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Spire Inc. (SR-PA): A Diversified Natural Gas Utility Poised for Steady Growth
Published on September 24, 2024 | Ticker: SR-PA

Spire Inc. (NYSE: SR-PA), a leading natural gas utility company, has demonstrated resilience and strategic execution amidst a challenging market environment. With a diverse portfolio of natural gas businesses, Spire is well-positioned to navigate the evolving energy landscape and deliver sustainable growth for its shareholders.

Financials

For the fiscal year ended September 30, 2023, Spire reported annual net income of $217.5 million, annual revenue of $2,666.3 million, annual operating cash flow of $440.2 million, and annual free cash flow of -$222.3 million. These financial results reflected the company's ability to generate consistent earnings and cash flow, even in the face of market volatility.

In the second quarter of fiscal 2024, Spire reported net economic earnings of $196.6 million, or $3.45 per share, compared to $199.2 million, or $3.70 per share, in the prior-year quarter. The year-over-year decrease was primarily driven by lower usage in Missouri due to significantly warmer-than-normal weather and higher interest expense.

Segment Performance

Spire's Gas Utility segment, which accounts for the majority of the company's earnings, reported net income of $188.0 million in the second quarter, an increase of $4.1 million from the prior-year period. This was largely attributable to higher rates and effective weather mitigation in Alabama, partially offset by lower usage and only partial mitigation in Missouri.

The company's Gas Marketing segment reported net economic earnings of $15.5 million, down $6.3 million from the prior-year quarter, as favorable market conditions experienced in the prior year did not recur. Spire's Midstream segment generated net economic earnings of $3.8 million, a decrease of $0.4 million, primarily due to a decline in performance at Spire Storage West, which benefited from more favorable market conditions in the prior year.

Outlook

Spire's management team remains confident in the company's long-term growth prospects, reaffirming its fiscal year 2024 net economic earnings guidance range of $4.25 to $4.45 per share. This guidance reflects the company's ability to navigate the current market environment and execute on its strategic initiatives.

Strategic Priorities

One of Spire's key strategic priorities is its robust capital investment plan, which totaled $409 million in the first half of fiscal 2024. The company's Gas Utility segment accounted for $312 million of this investment, focused on modernizing its distribution infrastructure and connecting more homes and businesses. Spire's Midstream segment invested $97 million, primarily for the expansion of its Spire Storage West facility.

Business Overview

Spire's geographic footprint spans several states, including Missouri, Alabama, and the Gulf Coast region through its Spire EnergySouth subsidiary. This diversification helps mitigate the impact of regional economic and weather-related fluctuations, providing a more stable earnings profile.

In terms of revenue breakdown, Spire's Gas Utility segment contributed $1,787.9 million, or 94.8%, of the company's total operating revenue in the second quarter of fiscal 2024. The Gas Marketing segment generated $82.3 million, or 4.4%, while the Midstream segment accounted for $36.4 million, or 1.9%, of total operating revenue.

Liquidity

Spire's financial position remains strong, with a consolidated debt-to-capitalization ratio of 57% as of March 31, 2024. The company's liquidity position is also robust, with $25.6 million in cash and cash equivalents and access to a $1.3 billion revolving credit facility.

Recent Developments

Looking ahead, Spire's management team is focused on executing its growth strategy, which includes continued investment in its natural gas infrastructure, optimization of its Midstream assets, and disciplined cost management. The company's diverse business model, strong regulatory relationships, and experienced leadership team position Spire for sustained success in the years to come.

Risks and Challenges

One potential risk factor for Spire is the ongoing regulatory environment, as changes in allowed rates of return, recovery of prudent costs, and other regulatory decisions could impact the company's financial performance. Additionally, volatility in natural gas prices and the potential for increased competition from alternative energy sources could pose challenges.

Conclusion

Spire Inc. is a well-diversified natural gas utility company with a proven track record of operational excellence and strategic execution. Despite facing some near-term headwinds, the company's long-term growth prospects remain promising, underpinned by its robust capital investment plan, disciplined cost management, and experienced management team. As Spire continues to navigate the evolving energy landscape, investors can look forward to the company's steady growth and reliable returns.

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