RGC Resources Q2 Earnings Call Highlights

Key Points

• RGC Resources posted stronger Q2 fiscal 2026 results, with net income rising 14% year over year to $8.7 million, or $0.84 per diluted share, helped by new gas rates, higher MVP affiliate earnings, and lower interest expense.
• The company faces meaningful second-half headwinds after a top-five industrial customer idled operations in March, and it also said damage at its LNG peak-shaving facility means it likely won’t be available for the coming winter season.
• Management raised and narrowed full-year EPS guidance to $1.31-$1.37, while continuing work on an expedited rate case and planning to refinance a $15 million note due in August.

RGC Resources NASDAQ: RGCO reported higher second-quarter earnings for fiscal 2026, citing increased Roanoke Gas margins from new rates that took effect Jan. 1, higher earnings from its unconsolidated affiliate MVP and lower interest expense. The company also discussed operational headwinds, including the shutdown of a large customer’s facility and damage at its LNG peak-shaving facility.

Tim Mulvaney, vice president, treasurer and chief financial officer, said net income for the quarter was $8.7 million, or $0.84 per diluted share, compared with $7.4 million, or $0.74 per diluted share, in the same quarter a year earlier. That represented a 14% increase.

For the first six months of fiscal 2026, net income was $13.6 million, or $1.31 per diluted share, compared with $1.26 per diluted share in the first half of fiscal 2025, a 5.3% increase. Mulvaney said the second quarter drove the six-month performance because the first quarter did not include the benefit of the January rate increase.

“We had a robust quarter with increased Roanoke Gas margins due to the rates that went into effect January 1st, combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense to overcome higher expenses related to investment in our gas system and inflationary pressures,” Mulvaney said.

Gas Volumes Decline Despite Customer Growth

Tommy Oliver, senior vice president of regulatory and external affairs, said main extension and renewal activity was steady in the first half of fiscal 2026. RGC installed 2.7 main miles, similar to the total installed in the first half of fiscal 2025, and connected 340 new services, compared with 359 in the prior-year period. Oliver said that activity was evidence that residential development continued across the region.

The company renewed 1.5 miles of main and 196 services during the first half of fiscal 2026. While main miles renewed were down in part because of weather, service renewals increased by almost 25%, Oliver said.

Delivered gas volumes declined in both the quarter and first half. Oliver said that despite an extreme cold spell in late January and early February, the second quarter overall was warmer than the same period in fiscal 2025. Total volumes were down 5% year over year, with residential and commercial volumes both declining by about 5%. Heating degree days were down 2% from the prior-year quarter.

For the first six months, total volumes were down 3% compared with the first half of fiscal 2025, even though heating degree days increased 3%. Oliver said the decline was primarily attributable to lower industrial usage from one customer.

Large Customer Closure Creates Second-Half Headwind

President and Chief Executive Officer Paul Nester said one of the company’s top five customers by volume, a longtime manufacturer in the Roanoke Valley, idled its operations in March. Nester said the manufacturer had operated in the region for more than 60 years and that the closure affected employees at the facility.

“As Tim said, it’s a headwind really into the second half of 2026,” Nester said. “Again, they were a large gas customer.”

Oliver said the company informed the Virginia State Corporation Commission staff of the customer closure and said RGC is optimistic that the SCC staff will incorporate the expected decline in usage over the coming year into its recommended revenue requirement when testimony is filed in June.

LNG Facility Damage Under Review

Nester also discussed damage at the company’s LNG peak-shaving facility, which was described in RGC’s quarterly filing. He said the company has hired tank experts and other specialists to assess the cause and nature of the damage and potentially design remediation solutions.

RGC does not expect to have use of the LNG peak-shaving facility for the coming winter season, Nester said. He added that the company has begun “intense and thorough planning” to provide service without the facility.

“As we disclosed in the 10-Q, right now we’re unable to estimate the costs associated with this event, and we’re unable to estimate the investment required to possibly repair or, if needed, replace the tank,” Nester said.

Oliver said the company has alerted SCC staff to the situation and has discussed establishing a regulatory asset for the related costs.

Rate Case and Capital Spending

Oliver said Roanoke Gas filed an expedited rate case on Dec. 2 seeking about $4.3 million in incremental annual revenues based on its current authorized return on equity of 9.9%. Interim rates became effective Jan. 1, subject to refund. SCC staff is conducting an audit and is scheduled to file testimony in June. A hearing is scheduled for July 15, 2026, and the company expects a final resolution from the commission by the end of the calendar year.

Oliver also said that for four months beginning in January, RGC offset the new rates through bill credits to return tax credits to customers that were resolved with the IRS late in fiscal 2025 and had been included as regulatory liabilities on the balance sheet. Those refunds concluded in April.

Capital spending for the first half of fiscal 2026 totaled $9.8 million, down about 8% from the same period a year earlier. Oliver said Winter Storm Fern in late January and early February affected spending, though activity picked back up in March.

Nester said the company’s capital spending forecast remains $22 million for the fiscal year, though the mix of spending has been adjusted slightly from what was presented after the first quarter. He said RGC may reposition certain investments or potentially add to the plan as more facts become known about the LNG facility.

Guidance Raised and Narrowed

RGC raised and narrowed its fiscal 2026 earnings per share outlook to a range of $1.31 to $1.37. Nester said the strong second-quarter results contributed to the updated outlook, while Mulvaney reminded investors that the business is seasonal and that the third and fourth quarters will not resemble the first and second quarters from an earnings standpoint.

Mulvaney said the company’s balance sheet remains strong. Roanoke Gas has a $15 million note maturing in August, which is included in current maturities of long-term debt. He said the company is in discussions with lenders to refinance the note and does not expect to replicate the 2% rate it previously had.

Nester said the company continues to face macroeconomic concerns, including inflation above the Federal Reserve’s 2% target and interest rate volatility. He also said the local economy remains steady, citing the Google Data Center project and other recent positive announcements across the Roanoke Valley.

No questions were asked during the call’s question-and-answer portion. Nester said company representatives plan to attend the AGA Financial Forum and expect to report third-quarter fiscal 2026 results in August.

About RGC Resources NASDAQ: RGCO

RGC Resources, Inc NASDAQ: RGCO is a natural gas distribution and transmission company headquartered in Wheeling, West Virginia. Through its regulated subsidiaries, the company provides energy delivery services to residential, commercial and industrial customers across northern West Virginia, western Pennsylvania and parts of Maryland. RGC Resources focuses on maintaining a safe and efficient local pipeline network to ensure reliable supply to its service areas.

The company operates two primary business segments: distribution and transmission.

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