceedings, including rate cases and formula rate mechanisms, to adjust rates and recover costs. For the nine months ended June 30, 2018, the company completed 16 regulatory proceedings resulting in an increase of $10.8 million in annual operating income, and had nine ratemaking efforts in progress. Efforts are also underway to adjust rates and return amounts related to the TCJA to customers.

Reflecting its sustained financial performance, improved cash flows, and capital structure, Atmos Energy's Board of Directors increased the quarterly dividend by 7.8% for fiscal year 2018. This indicates management's confidence in the company's ability to generate consistent returns and return value to shareholders.