Atmos Energy Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2026

Key Takeaways

  • Positive Sentiment: Management raised full-year fiscal 2026 EPS guidance to $8.40–$8.50 (YTD EPS $5.92) and said this range is a new launch point for their targeted 6%–8% annual EPS and dividend growth policy.
  • Positive Sentiment: Final Texas Rule 77102 implementation materially increased deferral benefits for FY2026 (estimated $155M–$165M pre‑tax), with related presentation changes to O&M and interest; management says this is a reclassification and not a net earnings change.
  • Positive Sentiment: Atmos Pipeline (APT) benefited from wider through‑system spreads (added about $16M / $0.08 year‑over‑year) and expects an additional $0.08–$0.12 contribution in H2; APT also completed the Line WA phase II and interconnects adding ~100,000 MCF/d of supply.
  • Positive Sentiment: Customer demand remains strong — Atmos added ~51,000 customers in the 12 months to March 31, 2026 (≈39,000 in Texas), recorded 97% customer satisfaction, and helped ~33,000 customers obtain ~$9.5M in assistance.
  • Neutral Sentiment: Capital plan and liquidity: $2.0B capex in H1 (89% safety/reliability), full‑year capex expected ~$4.2B; equity capitalization ~61% with $4.1B available liquidity (including ~$890M from forward sales) to fund needs.
AI Generated. May Contain Errors.
Earnings Conference Call
Atmos Energy Q2 2026
00:00 / 00:00

There are 8 speakers on the call.

Speaker 4

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Atmos Energy Corporation Fiscal 2026 second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, again, press the star and 1. I would now like to turn the call over to Jennifer Wernecke, Director of Investor Relations and Assistant Treasurer. You may begin.

Speaker 2

Thank you, Kayla. Good morning, everyone, and thank you for joining our fiscal 2026 2nd quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer, and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 29 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin?

Speaker 3

Thank you, Jennifer, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year-to-date fiscal 2026 net income of $985 million or $5.92 per diluted share. We updated our earnings per share guidance range to $8.40-$8.50. Our capital expenditures for the first half of the fiscal year totaled $2 billion, with over 89% of those investments focused on enhancing the safety and reliability of our distribution, transmission, and underground storage systems. Across our service territories, we continue to see steady customer growth. For the 12 months ending March 31, 2026, we added over 51,000 new customers, with over 39,000 of those new customers located here in Texas. During the second quarter, we added over 800 commercial customers and 4 new industrial customers.

Speaker 3

This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our service territories. In APT, we continue to work to enhance the safety, reliability, versatility, and supply diversification of our system, as well as support the continued growth we are seeing in the local distribution companies behind APT's system. During the second quarter, we completed phase II of the Line WA project. This project installed approximately 44 miles of 36-inch pipeline to the west of Fort Worth to support growth in this area of the DFW Metroplex. Additionally, APT enhanced supply optionality, reliability, and system versatility with the completion of 5 interconnect projects and adding nearly 100,000 MCFs a day of additional natural gas supply to the APT system. These investments further enhance APT's ability to serve the LDC customers behind their city gates.

Speaker 3

These LDC customers also benefit from APT's Rider REV tariff, which shares approximately 75% of APT's other revenue build that is above a specified benchmark. As a reminder, these revenues vary from year to year based upon available capacity on our pipeline and natural gas pricing dynamics in Texas. Over the last three years, these customers have received approximately $150 million in total as credit from the Rider REV tariff. As you'll hear from Chris in a few minutes, natural gas pricing dynamics have positively impacted APT's other revenue build in the first half of fiscal 2026 and are expected to favorably impact our financial results for the remainder of the fiscal year. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction ratings of 97% for the first 6 months of the fiscal year.

Speaker 3

Truly outstanding work by this team. Additionally, during the first half of the fiscal year, our customer advocacy team helped over 33,000 customers receive approximately $9.5 million in funding assistance. Recently, we were named to the Forbes list of America's Best Large Employers, ranking as one of the top 100 employers overall and placing 2nd among all utilities. This is the 6th consecutive year Atmos Energy has been named to this list. This recognition reflects the continued dedication, focus, and effort of all Atmos Energy employees to safely deliver reliable and efficient natural gas to homes, businesses, and industries to fuel our energy needs now and in the future. Their commitment has us well-positioned for the remainder of the fiscal year. Now I'll turn the call over to Chris for his update.

Speaker 1

Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first six months of this fiscal year was $5.92, which represents a 12.5% increase over the prior year period. Our year-to-date results include $94 million, or $0.43 from the impact of Texas House Bill 4384. Of this amount, $44 million was recognized in our distribution segment, and the remaining $50 million was recognized at APT.

Speaker 1

During the second quarter, the Railroad Commission of Texas completed its final rulemaking to codify Texas House Bill 4384 into Rule 77102. As you know, this rulemaking reduces lag in Texas by permitting gas utilities to defer post and service carrying costs, depreciation, and ad valorem taxes associated with non-eligible Rule 8209 capital investments, such as new customer growth and system expansion. Since adopting Rule 77102 in late fiscal 2025, we've been presenting the deferral of post and service carrying costs as a reduction to interest expense be consistent with Texas Rule 8209. With the new rule now final, we have determined it is most appropriate to present the deferral of post and service carrying costs in the income statement line items where the incurred costs are classified, O&M and interest expense.

Speaker 1

This updated presentation has been reflected in our fiscal second quarter and fiscal year-to-date results, which reduced reported O&M for the first six months of the fiscal year by $41 million. Our year-to-date performance was influenced by several additional factors. Rate increases in both of our operating segments totaled $171 million. Operating income increased by an additional $32 million due to residential and commercial customer growth and increased customer load. Finally, APT's through-system revenues, net of Rider REV, increased about $16 million, or $0.08. Substantially all of this increase reflected higher spreads realized during fiscal 2026 compared to fiscal 2025.

Speaker 1

During the first six months of fiscal 2026, the spreads we captured averaged $4.35 compared to $1.80 in the prior year period, reflecting rising associated with gas production, constrained takeaway capacity, and lower demand due to unseasonably warm weather during this past winter heating season. Excluding the impact of Rule 77102 deferrals, consolidated O&M increased $27 million, reflecting higher employee, compliance, and safety-related spending in our distribution segment and higher maintenance spending at APT. From a regulatory perspective, since the beginning of the fiscal year, we've implemented $136 million in annualized operating income increases in our distribution segment. Currently, we have 13 filings in progress seeking nearly $600 million in annualized operating income increases. We expect to implement approximately 40% of this amount primarily during our third fiscal quarter.

Speaker 1

The largest filing we expect to implement during the second half of the fiscal year, APT's GRIP filing seeking $112 million in annualized operating income increases, is scheduled to be considered by the Railroad Commission of Texas next Tuesday, May 12th. Our equity capitalization as of March 31st was 61%, and we did not have any short-term debt outstanding. During the second quarter, we extended our four credit facilities that provide $3.1 billion in total liquidity. At quarter-end, we had $4.1 billion in available liquidity to support our operations. This amount includes approximately $890 million in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 2026 equity needs and a portion of our anticipated equity needs for fiscal 2027.

Speaker 1

As we reported last night, we have increased our fiscal 2026 earnings per share guidance from an original range of $8.15-$8.35 to a new range of $8.40-$8.50. We expect the remaining contribution to fiscal 2026 earnings per share to recognize somewhat evenly by quarter in the back half of the fiscal year. Two key items are driving the increase in our fiscal 2026 guidance. First, our guidance reflects our expectations for the performance of APT's through-system business for the second half of the fiscal year. As we have mentioned before, going into a fiscal year, we based our assumptions for this line of APT's business, assuming revenues in line with our benchmark based on historical norms for available capacity on our system and pricing.

Speaker 1

Although we have recently seen some modest improvement at Waha, we anticipate natural gas pricing in the Permian will remain challenging for the remainder of our fiscal year. As I mentioned earlier, this part of APT's business added $0.08 period-over-period. We currently anticipate that APT's through-system business will add an additional $0.08-$0.12 to our fiscal 2026 results during the second half of the fiscal year. Secondly, with final rulemaking completed and improved visibility into the timing of our capital spending in Texas for the remainder of the fiscal year, we believe the impact of implementing Rule 77102 will be higher than originally planned. We estimate this impact will range from $155 million-$165 million for the entire fiscal year, including the deferral of incurred post and service carrying costs, depreciation, and ad valorem taxes.

Speaker 1

We still anticipate our O&M to be in the range of $865 million-$885 million. We have reflected the estimated impact of Rule 77102 deferrals in our O&M guidance. However, we anticipate this decrease to be substantially offset by higher system monitoring, compliance, and employee costs. We anticipate our interest expense to be in a new range of $155 million-$160 million. This increase is solely due to the reclassification of the 77102 deferrals from interest into O&M that I mentioned earlier. Finally, we remain on track to spend approximately $4.2 billion in capital expenditures in fiscal 2026. We appreciate your time this morning and your interest in Atmos Energy. We'll now open up the call for questions.

Speaker 4

Your first question comes from the line of Julien Dumoulin-Smith with Jefferies.

Speaker 1

Hi. Good morning, team. It's Paul Zimbardo on for Julien. Thanks for taking the time.

Speaker 3

Good morning.

Speaker 5

You know, thank you. The first I had was just on the dividend increase, so like roughly 15%. Again, quite impressive and even better than where you've been trending in the past. Just any thoughts on kind of how is sustainable, do you intend to kind of keep increasing above trend? Just overall thoughts on the dividend perspectively would be useful.

Speaker 3

Yeah. I think we stated for a while now that we're gonna grow the earnings per share at a 6%-8% range and commensurately grow the dividend, and that's where we're gonna continue to go as we move forward.

Speaker 1

Yeah. As a reminder, that 15% year-over-year is reflective of the dividend being rebased in addition to rebasing the earnings per share because of the expected impact from Texas Rule 77102.

Speaker 5

Okay. You're kind of converging back to where you were before after the rebase. Okay.

Speaker 3

Yep. Yep.

Speaker 5

The other was just, could you unpack a little bit more? I know you gave some detail on the kind of the shift between O&M and interest expense. If you could give a little more details and just confirming that is kind of a basically a 1-for-1 change, not a net earnings impact there.

Speaker 1

Correct. It is not a net earnings impact. It's a reclassification in how we present the deferral of the incurred service carrying cost at the end of the day. Originally, we had all of that in the interest expense line item. With the final rulemaking, we looked at the proper classification of that. You know, incurred post and service carrying costs reflects all costs associated with the gas plant in-investment that has been subject to the rulemaking that has not yet been collected in rates. That includes O&M, interest, and other costs to be elected to re-present that deferral in the line item of the income statement where the costs were originally incurred and reported, if that makes sense.

Speaker 5

Okay. No, that does make sense. If I can sneak in last one quick. You mentioned that there's been a pretty dramatic move in Waha. Just any way that you would frame that kind of beyond 2026 for customers?

Speaker 3

No. I mean, obviously, we don't have a crystal ball out there. We'll continue to watch what happens over the next six months. We're not even into the real heat here in Texas, so the power gen load hadn't kicked in yet as well. As Chris said earlier, we have seen some moderation from some of the historic highs at Waha and the basis differential. We're gonna continue to monitor as we go through the next six months. We'll keep you updated on these calls as we move forward.

Speaker 5

Okay. Thank you very much, team.

Speaker 3

Thank you.

Speaker 4

Your next question comes from the line of Richard Sunderland with Truist Securities. Your line is open.

Speaker 6

Hey, good morning. Thank you for the time today.

Speaker 3

Good morning. How are you?

Speaker 6

Great. Thank you. In turning to the guidance raise, I know you parsed two different pieces there. How do you think about that as a base for growth going forward? Obviously, that clarification on rulemaking for Texas Rule 77102, you know, sounds like a new long-term view. But is, you know, that $8.40 to $8.50 a good clean base for the 6%-8%?

Speaker 1

Yeah. At this point, we think that's a pretty good base to think about fiscal 2027 and beyond as a launch point within that range.

Speaker 6

Great. Thank you for that. On the ATM, I think if I'm reading the disclosure correctly, you didn't price anything on the quarter. I know you're a little bit ahead with having part of 2027 addressed, you know, how are you thinking about activity there? Was there any, you know, hang up on the quarter specifically and just your timing overall of ATM activity?

Speaker 1

No. On the ATM activity, you're correct. We didn't price anything during the 2Q. As you mentioned, we were fully priced for fiscal '26. Got a pretty good portion already established for fiscal '27. We just wanted to kind of see what the market was doing. As you know, there was a lot of volatility in the 2Q with geopolitical events and economic news and whatnot. We decided to sort of keep our powder dry for the quarter. We'll evaluate as we move forward pricing opportunities so we can get ahead further ahead on fiscal '27's equity needs at the right time.

Speaker 6

Great. Thank you for all that.

Speaker 3

Thank you.

Speaker 4

Again, if you'd like to ask a question, please press star then the 1 on your telephone keypad. Your next question comes from the line of Ryan Levine with Citi. Your line is open.

Speaker 7

Good morning, and thanks for taking my questions.

Speaker 3

Good morning.

Speaker 7

You know, appreciate the disclosure around the commodity price movements in Waha. If you were gonna break out what the earnings contribution was this quarter and any early indications of what you were seeing last month?

Speaker 3

Breaking out the earnings for the quarter on just the APT3 system business?

Speaker 7

Correct.

Speaker 3

Well, as I said, I look at it more on a year-over-year basis because we really just look at our performance on teleport totality on a full fiscal year basis. That was $16 million, or about $0.08, year-over-year.

Speaker 7

Okay. Given what we saw last month, would the monthly benefit be trending higher, given some of the commodity spread movements that we've seen?

Speaker 3

Well, as I mentioned, kind of in wrapping up my comments around the guidance, we're anticipating another $0.08-$0.12 in the second half this fiscal year, which contemplates the activity you saw in the month of April.

Speaker 7

Great. Lastly, just in terms of the Dallas-Fort Worth area growth dynamics, what are you seeing on the ground in terms of kind of just customer growth and expansion of volumes across your footprint?

Speaker 3

Again, as we talked about in my opening remarks of the 53,000 or so we added for the last 12 months ending March, about 39,000+ or so of that was here in Texas. Again, we continue to see good growth across all areas, good residential growth across Texas. Again, with on our opening remarks there, good commercial growth as well with what we've added year to date. The industrial side continues to show good positive results as well across the footprint, adding new industrial accounts, Kentucky, Tennessee, Virginia area as well.

Speaker 7

Appreciate the time.

Speaker 3

Thank you.

Speaker 4

Your next question comes from the line of Aditya Darshan Gandhi with Wolfe Research. Your line is open.

Operator

Hi. Good morning. Thank you for taking my questions.

Speaker 3

Good morning.

Operator

I wanted to start on your comment about $8.40-$8.50, the updated guidance range being a good base or launchpad for 6%-8% growth 2027 and beyond. Just can you maybe speak to how you're thinking about APT spreads, you know, maybe normalizing when you get back out to 2027 and how we should think about that impact in 27 and beyond? Is that sort of contemplated within sort of your 6%-8% growth view off of the updated guidance range?

Speaker 3

Yeah. At this point, I would encourage us to let's get through the next six months and just see what the world brings. We've seen where the spreads have been the previous six months. We've got a short window into what it looks like here in the next few weeks. We haven't even gotten into the heating season yet here. We're gonna let the market move through the next six months. We'll see what it presents itself. As we get closer to the end of 2026 and we're ready to talk about 2027, we'll let you know what we think about the market and where the market currently stands and how we incorporate that into 2027 and forward.

Operator

Understood. Thank you. My second question is regarding your comment about the benefit from the Texas legislation, now the final rulemaking being higher than originally planned, sort of in that $155 million-$165 million range for FY 2026. Can you, one, clarify, is that a pre-tax or post-tax amount? It seems significantly higher than, you know, the original sort of maybe $0.40 annual run rate that you had pointed to. How should we think about that benefit sort of beyond 2026? Should we see a similar, maybe even growing benefit as your capital plan grows in the out years?

Speaker 3

Yeah. To clarify, the $155-$165 amount impact from Rule 77102 for the full fiscal year is a pre-tax number. As I mentioned earlier, you know, kind of going into the fiscal year, you know, the rule was fairly new when we were establishing our budget and guidance. There was certainly rulemaking that was going on that actually modified the rule a little bit from our original thinking. We've got a better handle on that going forward now. Also visibility into our spending, as I mentioned.

Speaker 3

You know, this is basically, as we talked about at the beginning of the fiscal year, a rebasing year because we're now layering in the impact of the new rule all of APT spending and the remainder of the distribution spending in Texas that didn't qualify under Rule 8209. Going forward, we were still guiding in that 6%-8% off of as you mentioned earlier, a new range of $8.40-$8.50. The impact is in our five-year guidance is reflective of that as well. We feel you know, we're not gonna see another rebasing going into fiscal 2027. It's gonna be more steady state as we move forward.

Operator

Got it. Thank you for clarifying that.

Speaker 4

Once again, I'd like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to see if any further questions enter the queue. There are no further questions at this time. Jennifer Wernecke, I turn the call back over to you.

Speaker 2

We appreciate your interest in Atmos Energy. Thank you for joining us. A recording of this call is available for replay on our website through June 30, 2026. Have a good day.

Speaker 4

This concludes today's conference call. You may now disconnect.

Powered by Quartr