Atmos Energy Corporation (ATO) is a leading natural gas distribution and pipeline company, serving over 3.4 million customers across eight states. The company's unwavering commitment to safety, reliability, and customer satisfaction has positioned it as a premier provider of natural gas services in the United States.

Financials

For the fiscal year ended September 30, 2023, Atmos Energy reported annual net income of $885.9 million, annual revenue of $4.28 billion, annual operating cash flow of $3.46 billion, and annual free cash flow of $653.8 million. These strong financial results demonstrate the company's ability to consistently deliver value to its shareholders.

In the latest quarter ended March 31, 2024, Atmos Energy reported net income of $743.3 million, or $4.93 per diluted share, compared to $629.5 million, or $4.40 per diluted share, in the prior-year period. This 18% year-over-year increase in net income was driven by positive rate outcomes, lower bad debt expense, and favorable legislation in Texas that reduced property tax expenses.

Business Overview

Atmos Energy operates through two primary business segments: Distribution and Pipeline and Storage. The Distribution segment is the core of the company's operations, comprising regulated natural gas distribution and related sales activities in eight states. The Pipeline and Storage segment includes the pipeline and storage operations of the Atmos Pipeline-Texas division and the company's natural gas transmission operations in Louisiana.

The Distribution segment benefits from the company's ability to earn its authorized rates of return, which is largely driven by its efforts to improve rate design and minimize regulatory lag. Atmos Energy has implemented various regulatory mechanisms, such as weather normalization adjustments and infrastructure investment recovery programs, that help separate the recovery of its approved rates from customer usage patterns.

The Pipeline and Storage segment is impacted by seasonal weather patterns, competitive factors, and economic conditions in its Texas and Louisiana service areas. The segment's results are also influenced by natural gas prices and demand, as well as the timing of cost and expense recovery through its tariffs.

Operational Highlights

Atmos Energy continues to focus on modernizing its natural gas distribution and transmission systems, with a significant portion of its capital spending dedicated to improving the safety and reliability of its infrastructure. During the six months ended March 31, 2024, the company invested $1.42 billion in capital expenditures, with approximately 81% directed towards system enhancements.

The company's commitment to customer service excellence is evident in its consistently high customer satisfaction ratings. In the latest quarter, Atmos Energy's customer support associates and service technicians received a 98% satisfaction rating from customers, reflecting the exceptional service they provide.

Atmos Energy's strong operational performance has been recognized by various industry organizations. The company was ranked first in customer satisfaction by the American Customer Satisfaction Index and was named one of the Most Trustworthy Companies in America by Newsweek for the second consecutive year.

Regulatory Developments

Atmos Energy has been proactive in its regulatory efforts, implementing or receiving approval for ratemaking actions that resulted in a $165.4 million increase in annual operating income during the six months ended March 31, 2024. Additionally, the company has ratemaking efforts in progress that seek a total increase of $178.8 million in annual operating income.

The company's regulatory strategy includes the use of annual formula rate mechanisms, such as infrastructure investment recovery programs and weather normalization adjustments, which help reduce regulatory lag and separate the recovery of its approved rates from customer usage patterns.

Liquidity

Atmos Energy maintains a strong financial position, with an equity capitalization of 60.9% as of March 31, 2024. The company has access to ample liquidity, with $4.2 billion available as of the end of the latest quarter, including $889.7 million in proceeds from outstanding forward sale agreements.

The company has been active in the debt and equity markets, completing approximately $1.2 billion in long-term debt and equity financing during the six months ended March 31, 2024. This financing supports the company's capital expenditure program and helps maintain its desired capital structure.

Outlook

Atmos Energy has updated its fiscal year 2024 earnings per share guidance to a range of $6.70 to $6.80, up from the previous range of $6.45 to $6.65. This revised guidance reflects the company's strong year-to-date performance, including the impact of positive rate outcomes, lower bad debt expense, and the Texas property tax legislation.

Looking ahead, the company expects to continue its track record of consistent earnings growth, anticipating 6% to 8% earnings per share growth for fiscal year 2025, excluding the impact of the one-time Texas property tax and Mississippi bad debt adjustments.

Risks and Challenges

While Atmos Energy has demonstrated its ability to navigate various industry and economic challenges, the company faces risks and uncertainties that could impact its future performance. These include federal, state, and local regulatory changes, increased federal regulatory oversight, potential pipeline integrity and safety-related costs, and the inherent risks associated with natural gas distribution and transportation.

Additionally, the company's operations are subject to the availability and accessibility of contracted gas supplies, as well as competition from alternative energy sources. Atmos Energy also faces risks related to its capital-intensive business model and its ability to continue accessing the credit and capital markets.

Conclusion

Atmos Energy's strong financial and operational performance, coupled with its commitment to safety, reliability, and customer satisfaction, position the company for continued success. The company's proactive regulatory strategy, robust liquidity, and disciplined capital allocation have enabled it to consistently deliver value to its shareholders. As Atmos Energy navigates the evolving energy landscape, investors can expect the company to remain focused on its core mission of safely and reliably providing natural gas services to its growing customer base.