Atmos Energy Corporation Reports Earnings for Fiscal 2020; Initiates Fiscal 2021 through Fiscal 2025 Guidance; Raises Dividend 8.7 Percent

Rhea-AI Summary

Atmos Energy Corporation (NYSE: ATO) reported its fourth fiscal quarter results for the year ending September 30, 2020. The company achieved an earnings per diluted share of $4.89 for the year and $0.53 for the quarter. Consolidated net income was $601.4 million for the year and $65.3 million for the quarter. Capital expenditures rose by 14% to $1.94 billion, focused on system safety and reliability. For fiscal 2021, earnings per share are expected between $4.90 and $5.10. The Board declared a quarterly dividend of $0.625 per share, marking an 8.7% increase over the previous year.

Positive

• Earnings per diluted share guidance for fiscal 2021 projected at $4.90 to $5.10.
• Quarterly dividend increased by 8.7% to $0.625, indicating a strong commitment to shareholder returns.
• Consolidated operating income increased by $78 million year-over-year, reaching $824.1 million.

Negative

• Lower through system revenues negatively impacted operating income in the pipeline and storage segment.
• Increased costs related to bad debt and higher depreciation expenses.

DALLAS--(BUSINESS WIRE)--Atmos Energy Corporation (NYSE: ATO) today reported consolidated results for its fourth fiscal quarter ended September 30, 2020.

Highlights

• Earnings per diluted share:
  • $4.89 for the year ended September 30, 2020
  • $0.53 for the quarter ended September 30, 2020
• Consolidated net income:
  • $601.4 million for the year ended September 30, 2020
  • $65.3 million for the quarter ended September 30, 2020
• Adjusted net income and adjusted diluted earnings per share, which excludes a $21.0 million one-time tax benefit related to the remeasurement of net deferred tax liabilities was $580.5 million and $4.72 for the year ended September 30, 2020.
• Capital expenditures rose 14 percent to $1,935.7 million for the year ended September 30, 2020, with approximately 88 percent of capital spending related to system safety and reliability investments.

Outlook

• Earnings per diluted share for fiscal 2021 is expected to be in the range of $4.90 to $5.10.
• Capital expenditures are expected to be in the range of $2.0 billion to $2.2 billion in fiscal 2021.
• The company's Board of Directors has declared a quarterly dividend of $0.625 per common share. The indicated annual dividend for fiscal 2021 is $2.50, which represents an 8.7% increase over fiscal 2020.

“I am extremely proud of every employee for their commitment to deliver safe and reliable natural gas service paired with exceptional customer service. The preparation and dedication of our employees and leadership has served us and our customers well as we have continued to perform at the highest levels on every facet of our business during this pandemic,” said Kevin Akers, president and chief executive officer of Atmos Energy Corporation. “As we continue to execute our strategy of modernizing our natural gas distribution, transmission and storage systems to improve safety, reliability and environmental performance along with providing exceptional customer service at an affordable price, we remain well positioned to continue delivering annual earnings per share growth in the six to eight percent range,” Akers concluded.

Results for the Fiscal Year Ended September 30, 2020

Consolidated operating income increased $78.0 million to $824.1 million for the year ended September 30, 2020, compared to $746.1 million in the prior year, which primarily reflects rate outcomes in both segments and customer growth and lower operation and maintenance expense in our distribution business, partially offset by lower through system revenue and higher operation and maintenance expense in our pipeline and storage segment and increased depreciation and property tax expense.

Distribution operating income increased $57.4 million to $528.2 million for the year ended September 30, 2020, compared with $470.8 million in the prior year. The increase reflects a net $86.8 million increase in rates and customer growth of $13.7 million, partially offset by a $30.6 million increase in depreciation and property tax expenses associated with increased capital investments. Due to the timing of our fiscal year, the economic impacts from COVID-19 had a limited impact on our operating income.

Pipeline and storage operating income increased $20.6 million to $295.9 million for the year ended September 30, 2020, compared with $275.3 million in the prior year. This increase is primarily attributable to a $53.2 million increase from our GRIP filings approved in fiscal 2019 and 2020, partially offset by a $13.6 million decrease in through system revenues, a $6.8 million increase in operation and maintenance expense primarily due to well integrity costs and spending on hydro testing and in-line inspections and a $12.5 million increase in depreciation expense due to increased capital investments.

Capital expenditures increased $242.2 million to $1,935.7 million for the year ended September 30, 2020, compared with $1,693.5 million in the prior year, due to continued spending for infrastructure replacements and enhancements.

For the year ended September 30, 2020, the company generated operating cash flow of $1,038.0 million, a $69.2 million increase compared with the year ended September 30, 2019. The year-over-year increase reflects the positive cash effects of rate case outcomes achieved in fiscal 2020 and working capital changes, primarily as a result of the timing of gas cost recoveries under our purchase gas cost mechanisms.

Our equity capitalization ratio at September 30, 2020 was 60.0%, compared with 59.0% at September 30, 2019. The increase primarily reflects the absence of short-term debt balances at September 30, 2020.

Results for the Three Months Ended September 30, 2020

Consolidated operating income increased $11.1 million to $100.8 million for the three months ended September 30, 2020, from $89.7 million in the prior-year quarter. Rate case outcomes in both segments and customer growth in our distribution segment were partially offset by lower through system revenue in our pipeline and storage segment, decreased service order revenue in our distribution segment and higher depreciation expense.

Distribution operating income increased $8.2 million to $31.9 million for the three months ended September 30, 2020, compared with $23.7 million in the prior-year quarter. The increase primarily reflects a net $16.0 million increase in rates and a $3.4 million increase due to net customer growth, partially offset by a $10.5 million increase in operating expenses primarily related to increased bad debt expense and a $3.1 million decrease in service order revenues.

Pipeline and storage operating income increased $2.9 million to $68.9 million for the three months ended September 30, 2020, compared with $66.0 million in the prior-year quarter. This increase is primarily attributable to a $13.3 million increase in rates, due to the GRIP filing approved in fiscal 2020, partially offset by a $5.0 million decrease in through system revenues and a $4.2 million increase in depreciation expense due to increased capital investments.

Conference Call to be Webcast November 12, 2020

Atmos Energy will host a conference call with financial analysts to discuss the fiscal 2020 fourth quarter financial results on Thursday, November 12, 2020, at 10:00 a.m. Eastern Time. The domestic telephone number is 877-407-3088 and the international telephone number is 201-389-0927. Kevin Akers, President and Chief Executive Officer, and Chris Forsythe, Senior Vice President and Chief Financial Officer, will participate in the conference call. The conference call will be webcast live on the Atmos Energy website at www.atmosenergy.com. A playback of the call will be available on the website later that day.

Forward-Looking Statements

The matters discussed in this news release may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this news release are forward-looking statements made in good faith by the company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this news release or any of the company’s other documents or oral presentations, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this presentation, including the risks relating to regulatory trends and decisions, the company’s ability to continue to access the credit and capital markets, and the other factors discussed in the company’s reports filed with the Securities and Exchange Commission. These risks and uncertainties include the following: federal, state and local regulatory and political trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; possible increased federal, state and local regulation of the safety of our operations; the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; possible significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competition from energy suppliers and alternative forms of energy; adverse weather conditions; the impact of climate change; the inability to continue to hire, train and retain operational, technical and managerial personnel; increased dependence on technology that may hinder the Company's business if such technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control; the capital-intensive nature of our business; our ability to continue to access the credit and capital markets to execute our business strategy; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty performance or creditworthiness and interest rate risk; the concentration of our operations in Texas; the impact of adverse economic conditions on our customers; changes in the availability and price of natural gas; increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements; the outbreak of COVID-19 and its impact on business and economic conditions.

Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, the company undertakes no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

During our fiscal third quarter we remeasured our deferred income tax balance as a result of Kansas House Bill 2585 and an update to the state deferred tax rate. As a result, we recorded a non-cash income tax benefit of $21.0 million for the year ended September 30, 2020. Due to the non-recurring nature of this benefit, we believe that net income and diluted net income per share before the non-cash income tax benefit provide a more relevant measure to analyze our financial performance than net income and diluted net income per share in order to allow investors to better analyze our core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the discussion and analysis of our financial performance herein will reference adjusted net income and adjusted diluted net income per share, non-GAAP measures, which are calculated as follows:

		Year Ended September 30
		2020				2019				Change
		(In thousands, except per share data)
Net income		$	601,443			$	511,406			$	90,037
Non-cash income tax benefit		(20,962		)		—				(20,962		)
Adjusted net income		$	580,481			$	511,406			$	69,075
Diluted net income per share		$	4.89			$	4.35			$	0.54
Diluted EPS from non-cash income tax benefit		(0.17		)		—				(0.17		)
Adjusted diluted net income per share		$	4.72			$	4.35			$	0.37

About Atmos Energy

Atmos Energy Corporation is the nation’s largest fully regulated, natural gas-only distributor of safe, clean, efficient and affordable energy. As part of our vision to be the safest provider of natural gas services, we are modernizing our business and our infrastructure while continuing to invest in safety, innovation, environmental sustainability and our communities. An S&P 500 company headquartered in Dallas, Atmos Energy serves more than 3 million distribution customers in over 1,400 communities across eight states and manages proprietary pipeline and storage assets, including one of the largest intrastate natural gas pipeline systems in Texas. Find us online at http://www.atmosenergy.com, Facebook, Twitter, Instagram and YouTube.

This news release should be read in conjunction with the attached unaudited financial information.

Atmos Energy Corporation Financial Highlights (Unaudited)
Statements of Income		Year Ended September 30
(000s except per share)		2020				2019
Operating revenues
Distribution segment		$	2,626,993			$	2,745,461
Pipeline and storage segment		609,339				567,024
Intersegment eliminations		(415,195		)		(410,637		)
		2,821,137				2,901,848
Purchased gas cost
Distribution segment		1,071,227				1,268,591
Pipeline and storage segment		1,548				(360		)
Intersegment eliminations		(413,921		)		(409,394		)
		658,854				858,837
Operation and maintenance expense		629,601				630,308
Depreciation and amortization		429,828				391,456
Taxes, other than income		278,755				275,189
Operating income		824,099				746,058
Other non-operating income		7,171				7,404
Interest charges		84,474				103,153
Income before income taxes		746,796				650,309
Income tax expense		145,353				138,903
Net income		$	601,443			$	511,406
Basic net income per share		$	4.89			$	4.36
Diluted net income per share		$	4.89			$	4.35
Cash dividends per share		$	2.30			$	2.10
Basic weighted average shares outstanding		122,788				117,200
Diluted weighted average shares outstanding		122,872				117,461
		Year Ended September 30
Summary Net Income by Segment (000s)		2020				2019
Distribution		$	395,664			$	328,814
Pipeline and storage		205,779				182,592
Net income		$	601,443			$	511,406

Atmos Energy Corporation Financial Highlights, continued (Unaudited)
Statements of Income		Three Months Ended September 30
(000s except per share)		2020				2019
Operating revenues
Distribution segment		$	430,176			$	403,793
Pipeline and storage segment		156,918				147,706
Intersegment eliminations		(112,180		)		(107,816		)
		474,914				443,683
Purchased gas cost
Distribution segment		128,641				120,993
Pipeline and storage segment		1,258				184
Intersegment eliminations		(111,868		)		(107,507		)
		18,031				13,670
Operation and maintenance expense		180,072				177,736
Depreciation and amortization		111,746				100,919
Taxes, other than income		64,220				61,643
Operating income		100,845				89,715
Other non-operating income (expense)		(1,962		)		9,250
Interest charges		15,494				28,763
Income before income taxes		83,389				70,202
Income tax expense		18,056				11,796
Net income		$	65,333			$	58,406
Basic net income per share		$	0.53			$	0.49
Diluted net income per share		$	0.53			$	0.49
Cash dividends per share		$	0.575			$	0.525
Basic weighted average shares outstanding		124,096				119,345
Diluted weighted average shares outstanding		124,100				119,824
		Three Months Ended September 30
Summary Net Income by Segment (000s)		2020				2019
Distribution		$	19,944			$	9,838
Pipeline and storage		45,389				48,568
Net income		$	65,333			$	58,406

Atmos Energy Corporation Financial Highlights, continued (Unaudited)
Condensed Balance Sheets		September 30,				September 30,
(000s)		2020				2019
Net property, plant and equipment		$	13,355,347			$	11,787,669
Cash and cash equivalents		20,808				24,550
Accounts receivable, net		230,595				230,571
Gas stored underground		111,950				130,138
Other current assets		107,905				72,772
Total current assets		471,258				458,031
Goodwill		731,257				730,706
Deferred charges and other assets		801,170				391,213
		$	15,359,032			$	13,367,619
Shareholders' equity		$	6,791,203			$	5,750,223
Long-term debt		4,531,779				3,529,452
Total capitalization		11,322,982				9,279,675
Accounts payable and accrued liabilities		235,775				265,024
Other current liabilities		546,461				479,501
Short-term debt		—				464,915
Current maturities of long-term debt		165				—
Total current liabilities		782,401				1,209,440
Deferred income taxes		1,456,569				1,300,015
Regulatory excess deferred taxes		697,764				705,101
Deferred credits and other liabilities		1,099,316				873,388
		$	15,359,032			$	13,367,619

Atmos Energy Corporation Financial Highlights, continued (Unaudited)
Condensed Statements of Cash Flows		Year Ended September 30
(000s)		2020				2019
Cash flows from operating activities
Net income		$	601,443			$	511,406
Depreciation and amortization		429,828				391,456
Deferred income taxes		155,322				132,004
One-time income tax benefit		(20,962		)		—
Other		6,044				10,589
Changes in assets and liabilities		(133,676		)		(76,686		)
Net cash provided by operating activities		1,037,999				968,769
Cash flows from investing activities
Capital expenditures		(1,935,676		)		(1,693,477		)
Proceeds from the sale of discontinued operations		—				4,000
Debt and equity securities activities, net		491				(2,784		)
Other, net		9,667				8,601
Net cash used in investing activities		(1,925,518		)		(1,683,660		)
Cash flows from financing activities
Net decrease in short-term debt		(464,915		)		(110,865		)
Proceeds from issuance of long-term debt, net of premium/discount		999,450				1,045,221
Net proceeds from equity offering		624,302				694,103
Issuance of common stock through stock purchase and employee retirement plans		19,548				19,323
Settlement of interest rate swaps		(4,426		)		(90,141		)
Repayment of long-term debt		—				(575,000		)
Cash dividends paid		(282,444		)		(245,717		)
Debt issuance costs		(7,738		)		(11,254		)
Net cash provided by financing activities		883,777				725,670
Net increase (decrease) in cash and cash equivalents		(3,742		)		10,779
Cash and cash equivalents at beginning of period		24,550				13,771
Cash and cash equivalents at end of period		$	20,808			$	24,550

		Three Months Ended September 30								Year Ended September 30
Statistics		2020				2019				2020				2019
Consolidated distribution throughput (MMcf as metered)		66,447				66,184				439,037				470,554
Consolidated pipeline and storage transportation volumes (MMcf)		167,725				204,810				621,371				721,998
Distribution meters in service		3,333,181				3,291,835				3,333,181				3,291,835
Distribution average cost of gas		$	3.75			$	3.68			$	3.67			$	4.02