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Why Is Atmos (ATO) Up 0.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Atmos Energy (ATO). Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Atmos due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Atmos Energy Q3 Earnings Miss Estimates by a Penny

Atmos Energy Corporation posted third-quarter fiscal 2019 earnings of 68 cents per share, which lagged the Zacks Consensus Estimate of 69 cents by 1.4%. However, the reported earnings improved 6.3% from the prior-year figure. The year-over-year improvement in earnings is driven by the implementation of new rates and customer growth.

Total Revenues

Total revenues of $485.7 million lagged the Zacks Consensus Estimate of $701 million by 30.7%. Moreover, the figure was 13.6% lower than the year-ago total revenues of $562.2 million. The year-over-year decline in revenues was due to lower contribution from its distribution segment.

Segment Revenues

Distribution: Revenues from the segment decreased 16.9% to $444.9 million from $535.5 million in the prior-year quarter. Distribution contribution margin increased to $305.4 million from $304.6 million in the year-ago quarter, driven by customer growth in its Mid-Tex division and new rates.

Pipeline and Storage: Revenues from the segment increased 16.8% to $149.2 million from $127.7 million in the year-ago quarter. The improvement was driven by increase in rates, and positive supply and demand dynamics in the Permian Basin.

Quarterly Highlights

Total operating expenses in the reported quarter increased 8.2% from the year-ago level to $332.2 million due to higher operation and maintenance expenses, as well as depreciation and amortization costs.

Operating income in the reported quarter was down 1.7% year over year to $122.2 million. Lower consumption and increased operating expenses completely offset the gains from positive rate case outcomes, customer growth in its distribution segment, as well as higher margins in the pipeline and storage segment.

The company incurred interest expenses of $19.6 million, down 16.3% from the year-ago period.

Financial Highlights

As of Jun 30, 2019, Atmos Energy had cash and cash equivalents of $46.2 million compared with $13.8 million on Sep 30, 2018.

Long-term debt was $3.53 billion as of Jun 30, 2019, up from $2.49 billion on Sep 30, 2018.

The company’s cash flow from operating activities over the nine-month period ended Jun 30, 2019 was $808.9 million, down from $1,035.3 million recorded in the prior-year comparable period.

It invested $1.2 billion in the nine-month period ended Jun 30, 2019. Of the total spending, majority was assigned for improving system safety and reliability investments.

Guidance

Atmos Energy reiterated its fiscal 2019 earnings guidance in the range of $4.25-$4.35 per share. The midpoint of the revised guided range is $4.30, which is lower than the current Zacks Consensus Estimate for fiscal 2019 of $4.32.

Capital expenditure for fiscal 2019 is expected in the range of $1.65-$1.75 billion.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Atmos has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Atmos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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