Q1 2024 Spire Inc Earnings Call
Participants
Megan Mcphail; Managing Director Investor Relations; Spire Inc
Steven Lindsey; President & CEO; Spire Inc.
Steven Rasche; Executive VP & CFO; Spire Inc.
Adam Woodard; VP & Treasurer; Spire Inc.
Scott Doyle; Executive VP & COO; Spire Inc.
Jamieson Ward; Analyst; Guggenheim Partners
Richard Sunderland; Analyst; JPMorgan
Christopher Jeffrey; Analyst; Mizuho Securities USA LLC
Presentation
Operator
Good morning, and welcome to the Spire Inc. First Quarter 2024 earnings conference call. All participants will be in listen only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Megan Mcphail, Managing Director Investor Relations. Please go ahead.
Megan Mcphail
Good morning, and welcome to Spire's Fiscal 2020 Fourth Quarter Earnings Call. We issued an earnings news release this morning, and you may access it on our website at spireenergy.com under Newsroom. It is a slide presentation that accompanies our webcast and you may download it from either the webcast site or from our website under Investors and then Events and Presentations.
Before we begin, let me cover our safe harbor statement and use of non-GAAP earning measures on today's call, including responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated.
These risks and uncertainties are outlined in our quarterly and annual filings with the SEC and in our comments, we will be discussing net economic earnings and contribution margin, which are both non-GAAP measures used by management when evaluating our performance and results of operations and 20 agents and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation.
On the call today is Steve Lindsey, President and CEO; and Steve Rasche, Executive Vice President and CFO; Also in the room today are Scott Doyle, Executive Vice President and COO; Adam Woodard, Vice President and Treasurer, and Scott Dudley, Investor Relations that I will turn the call over to Steve Lindsey. Steve?
Steven Lindsey
Thanks Megan. Good morning everyone. Thank you for joining us today to review our first quarter performance and an update on recent developments. And outlook. I'd like to begin by thanking our employees for their continuing dedication and commitment to serving our customers as we enter the important winter heating season following a warmer than normal fiscal year first quarter, we experienced extreme cold weather across our service territories. Last month, frigid conditions impacted customers in Alabama, temperatures and parts of our Missouri service territory dipped as low as negative 12 for windshields as low as negative 35.
As a result of our preparation, a significant investment in our gas utilities, we are well-positioned to deliver safe, reliable and affordable natural gas energy for our customers and communities when they needed it the most, our gas utilities, our midstream gas marketing segments, our teams work tirelessly, and I'm incredibly proud of our employees for their dedication and collaboration.
During this time, we will remain focused on continued execution of our strategy while achieving operational excellence. In doing so. Our priorities remain the same to grow our businesses, invest in essential infrastructure and drive continuous improvement. During the first quarter, we delivered net economic earnings of $1.47 per share compared to an NAV of $1.55 per share a year ago.
Our results reflect growth in our gas utility segment and returned to more normal market conditions. Our Gas Marketing and Midstream segments compared to very favorable conditions a year ago in regulatory matters. New rates under the rate stabilization and equalization or RSE mechanism are now effective for our utilities, Alabama as you may recall, this constructive annual rate-setting framework uses the forward year budget and average common equity rather than rate base for rate making purposes. Further, I'm pleased to say we recently welcomed Scott Doyle to our leadership team as Executive Vice President and Chief Operating Officer.
Scott has nearly 30 years of experience in the industry and brings with him deep knowledge and capital deployment, regulatory strategy and operational leadership as COO, he will oversee our gas utilities across Alabama, Missouri and Mississippi.
I'm confident that Scott will be a tremendous addition to our company I'd also like to take this opportunity to recognize Ed Velocify to retire. The Spire Board of Directors last week had been a director of our company for 19 years and served as Board Chair since 2015, service spanned the transformation of Spire for regional utility, one of the largest publicly traded natural gas companies in the United States.
We are grateful for his considerable contributions to Spire success. Rob Jones, who's been a valuable member of our Board since 2016 was elected Chair of Spire's Board of Directors meeting last week. Provost played a key role in the strong oversight and governance provided by our Board and look forward to working closely with them going forward.
As far, we are strongly committed to delivering value over the long term for our customers, communities, employees and shareholders will achieve this by remaining focused on providing essential energy with exceptional service. We're positioned well for success in FY 2024 and over the longer term as we execute on our capital investment plans to support the growth expansion and performance of our utilities and our gas related businesses.
Turning to an update on capital investments. In the first quarter, our CapEx totaled $227 million, with a majority to spend for our gas utilities year over year. Our gas utility CapEx increased nearly 20% with an emphasis on upgrading distribution infrastructure and connecting more homes and businesses to safe, reliable and affordable natural gas.
The investment in our Midstream segment totaled $52 million, largely for the expansion of Spire Storage West, which remains on pace to be completed for next year's heating season. In January, we filed an investors' request with the Missouri Public Service Commission for revenues of $17.3 million. This filing includes recovery of interest eligible investment for the September 2023 through February 2024 period.
Once approved for a later rating increase is anticipated to be effective by July of 2024. I'm pleased to note that we completed our acquisition of the MoGas and Omega Pipeline companies in January. The MoGas Pipeline consists of 263 miles of interstate natural gas pipelines, primarily in Missouri and interconnects with Spire STL Pipeline to deliver gas to our growing customer base.
The Omega Pipeline is a 75 mile natural gas distribution system, primarily serving Fort Leonard Wood army base and South Central Missouri, as interconnected with the MoGas Pipeline System, MoGas and Omega are ideal fits with our existing midstream businesses as they bolster resiliency and expand our footprint within Missouri.
With that, I'll turn it over to Steve Rasche. For a financial review and update on our guidance and outlook Steve?
Steven Rasche
Thanks, Steve, and good morning, everyone. And it's certainly been an interesting start to the fiscal year from a weather standpoint and our team delivered.
Congratulations.
Let's take a look at our results and outlook for our first fiscal quarter, we reported net economic earnings of $82.7 million compared to roughly $85 million last year. On a per-share basis, earnings of $1.47 were $0.08 lower than last year.
All of our businesses performed well and the key factors to focus on are first, we saw higher earnings in our Gas Utilities driven by new rates in Missouri and Alabama. Secondly, our marketing and midstream businesses delivered solid results with the acknowledgment, as Steve noted, that the volatile market we saw a year ago did not recur this year. And lastly, other corporate costs were lower, reflecting an $8.2 million pretax gain on the settlement of an interest rate swap.
Slide 7 provides detail on key variances, but said a couple of the highlights. Gas Utility margins were higher as we benefited from new rates. And while we did experience warmer temperatures across our utility footprint, our weather normalization mechanisms were effective in both Missouri and Alabama and resulting residential margins were again in line with expectations. Margins in marketing and midstream were lower, as I just mentioned.
And looking at operation and maintenance expenses, gas utility expenses were down $3.3 million due to lower employee related costs, partially offset by higher insurance expense. Spire Marketing costs were lower due to lower business volumes and midstream costs were higher due to growth in scale of the segment and $1.9 million in MoGas acquisition costs. And as a reminder, these acquisition costs are excluded from our consolidated net economic earnings.
Interest expense was higher by $7 million, with higher interest expense on long-term debt, principally due to higher debt levels, combined with higher short-term interest expense due to higher rates and marginally lower debt levels compared to last year. As a reminder, we have recovery of a portion of our higher interest expense through carrying cost credits in Missouri, and those credits grew by $1.7 million last quarter. And finally, other income was $11.4 million above last year due to the gain on the settlement of the interest rate swap and those carrying cost credits.
Turning to our outlook, we remain confident in our growth strategy and our results so far this fiscal year support our goals. As a result, we are affirming our guidance including long-term net economics per share growth of 5% to 7%, fiscal 24 net economic earnings of [425 to 445] per share. Our earnings target ranges by business segment and both current year and 10-year CapEx targets.
Moving to Slide 9. Our three-year financing plan also remains unchanged. We've now settled our forward equity sale and are on track for our equity unit conversion. Last week, our Board reauthorized our ATM program at $200 million, and we will use this program to meet our very modest remaining equity needs through 2026.
As I mentioned earlier, we are seeing lower total short term borrowings, even after factoring in our nine month term loan noted here, we are on track to collect our deferred gas cost balances and expect to be substantially recover by the end of the CDC's. Our long-term debt financing plan is largely tied through refinancing activity the re-marketing I just mentioned at an incremental $50 million to $100 million to fund the MoGas acquisition.
Our interest rate hedging program is well positioned relative to these needs and future interest rates. And we continue to target FFO-to-debt at 15% to 16% on a consolidated basis and expect to be in this range by fiscal 2025.
In summary, we are executing in line with our plans and are favorably positioned going forward, both operationally and financially.
So before I wrap up, I would like to take this opportunity to recognize Scott Dudley, our Managing Director of Investor Relations, who's joined us today on the call. And as many of you know, Scott is retiring on March first after a distinguished career in Investor Relations spanning nearly 40 years. Most of that time was spent at the power utility space and the term FOD. or friend of dots, which applies to many of you listening today is a badge of highest honor here at Spire. We were very fortunate to convince Scott to join us 11 years ago to build out our IR program and I will miss working with you my Friday, best of luck in this next phase of your life, which I suspect will include a lot more time on the golf course with that, let me turn back over to you, Steve.
Steven Lindsey
I think Steve and I would like to echo your comments about Scott and I personally will miss your hard word, studios and personality. We truly appreciate the dedication of slate over the years, and we wish you and your family nothing but the best in your retirement profile during the first quarter, we were able to deliver solid financial and operating performance while executing our capital investment plan, which supports the growth, safety and reliability of our gas utilities and the expansion of Spire Storage West we continue to remain focused on executing our strategy of fiscal year 24 and beyond.
Finally, we wish the best of luck to the Kansas City Chiefs and the upcoming Super Bowl Las Vegas. We were very proud to be the natural gas provider in Kansas City and Arrowhead stadium, including providing more under the sale during the recent frigid playoff game that concludes our prepared remarks. We're now ready to take questions.
Question and Answer Session
Operator
(Operator Instructions) Shar Pourreza, Guggenheim Partners.
Jamieson Ward
Good morning, guys. This is Jamison ward on for Shar.
Steven Lindsey
How are you doing at Jameson.
Jamieson Ward
In the prepared remarks, you mentioned the weather normalization mechanisms were affected this quarter in Missouri and Alabama. Could you give us a bit more color on the lower C&I usage in the quarter compared to your expectations? And maybe how you're thinking about weather-normalized volumes for the rest of fiscal 24?
Adam Woodard
Yeah, great. Great question, James. And I think this is Adam. I think the lower C&I usage of some of that is certainly weather related in that we don't have weather normalization over smaller commercial and industrial accounts. So I think that's probably the lion's share of that, that piece of it. That's just that's always been outside of the normalization factors.
Jamieson Ward
Perfect okay. I just wanted to confirm there and then the second part is also on weather.
Just given the significant impact of weather in the second quarter last year, I think it was about [$20 million] or so. Could you expand a bit on the potential impacts of the extreme cold weather in January on fiscal Q2 this year?
Steven Lindsey
And Jamieson, this is Steve. Yes,, it's funny. We went from extreme warm and Q. one to two, really cold in January. Unfortunately, it's going to be 65 degrees today here in St. Louis. So it's amazing how quickly weather changes that happen next quarter, and we clearly want to get through the Western winter and then we'll update the market. I think rest us assured that we were well positioned across all of our businesses. So we served our customers well on the utility side, first and foremost, we were well positioned in marketing, and we were actually well positioned in the midstream business to just hang tight. Once we get through winter, we'll update everybody on our next earnings call.
Jamieson Ward
Perfect. That's all I have. Thank you very much.
Operator
(Operator Instructions) Richard Sunderland, JPMorgan.
Richard Sunderland
Hi, good morning.
Thanks for the time today.
Steven Rasche
When it's quite Rich,
Richard Sunderland
Maybe to take another stab at second question there. I'm wondering if you can frame 1Q results versus budget, given what sounds like working weather normalization? And I realize here that you're reaffirming guidance, but trying to get a sense of if that reaffirm is looking at 1Q plus the January wet weather really just considering 1Q and of itself?
Steven Lindsey
Yes. Rich, this is Steve.
I'll take a shot at it and then I'm like everybody else. Could where we look, we obviously know where January was. So it would be impossible to not think about that. But even before we had the cold weather in January, we were very comfortable with our first quarter results and they support our expectations across our business units.
And again, as we get through the winter, as we always do, look at what the pushes and pulls are across all of our businesses. And that's why we have ranges of earnings is we have to deal with the things that we can deal with, and that's all those stuff that we focus on to serve our customers and then the things that we have to manage and that includes weather and end customer demand at certain classes.
So validate that I think you can rest assured the first quarter results were very supportive of our plans for the year, and we'll see how the rest of the winter plays out great.
Richard Sunderland
That's helpful context there. And then just diving in on the utilities for 1Q, there were some O&M savings you called out. I'm curious if that's kind of on target for the year. What are your expectations going forward with one quarter on the books now? And anything else worth unpacking on the O&M front?
Adam Woodard
Hey Rich, rates, it's Adam. I don't know, I don't know if there's a whole outboard on-pack after one quarter of where we're still watching the expense and be very careful there. But we like the results for the first quarter and will we continue to make that a focus for us during the rest of the year.
Scott Doyle
And Rich, I would add that, you know, we never wanted to draw a line based on one data. We like where the first not landed, but our overriding goal is to manage O&M below the rate of a normalized rate of inflation. So we've started off in a good spot. There's clearly always some timing, things that go back and forth, but I think it's very supportive of our overall plan for the year.
Richard Sunderland
Great very helpful.
Well, I'll leave it there. And Scott, best of luck in retirement.
Steven Lindsey
Thanks, Jeff, and thanks, Rich.
Operator
(Operator Instructions) Julien Dumoulin-Smith with Bank of America.
Hi, this is Tanner on for Julien.
Steven Lindsey
Good morning Tanner.
I just wanted to ask about the growth related CapEx in the quarter. It looked like a slight run rate step up from fiscal year 23. Is that growth fully attributable to new residential connections? Is there a geographic focus to this growth? And are you seeing any trends with respect to new connections and the customer composition specifically?
Jamieson Ward
Yes, great. Great question, Tanner. I don't I don't know if I would attribute that to specific growth trends at some of it was a little bit from quarter to quarter of some items. We've been we've seen some movement around the path or the CapEx profile of the public and the storage project also in the utilities. We note that we do from quarter to quarter, we have different prioritization around what what's getting in a specific quarter or so. I don't know if there I would I wouldn't draw a trend line from that. I think it's really just some something that's moving across quarters.
Steven Lindsey
And I would follow this is Steve, that though one thing that we are very focused on is the consistency year over year of our capital deployment. In terms of infrastructure, new business, it's I don't think the uptick has anything to do relative to that. I think it's a pretty consistent year over year message relative to our new construction.
But we do have other types of programs, meters and things like that and investment and some other types of things that are not necessarily infrastructure specific. But again, I think if you think about the way we deploy, it's very consistent, it's very even across all of our footprints or whether it's Missouri East, whether it's Missouri West, whether it's the Southeast, that's the way we really focused over the long term. And we reaffirm we used to have a five-year plan that we have a 10-year plan, and I think we're very confident in our ability to deliver on that.
Great. Thank you. And then at the parent stripping out one-time items for the hedging and the interest expense in the quarter, you noted base corporate costs were higher year over year.
How should we think about the cadence of those ongoing base corporate costs going forward through the rest of fiscal 24.
Adam Woodard
I think they're going to be pretty flat at 10 or this is the other, Steve and it's very consistent with the assumptions we had underlying the guidance of corporate cost. And as you might recall, when we launched guidance last year for that other category, which would include corporate costs that was down pretty significantly from the run rate we had the year before. Again, part of that was due to one-time costs that didn't recur late in fiscal year 23.
All right. Great. Thank you, and congratulations to Scott Dudley by the way, thank you for all of your help, and I appreciate the standardized there.
Operator
(Operator Instructions) Christopher Jeffrey, Mizuho.
Christopher Jeffrey
I have everyone maybe to approach the puts and takes for the guidance for the year from a couple of different angles. Just wondering as far as like the regulatory aspects, the RSC. and Alabama, the races in Missouri, have those been kind of in line so far as what you're expecting in the budget? And then maybe on the also the other income items, are you kind of expecting those onetimes on the interest hedging recovery on some of those higher debt levels? Like how is that kind of trending against expectations for the year?
Adam Woodard
So Chris, the tires that yes, I think that I think they had those items have met our expectations as far as the Company back to a normalized RSE in Alabama. I think the cadence of our interest filings as has been planned in and has come in as expected. So I yes, I think you're your observation. There is a good one of the question's a good one. It is I think those items have really been our expected expectations thus far for the year or things are running according to plan.
Steven Lindsey
And Chris, I would add that yes, we fully contemplated the one-time item, which was the hedge settlement, which happened in early October. So it will go up for rebid launch guide if there is one thing that we saw in Q1, and we're seeing it reverse in Q2. That would be the that the drawdown of deferred gas costs because that's tied to customer demand.
So even though the weather norm worked the additional amount we would get from the PGA and the deferred gas costs, specifically in Missouri was a little below what we had expected, but I can assure you that what we're seeing in January that comes back around, which is why we never want to get overly exercised about what happens in one small piece of the overall winter. We want to get through the entire winter season and then we'll reevaluate we're still on track. You get those largely paid off by the end of the heating season.
Christopher Jeffrey
Great. Thanks. And then as far as the January weather, I think people have asked on the utility side, but on the marketing side, and then it also sounds like there's some midstream and your kind of leverage to those types of weather events dislocations. Just wondering how you're thinking about both of those pieces, the marketing and the midstream for 2Q and the rest of the year?
Scott Doyle
Yeah, I don't know. We're in Q2, you're right now, so let us get through the rest of the winter. And again, we all know that was called for 10 days in January, which was a welcome relief from the heat that we saw in Q1. But it's warm again today and we have to plan for the entire winter or not. And again, the most important thing is we were well positioned to serve our customers across all of our businesses. That's what our primary focus is, and we'll update everybody as we get through the winter quarter.
Christopher Jeffrey
Great. Thanks, everyone, and congratulations, Scott.
Scott Doyle
Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Meghan McHale for any closing remarks.
Megan Mcphail
Thank you for joining us on the call this morning, and we look forward to speaking with many of you later today and in the coming weeks,
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
