Q1 2025 Spire Inc Earnings Call
Good morning, and welcome to Spires. The school 2025 first quarter earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after.
Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
This event is being recorded.
Speaker Change: I'd now like to turn the conference over to Megan Mcphail, managing director Investor.
Speaker Change: Investor truly Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to spires physical 2025 first quarter earnings call.
Speaker Change: Issued an earnings news release. This morning, you may access it on our website at aspire energy Dot com under nature there is a.
Speaker Change: A slide presentation that accompanies our webcast, which can be downloaded from our website under investors and then events and presentations.
Speaker Change: Before we begin let me cover our safe Harbor statement and use of non-GAAP earnings measures.
Speaker Change: Today's call, including responses to questions may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: These risks and uncertainties are outlined in our quarterly and annual filings with the SEC.
Speaker Change: Our comments, we will be discussing non-GAAP measures used by management when evaluating orman.
Speaker Change: Lots of operations.
Speaker Change: Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation.
Scott Doyle: On the call today is Scott Doyle Executive Vice President E L O and acting CEO and Adam water Executive Vice President and CFO.
Scott Doyle: With that I will turn the call over to Scott Doyle Yeah.
Speaker Change: Thank you Megan and good morning, everyone. Thank you for joining us today for a review of our fiscal first quarter results and an update on recent developments and outlook.
Speaker Change: Before we dive into results we were pleased to announce earlier this week and Steve Lindsey Spires, President and Chief Executive Officer will return to work on February 10th after taking a leave of absence.
Speaker Change: He is eager to get back to the office and we're looking forward to his return next week.
Speaker Change: I would also like to take this opportunity to thank our employees for their continued effort and dedication to maintaining safe and reliable gas delivery service for our customers as we entered the winter heating season.
We experienced warmer than normal first quarter in both Missouri, and Alabama, we began to see much colder sustained weather patterns in early January.
Speaker Change: This past January was among the coldest in recent years throughout our service territories.
Speaker Change: The preparedness of our employees and past investments in our systems ensure a reliable energy delivery for the communities we serve.
Speaker Change: Turning now to our first quarter results. This morning, we announced adjusted earnings of $1 34 per share compared to $1 47, a share a year ago.
Speaker Change: Our results reflect growth in our gas utility and midstream segments and lower earnings in our gas marketing segment.
Speaker Change: Key drivers of our results include our investments to modernize our natural gas infrastructure and our continued focus on cost management.
Speaker Change: Adam will provide more detail on our results and outlook in a moment.
Speaker Change: Turning to regulatory matters, starting with Missouri last November we filed a rate case with the public service Commission or PSC for new rates effective by October of this year and.
Speaker Change: In addition in January we filed a new infrastructure system replacement surcharge or <unk>.
Speaker Change: Quest with the PSC for additional revenues of $19 million.
Speaker Change: This was our fifth request since our last general rate case and includes the timely recovery of eligible investment from September 2024 through February 2025 period.
Speaker Change: New rates are anticipated to be effective by July 2025.
Speaker Change: If approved the increase would bring our revenues on a rider to an annualized rate of $72 $6 million.
Speaker Change: Moving to our Alabama operations.
Speaker Change: Fiscal 2025 budgets for spire, Alabama inspire Gulf were approved by the Alabama Public Service Commission and rates are now effective under the rate stabilization and equalization mechanism or RSC.
Speaker Change: This annual rate setting framework is very constructive as we were granted recovery of our cost based on our forecasted budget and earn a return upon our average common equity.
Speaker Change: Our goal is to achieve consistent and constructive regulatory outcomes in all of our jurisdictions, leading to a more sustainable financial performance trajectory.
Speaker Change: Looking ahead, our 10 year Capex plan remains seven $4 billion. We are also reaffirming our long term EPS growth target of 5% to 7% and our fiscal 2025 earnings guidance of $4 40 to $4 60 per share.
As we indicated on the call in November we anticipate improving our returns in Missouri in FY 2026 to help us achieve our targeted growth rate.
Speaker Change: We are committed to achieving our financial and operational goals as we execute our strategy to grow organically invest in infrastructure and drive continuous improvement.
Speaker Change: Turning to page five for an update on capital investments.
Speaker Change: During the first quarter, our capex totaled $260 million with the majority of that's been taking place at our gas utilities neuro.
Speaker Change: Year over year in utility Capex increased nearly 25% with an emphasis on upgrading distribution infrastructure and connecting more homes and businesses to safe reliable and affordable natural gas.
Speaker Change: During fiscal 2025, we plan to invest a total of $790 million with a focus on reliability system modernization, new service connections and advanced meter installations remember approximately 98% of our 10 year capital expenditure plan is targeted utilities play out driving.
Speaker Change: Our growth in rate base.
Speaker Change: Moving to page six in late November 2024, we filed a request with the Missouri PSC to increase revenues $289 $5 million.
Speaker Change: Drivers of our requested increase includes significant capital investments on our delivery system as well as the inflationary impacts on our cost of service since our last rate case, which was completed in December 2022.
Speaker Change: The request includes a 10, 5% return on equity.
Speaker Change: 55% equity ratio and an estimated rate base of $4 $4 billion with a may 31 true up dates.
Speaker Change: This filing is also inclusive of discrete adjustments have known and measurable items that will occur beyond the true update but before new base rates are implemented.
Speaker Change: We believe this represents a more accurate snapshot of our costs when new rates take effect.
Speaker Change: These updates includes items, such as capital investments and changes to leases payroll and call Center expenses for example.
Speaker Change: We are also seeking to improve recovery of volumetric revenue, including the impacts of both weather and conservation.
Speaker Change: If approved as requested when rates become effective the average customer bill is expected to increase approximately 15% or $14 per month.
Speaker Change: However, when paired with the PGA decrease approved and implemented in November 2024 average customer bills are expected to be lower or unchanged compared to average bills in 2024 when final rates are approved.
Speaker Change: The Missouri PSC approved the procedural schedule last month, and we expect an order and new rates effective by October.
Speaker Change: I'll now turn the call over to Adam for a financial review and update on guidance and outlook.
Speaker Change: Sure.
Adam: Thanks, Scott and good morning, everyone I'll begin by addressing our quarterly results, which are detailed on pages seven and eight of our presentation.
Adam: During the first quarter, we reported adjusted earnings of $1 1 billion or $1 34 per share compared to $82 7 billion or $1 47 per share a year ago.
Adam: The results were driven by earnings growth that the gas utility and midstream segments offset by lower earnings in marketing and other.
Adam: Gas utility earnings were higher reflecting increased earnings at spire, Alabama, inspire golf, partially offset by lower spire, Missouri earnings.
Adam: Contribution margin increased across all utilities.
Adam: We benefited from higher <unk> revenues in Missouri, and new rates and usage at spire, Alabama, another weather mitigation offset in part by lower Missouri usage, which was not fully mitigated.
Adam: Tony earnings also reflected lower run rate O&M expense and higher depreciation expense.
Adam: Strong earnings growth in our midstream segment, driven by new contracts on additional capacity at higher rates on contract renewals of existing capacity at spire storage.
Adam: The acquisition of Mo gas in January of last year.
Adam: Our marketing segment was lower than the prior year due to reduced market volatility combined with higher transportation and storage fees.
Adam: I'd like to note that we would expect marketing to deliver within it as originally expected.
Adam: Guidance range during the fiscal year.
Adam: Lastly, other corporate costs were higher primarily due to the absence of a $6 $3 million after tax benefit of an interest rate hedge settlement that occurred in the prior year, coupled with higher interest expense this year.
Adam: I will briefly touch on a couple of drivers of our results.
Adam: We experienced another warm start to the winter in both Missouri and Alabama.
Adam: From a heating degree day perspective, Missouri was 18% warmer than normal. Although this was in line with last year usage by residential customers was down approximately 4%, resulting in lower volumetric margins of $3 $4 million.
Adam: Alabama was 25% warmer than normal and also warmer than last year, however temperature sensitive margins were effectively mitigated.
Adam: We remain focused on cost management, and we expect run rate operation and maintenance expense at the gas utility and remained flat relative to fiscal 2024 levels.
Adam: During the quarter utility run rate O&M expense was lower by $1 $6 million when compared to last year.
Adam: Okay.
Adam: Turning now to our growth outlook on page nine as Scott mentioned, we are reaffirming our long term adjusted earnings per share growth target of 5% to 7%.
Adam: This growth is supported by 7% to 8% rate base growth at our largest utility spire, Missouri and continued timely recovery investment of investments eligible for distress.
Adam: Continued equity growth and the southeast coupled with annual RSC resets.
Adam: Our 10 year Capex plan of seven $4 billion and a consistent focus on cost management.
Adam: We remain committed to executing on our strategy and are reaffirming our FY 2025, adjusted earnings guidance range of $4 40 to $4 60 per share.
Adam: Moving to slide 10, our three year financing plan remains unchanged from what we laid out in November.
Adam: We expect our ATM program to fulfill our remaining equity needs through 2027 at the beginning of this fiscal year, we had a total of $75 million of outstanding forward sales agreements.
Adam: We settled $32 million updated in December and we plan to settle the remaining $43 million.
Adam: By the end of March.
Adam: Our long term debt financing plan through 2027 includes issuances for the refinancing of maturities and incremental debt of approximately $600 million to fund our capital plan.
Adam: Our other debt and dividend payout ratio targets remain unchanged.
Adam: Summary, we are executing in line with our plan to continue to feel positive about our financial position going forward with.
Scott Doyle: Let me turn it back over to you Scott.
Scott Doyle: Thank you Adam to wrap up I want to remind every one of our fiscal 2025 priorities to build a more resilient efficient and sustainable company that delivers value for our customers and shareholders.
Speaker Change: First and foremost we are committed to delivering natural gas safely and reliably.
Speaker Change: During the year, we expect to achieve our capital plan, we were engaging with key stakeholders to realize constructive regulatory outcomes for customers and shareholders.
The more we're focused on delivering on our fiscal 2025, EPS guidance range and maintaining the strength of our balance sheet.
Speaker Change: Executing on these objectives remains a priority in fiscal 2025 and beyond.
Speaker Change: This concludes our prepared remarks, and we're now ready to take questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Gabe Moreen with Mizuho. Please go ahead.
Gabe Moreen: Hey, good morning, everyone first of all Scott sorry to hear you're moment in the spotlight here might be a little bit shorter than you anticipated, but mostly just really glad that she's coming back soon.
Speaker Change: But with that let me just ask about the weather impact for the quarter is there any way you can make up some of the warmer than normal weather and the impact on customer classes, whether its residential or C&I.
Speaker Change: With a colder than normal set to queue. Obviously, you mentioned the weather in January so I'm just curious.
Speaker Change: Whether that might have reversed a little bit into Q.
David: No David I think you pointed out.
David: We are early in winter and I think that's a fair fair a thing we did we didn't include quite a bit of detail on are in the appendix on page 18.
David: Around the different classes and the performance over the quarter, but it's it's the first quarter were not even in the heart of winter yet so to your point, there's a lot a lot of winter to go and I think your observation is a good one and you are correct.
Speaker Change: Thanks, Adam and then maybe if I could just follow up you mentioned Adam that you still are confident that marketing can hit its guidance for the year.
Speaker Change: Despite I guess the <unk> results can you just talk about how marketing is been doing given some of the volatility.
Speaker Change: So we've seen here and in wholesale markets in January and also to what extent some of that volatility may or may not have extended also to the storage segment as well.
Speaker Change: No absolutely.
We don't we don't think of marketing is having.
Speaker Change: Normalized run rate on a quarter to quarter basis, so not not anything we're.
Speaker Change: As we said in our prepared remarks, we are very comfortable with where they're at to your observation.
Speaker Change: The second quarter really.
Speaker Change: It started out with a constructive backdrop, so we feel very comfortable about where they're where they're headed.
Speaker Change: There would be.
Speaker Change: We continue to see where midstream is operating it and you know our.
Speaker Change: Our our hopeful there were like in the pull through that we see there as as as those assets come online and we're getting a full year under under our belt, but that's.
Speaker Change: We were very comfortable with the guidance range and wherever the premier.
Speaker Change: Great. Thanks, Adam appreciate it though.
Speaker Change: Yeah.
Richard Sunderland: The next question comes from Richard Sunderland with Jpmorgan. Please go ahead.
Richard Sunderland: Hey, good morning, I also want to say great to hear that seats coming back and thank you for the time today.
Speaker Change: Thanks Rich.
Richard Sunderland:
Richard Sunderland: Acting up some of the guidance questions. So if marketing returns to its original trajectory as you've kind of laid out with the January cold snap.
Richard Sunderland: Or kind of a cross factors here are you looking at still trending towards the midpoint I guess I'm trying to parse the utility weather and how much you need to recapture there after <unk> to hit the midpoint of guidance.
Yeah, I don't I don't want to leave an impression that we we need extra whether for marketing to hit its goals, we feel very comfortable regardless of of of where where weather is at any given months that you know where we're comfortable with the plan that we laid out and the segment guidance that we gave so that's.
Speaker Change: Just want to leave that there for Martin I know that's a question.
Speaker Change: But.
Speaker Change: Two two to the overall kind of recapture.
Speaker Change: Clearly, we lost a little margin in Missouri in the first quarter and but.
Speaker Change: But I would I would regard that as something that is a as we talked about.
Speaker Change: With games question I think that's something that's achievable.
Speaker Change: Legal bill over the course of the year.
Speaker Change: Understood. Thank you for that and then turning to the rate case, how are you thinking about the strategy overall, given this new element of pursuing discrete adjustments beyond the true up period I don't know if there's any way to rank order priorities or just how your strategy around settlement and whatnot I could.
Speaker Change: Impacted by somewhat of a different look to this case.
Rich: Hey, Yeah, Hey, rich. Thank you. So maybe just a tick it up a level from maybe that specificity and just say we're pleased with the progress on the rate case as it's moving along it's moving along as expected.
Rich: We have a couple of good things that have occurred of late one is the procedural schedule that you laid out that as rates being effective in October are contemplated to be ineffective in October of this year and then to your point about discrete adjustments. We're encouraged by the order has been placed in this case that allows for the proposal of discrete adjustments.
Rich: As a reminder to those listening the discrete adjustments.
Rich: Our.
Rich: Our balanced and that they are both puts and takes.
Rich: The capital, but we also update the depreciation expense associated with it and we have certain costs that are going up certain costs it'll be moderated during that period. So it works to balance those out and we see that as a positive as we move forward in the K. So you know all in too early to call out strategy or settlement parameters or anything like that it really is.
Rich: It's progressing as it should and we look forward to the continued efforts in that case.
Speaker Change: Great I'll leave it there thank you.
Rich: Thanks Rich.
Speaker Change: The next question comes from Shar <unk> with Guggenheim Partners. Please go ahead.
Speaker Change: Hey, guys how are you doing.
Speaker Change: Hey, good morning, Sean.
Speaker Change: Morning morning, So just real quick on the rate case question I guess, if we're looking for a settlement should we be looking for a settlement prior to the August hearings is that kind of the data point, we should be looking at.
Speaker Change: No I I would just look to the procedural schedule and just key off of the dates that are in there for key way points along the path.
Speaker Change: Too early to have any discussions around that.
Speaker Change: Got it took there to I guess, what I'm trying to ask because if there isn't a settlement announced before the August hearings, there still could be a settlement post the hearings.
Speaker Change: Oh, Yeah, Yeah, I know there's okay.
Speaker Change: Those those within the context of the rate case, there is always opportunity to talk.
Speaker Change: Got it Okay, and then just real quick on Missouri legislation, just any updated thoughts there how are you thinking about some of the more utility focused spills and can you speak a little bit more broadly and how that could impact. The current case I have to make an assumption that doesn't but how are you focused on the utility side of it including forward test years. Thanks.
Speaker Change: Yes, sure sure so maybe a little bit of update this recent as of yesterday afternoon yesterday evening. So maybe just to answer your first question around impacts to this case, but it has no impact on this case. This legislation that we have or that's proposed in.
Speaker Change: And maybe just to level set the legislation. That's proposed is around future test year. It would not take effect or would not be effective until July of 2026 four rate cases filed after that date. So a lot of rule, making that would need to be put in place as it's currently proposed for that to be.
Speaker Change: Something that we would be able to utilize in the context of a rate case, but maybe just a little bit of what's happening in the legislature.
Speaker Change: Yesterday.
Speaker Change: Bill was brought to the Senate floor and the kind of the style of the bill has been modified.
From its original proposal, which we have proposed in Senate Bill four it's now being combined with other utility legislation all of the wording that was in the original Senate Bill four has survived inside of what is now Senate substitute Bill for there were some Florida Bay.
Speaker Change: We're looking forward to some additional debate a couple of weeks from now.
Speaker Change: <unk> been able to continue moving forward. So maybe the way to think about that as it were.
Speaker Change: Pleased with the progress to date and look forward to the continued dialog with parties as we help move that further along but if you're tracking a particular bid all the newbuild attract now as the Senate substitute Billboard.
Speaker Change: Got it and then just just lastly, I understand there's a perception that this is an electric issue and the electrics are taking the lead how vested aspire in this process.
Speaker Change: Yeah fully vested aspire is fully vested in the process and the future test year is what's our component or at least the gas utility component.
Speaker Change: Rick had some other issues that are non future test year, but have some maybe some similarities associated with it whether it's pizza or planning service associated with their gas plants, but if you read through to the bill there are specific provisions in it that are unique to our gas utilities and that's what we're advocating for it in there.
Speaker Change: Fantastic. Thank you guys I appreciate it.
Roger: Thanks Roger.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question comes from David Arcaro with Morgan Stanley. Please go ahead.
David Arcaro: Hey, thanks, so much good morning.
Speaker Change: Hey, Devin good morning.
Speaker Change: That's great to hear the news about Steve really rich wish him all the best accurate to see them coming back are back in action.
Speaker Change: Thank you.
Speaker Change: E.
Speaker Change: Yeah absolutely.
Speaker Change: Question for me on the rate case. So I was just wondering if you could frame the size of the customer Bill increase that is being requested here and maybe more broadly kind of how you think that might trend over time. After this one time bump. Obviously this reflects multiple years since your last base rate case, but how do you see that evolving.
Speaker Change: Maybe beyond just decide this increase.
Speaker Change: Yes, so maybe as we as we shared in our remarks, the customer impact is $14 $15 on a monthly basis on an average bill. However, that's the all in increase based on our proposal.
Speaker Change: As we mentioned late in the year last calendar year last year, we lowered rates as a result of our gas costs coming down that reduction.
Speaker Change: Allows for when or if these rates are to be implemented with basically return average customer bills to what they were prior to the reduction in gas costs. So a different way to think about it is our customers are receiving the benefit now of lower gas costs are over.
Speaker Change: Time period of the rate case being contemplated so we feel really good about kind of how this is impacting our customers.
Speaker Change: Worked hard to.
Speaker Change: Maintain our O&M flat, that's how were trending so far this year as well when you think about future projections.
Speaker Change: This is really a function of the modernization program that we have in place associated with our capital.
Speaker Change: And our systems and serving our customers more reliably.
Speaker Change: And safely as we make those investments in those.
Speaker Change: That's what will have the impact on customer bills going forward.
Speaker Change: Yeah, Okay, great. Thanks for that.
Speaker Change: And then I was just wondering if you could update us on what the level of inflationary pressures you're seeing on O&M.
Speaker Change: Hum confidence in keeping O&M flat for this year and maybe just given we're seeing inflation kind of stickier mm in the broader economic backdrop.
Speaker Change: Sure no. It wasn't it you would certainly see some continued cost pressures, but having I think we're having a.
Speaker Change: I'm.
Speaker Change: Shall we say in a pretty good run rate of keeping that under control as well so.
Speaker Change: It's something that we're focused on continually but.
Speaker Change: Certainly things came in we don't expect it to be necessarily a quarter to quarter phenomenon, but we we continue to feel very comfortable with our guide around Oh, no I'm being flat at the utilities for the year.
Speaker Change: Okay sounds good great. Thanks, so much.
Speaker Change: Hey, David and thank you for your comments about Steve and others as well we're excited about him coming back. So we're looking forward to that absolutely.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Megan Mcphail for any closing remarks.
Speaker Change: I'd like to thank you for joining the call. This morning, and appreciate your interest and.
Speaker Change: Have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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