Business Overview and History
Spire Inc. (SR) is a leading natural gas utility company serving over 1.7 million customers across three states - Missouri, Alabama, and Mississippi. With a rich history spanning over two decades, Spire has established itself as a reliable energy provider, consistently delivering value to its shareholders and the communities it serves.
Spire was founded in 2000 through the merger of Laclede Gas Company and Alabama Gas Corporation. In its early years, the company grew through a series of strategic acquisitions, including the purchase of Missouri Gas Energy in 2001 and Alabama Gas Corporation in 2014. These acquisitions allowed Spire to expand its geographic footprint and customer base, solidifying its position as a leading natural gas utility in the Midwest and Southeast regions. Over the years, the company has strategically expanded its footprint, acquiring Spire Gulf and Spire Mississippi in 2018, further strengthening its presence in the Southeast region. In 2023, Spire made a significant move by acquiring MoGas Pipeline, a critical interstate natural gas pipeline, and Omega Pipeline, a connected gas distribution system in Missouri. This acquisition has enabled Spire to enhance its midstream capabilities and improve the reliability of natural gas delivery to its customers.
One key challenge Spire faced in its history was the impact of extreme weather events on its operations. In 2021, the company was impacted by Winter Storm Uri, which resulted in significant supply disruptions and price volatility in the natural gas market. Spire worked closely with regulators to manage the financial impact of this event on the company and its customers. Despite this challenge, Spire has maintained a strong focus on operational excellence and investing in its infrastructure. The company has consistently earned recognition for its commitment to safety, reliability, and customer service, including being named one of the Most Trusted Utility Brands by Cogent Syndicated for multiple years.
Today, Spire operates a diversified business model that includes not only its regulated utility operations but also non-regulated businesses in natural gas marketing and midstream services. This diversification has helped the company weather industry changes and deliver value to shareholders over the long term.
Financial Performance and Ratios
Spire's financial performance has been solid, with the company reporting annual revenue of $2.67 billion and net income of $217.5 million as of the fiscal year ended September 30, 2023. The company's strong balance sheet is reflected in its current ratio of 0.61 and a debt-to-equity ratio of 1.35, indicating a prudent approach to managing its capital structure.
Spire's profitability ratios also paint a favorable picture, with a gross profit margin of 33.2% and an operating profit margin of 15.7% as of the most recent fiscal year. The company's return on equity (ROE) stands at 7.74%, showcasing its ability to generate consistent returns for its shareholders.
For the most recent quarter ended June 30, 2024, Spire reported revenue of $414.1 million, a slight decrease of 1.0% compared to the prior year quarter. Net income for the quarter was -$12.6 million, representing a decrease of 158.3% from the same period last year. The decreases were primarily due to lower gas cost recoveries and higher interest expense, partially offset by higher contribution margins in the Gas Utility, Gas Marketing, and Midstream segments.
Operational Efficiency and Growth Initiatives
Spire's focus on operational efficiency has been a key driver of its success. The company has implemented various cost-saving initiatives, including workforce optimization, facility consolidation, and the streamlining of IT systems and software licensing. These efforts have allowed Spire to maintain a tight control on its operating expenses, with a year-over-year decrease of 2% in run-rate utility costs, excluding bad debt expenses, for the nine months ended June 30, 2024.
To further enhance its growth trajectory, Spire has been actively investing in infrastructure upgrades and modernization projects. During the first nine months of fiscal 2024, the company's capital expenditures totaled $631 million, with a focus on upgrading distribution infrastructure and connecting more homes and businesses. These investments not only improve the reliability and safety of Spire's natural gas system but also position the company for future growth.
Regulatory Landscape and Outlook
Spire operates in a regulated utility environment, which provides the company with constructive regulatory mechanisms that support its investments and allow for timely recovery of associated costs. In Missouri, the company's semiannual infrastructure rider (ISRS) enables Spire to recover revenues for eligible projects between rate cases. In Alabama, the annual Rate Stabilization and Equalization (RSE) process allows the company to update its rates based on a forecasted budget.
Looking ahead, Spire is well-positioned to navigate the evolving regulatory landscape. The company is preparing to file a general rate case in Missouri in the last calendar quarter of 2024, which will provide an opportunity to update its cost of service, rate base, and rate of return. Additionally, Spire is exploring potential modifications to its weather normalization adjustment rider (WNAR) or the implementation of a new mechanism to improve the recovery of volumetric revenue, including the impacts of weather and conservation.
Financials
Spire's financial performance remains strong, with the company consistently delivering solid results. The company's revenue growth has been steady, driven by both organic expansion and strategic acquisitions. Spire's focus on cost management and operational efficiencies has helped maintain healthy profit margins, contributing to its overall financial stability.
For the fiscal year ended September 30, 2023, Spire reported revenue of $2.67 billion, net income of $217.5 million, operating cash flow of $440.2 million, and free cash flow of -$222.3 million. The company's performance in the most recent quarter (ended June 30, 2024) showed revenue of $414.1 million, net income of -$12.6 million, operating cash flow of $270.1 million, and free cash flow of $47.9 million.
Spire operates through three main reportable business segments: Gas Utility, Gas Marketing, and Midstream. The Gas Utility segment, which includes regulated natural gas distribution operations in Missouri, Alabama, and Mississippi, is the core business of Spire and accounts for the majority of its revenue and earnings. The Gas Marketing segment includes Spire Marketing Inc., which engages in non-regulated marketing of natural gas and related activities. The Midstream segment comprises subsidiaries involved in natural gas storage and transportation, including Spire Storage, Spire STL Pipeline, and Spire MoGas Pipeline.
In terms of geographic markets, Spire primarily operates in the Midwest and Southeast regions of the United States, serving over 1.7 million customers across Missouri, Alabama, and Mississippi. The company does not have any significant international operations.
Liquidity
Spire maintains a robust liquidity position, ensuring its ability to meet short-term obligations and fund ongoing operations. The company's strong cash flow generation, combined with its access to credit facilities, provides ample financial flexibility. This liquidity strength allows Spire to pursue growth opportunities and navigate potential market uncertainties with confidence.
As of September 30, 2023, Spire had a debt-to-equity ratio of 1.35, a cash balance of $5.6 million, and $1.3 billion available under a syndicated revolving credit facility. The credit facility has an aggregate commitment of $1.3 billion, with sublimits of $450 million for the parent company, $575 million for Spire Missouri, and $275 million for Spire Alabama. The company's current ratio stood at 0.61, and its quick ratio was 0.46 as of the same date.
Guidance and Future Outlook
Spire has provided guidance for its fiscal year 2024 performance. The company now expects to earn between $4.15 and $4.25 per share for the full fiscal year 2024, which is lower than their initial guidance. This adjustment is due to several factors, including lower-than-expected margins at the Missouri utility due to warm weather, higher interest expense at both the utility and corporate level, partially offset by cost control efforts and better performance in the marketing and midstream segments.
For the fiscal third quarter of 2024, Spire reported a net economic earnings (NEE) loss of $0.14 per share, which was an improvement from the $0.42 per share loss in the prior year. Despite the challenges in fiscal year 2024, Spire remains confident in its long-term net economic earnings per share growth target of 5% to 7%. The company expects to return to this planned growth trajectory in fiscal year 2025, as it recovers from the headwinds experienced in 2024. Spire is targeting the middle of the 5% to 7% long-term growth range for fiscal year 2025, but noted there is still work to be done to determine the exact timing of the cost savings benefits.
Conclusion
Spire's strong operational performance, strategic investments, and focus on cost management have positioned the company for continued success. With a stable regulatory environment, a solid financial foundation, and a commitment to delivering reliable energy to its customers, Spire remains well-poised to capitalize on growth opportunities and generate sustainable value for its shareholders. The company's diversified business model, spanning regulated utility operations, gas marketing, and midstream services, provides a balanced approach to navigating industry changes and market fluctuations. As Spire continues to invest in infrastructure upgrades and pursue operational efficiencies, it is well-positioned to achieve its long-term growth targets and maintain its status as a leading natural gas utility in the regions it serves.