Executive Summary / Key Takeaways

• Spire Inc. (SR) is a regulated natural gas utility focused on long-term growth driven by significant infrastructure investment and operational efficiency across its core Gas Utility, Gas Marketing, and Midstream segments.
• The company is executing a substantial $7.4 billion, 10-year capital plan, primarily targeting utility modernization and expansion, which is expected to drive 7-8% rate base growth at its largest utility, Spire Missouri.
• Recent financial results for Q2 FY25 show adjusted earnings growth driven by strong performance in the Utility and Midstream segments, despite weather-related margin headwinds in Missouri and higher corporate costs.
• A key near-term focus is the ongoing Missouri rate case, where Spire seeks to update its cost of service, rate base, and rate of return, and improve volumetric revenue recovery mechanisms, with new rates anticipated by October 2025.
• Spire reaffirmed its fiscal 2025 adjusted earnings guidance range of $4.40 to $4.60 per share and maintains its long-term target of 5-7% EPS growth, expecting to return to this trajectory in FY26 following a constructive outcome in the Missouri rate case.

Setting the Scene: A Foundation in Natural Gas and Strategic Evolution

Spire Inc. stands as a long-standing participant in the U.S. energy landscape, rooted in its core business as a regulated natural gas utility. With a history of continuous dividend payments stretching back to 1946, the company's foundation is built upon providing safe and reliable natural gas service to customers across Missouri, Alabama, and Mississippi through its Gas Utility segment. This segment, comprising Spire Missouri, Spire Alabama, and the subsidiaries of Spire EnergySouth, represents the primary driver of revenue and earnings, operating under the oversight of state regulatory commissions (MoPSC, APSC, MSPSC).

Beyond its traditional utility operations, Spire has strategically expanded into related gas-focused businesses, developing and acquiring assets that form its Gas Marketing and Midstream segments. The Gas Marketing segment, primarily Spire Marketing Inc., operates on a non-regulated basis, providing natural gas services and leveraging transportation and storage contracts across the U.S. and Canada. The Midstream segment includes natural gas storage facilities (Spire Storage West and Salt Plains) and transportation pipelines (Spire STL Pipeline and the recently acquired MoGas Pipeline and Omega Pipeline). The acquisition of MoGas and Omega in January 2024, valued at $176.10 million, was strategically aimed at enhancing gas delivery into eastern Missouri and integrating with the Spire STL Pipeline to serve a growing customer base.

Within the broader U.S. natural gas utility sector, Spire competes with a range of publicly traded peers such as ONE Gas Inc. (OGS), New Jersey Resources Corp. (NJR), Southwest Gas Holdings Inc. (SWX), and Brookfield Infrastructure Corp. (BIPC). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Spire holds an estimated 3-5% aggregate market share. Its growth trajectory, supported by significant capital deployment, has recently outpaced the industry average (5-7%) but lags some peers like NJR and BIPC.

Spire's competitive positioning is bolstered by its established regulatory licenses and extensive infrastructure network across its service territories, providing a degree of pricing power and recurring revenue streams. Its integrated Gas Marketing segment offers a broader service portfolio and diversified revenue streams compared to some more distribution-focused peers. Furthermore, its Midstream assets, particularly the storage facilities, provide resilience in supply disruptions, a key operational advantage in volatile energy markets.

However, Spire faces competitive pressures and vulnerabilities. Its operating margins (9-10% TTM) and ROE (6-8% TTM) lag some peers like OGS (operating margin ~20%, ROE ~8-10%) and NJR (operating margin ~15%, ROE ~9-11%), suggesting operational inefficiencies or less favorable regulatory constructs compared to these rivals. Higher debt levels (1.36x Debt/Equity TTM) also expose Spire to interest rate fluctuations more significantly than peers like SWX (1.44x Debt/Equity TTM) or OGS (1.07x Debt/Equity TTM), potentially impacting profitability. The company is also exposed to natural gas price volatility and the effectiveness of its weather mitigation mechanisms, risks shared with many in the sector but potentially amplified by its specific rate designs.

Industry trends, such as economic development in its service areas, present opportunities for customer growth. Missouri has seen significant investment announcements, and Alabama has also reported substantial project wins, with natural gas cited as a key factor for businesses seeking reliable and affordable energy. Conversely, the broader energy transition and potential shifts towards electrification pose a long-term challenge to natural gas demand, a risk faced by all gas utilities.

Spire's overarching strategy is centered on leveraging its regulated utility base through organic growth, driven by continuous infrastructure investment. This is coupled with a focus on operational efficiency and strategic regulatory engagement to ensure timely cost recovery and sustainable financial performance. The company's technological advancements, particularly in infrastructure modernization and advanced metering, are integral to this strategy, aiming to enhance safety, reliability, and operational efficiency.

Technology as a Differentiator

Technology plays a crucial role in Spire's strategy to enhance its competitive position and drive efficiency. While not possessing a single, proprietary "core technology" in the manufacturing sense like some industrial companies, Spire's technological differentiation lies in the modernization and optimization of its natural gas infrastructure and operational systems.

A key initiative is the accelerated deployment of advanced meters across its service territories. By the third quarter of fiscal 2024, approximately 750,000 advanced meters had been installed, with plans for full deployment in the St. Louis market area by mid-fiscal 2025. This technology provides tangible benefits by enabling remote meter reading, improving billing accuracy, enhancing leak detection capabilities, and providing customers with better data on their usage. While specific, quantifiable efficiency gains in terms of cost reduction per meter or percentage improvement in operational metrics were not provided, management explicitly links this investment to expected O&M benefits and improved efficiencies across the organization, contributing to the broader customer affordability initiative. The strategic intent is clear: leverage technology to streamline operations, reduce manual processes, and enhance service delivery.

Furthermore, investments in infrastructure upgrades across the distribution system, supported by capital expenditures, incorporate modern materials and techniques to improve the safety, reliability, and resiliency of the network. This includes replacing aging pipes and components, reducing leak potential, and enhancing system integrity. While specific technological details of these upgrades were not provided, the focus on modernization is a continuous process aimed at meeting evolving safety standards and customer expectations.

In the Midstream segment, the Spire Storage West expansion involves technological advancements to increase storage capacity and withdrawal capabilities. While the specific technology used in the expansion was not detailed, the project, substantially complete by Q2 FY25 and expected in-service by the end of summer 2025, is designed to enhance asset optimization and meet higher demand, reflected in new contracts and higher rates on renewals. Management is pleased with the returns on this project, indicating that the investment and associated technology are yielding positive financial results.

The "so what" for investors is that these technological investments are not merely operational improvements; they are strategic enablers. The advanced meter deployment, for instance, is expected to contribute to the customer affordability initiative by driving down operational costs, thereby supporting margin stability. Infrastructure modernization enhances the safety and reliability moat, crucial for a regulated utility's license to operate and its ability to secure constructive regulatory outcomes. The storage technology in the Midstream segment directly contributes to earnings growth through increased capacity utilization and asset optimization, diversifying the company's revenue streams beyond regulated utility operations. While specific quantifiable advantages over competitors' technologies are not detailed, Spire's focused investment in these areas is intended to maintain and enhance its operational effectiveness and competitive standing within its specific markets.

Performance, Outlook, and Strategic Execution

Spire's financial performance in the second quarter of fiscal year 2025 demonstrated resilience, with adjusted earnings increasing to $3.60 per diluted share, up from $3.45 a year ago. This improvement reflects the strategic momentum building within the company, driven by growth in its core Gas Utility and expanding Midstream segments.

The Gas Utility segment saw adjusted earnings rise, primarily fueled by higher contribution margin at Spire Missouri. This was attributed to incremental revenues from the Infrastructure System Replacement Surcharge (ISRS) and favorable volumetric usage, even after accounting for weather mitigation adjustments. New rates implemented at Spire Alabama also contributed positively. However, lower usage in Alabama, net of weather mitigation, partially offset these gains. Operating expenses at the utility level reflected disciplined cost management, with run rate O&M (excluding bad debt) lower year-over-year, benefiting from the customer affordability initiatives launched in fiscal 2024. Depreciation expense increased, a direct consequence of ongoing capital investments in infrastructure modernization. For the first six months of fiscal 2025, Gas Utility adjusted earnings were up 3.5% year-over-year, driven by improved performance across the subsidiaries, despite a decrease in operating revenues primarily due to lower purchased gas costs passed through to customers.

The Midstream segment was a significant contributor to growth, with adjusted earnings showing a substantial increase in both the quarter and year-to-date periods. This performance was driven by the Spire Storage West expansion, which is nearing full operational status, new contracts secured at higher rates, asset optimization activities, and the full-year impact of the MoGas pipeline acquisition. This segment is demonstrating strong pull-through from recent capital investments.

Conversely, the Gas Marketing segment experienced slightly lower adjusted earnings year-over-year, primarily due to reduced market volatility compared to the prior period, although management remains confident this segment will perform within its expected range for the full fiscal year. Corporate costs were higher, mainly due to increased borrowing balances and the absence of a one-time interest rate hedge benefit recognized in the prior year.

Liquidity and capital resources remain a key focus. Spire is actively funding its substantial $7.4 billion, 10-year capital expenditure plan, with $840 million planned for fiscal 2025. This plan is heavily weighted towards the Gas Utility segment (approximately 98%), targeting infrastructure upgrades, new service connections, and the completion of advanced meter installations, which is expected to drive 7-8% rate base growth at Spire Missouri.

The company maintains investment-grade credit ratings (BBB/Baa2 stable outlook) and has access to capital markets through its commercial paper program, revolving credit facility, and ATM equity program, which is expected to cover equity needs through 2027. Recent financing activity includes Spire Missouri's planned issuance of $150 million in First Mortgage Bonds in April 2025. While operating cash flow can fluctuate due to regulatory timing and working capital needs (as seen in the year-to-date decrease), management expresses confidence in the company's ability to meet its future cash requirements.

Looking ahead, Spire reaffirmed its fiscal year 2025 adjusted earnings guidance range of $4.40 to $4.60 per share. While the midpoint of this range represents solid growth from fiscal 2024 actuals, it falls slightly below the company's long-term 5-7% EPS growth target when measured from the original FY24 base. This is primarily attributed to the timing of the Missouri rate case. Management anticipates that a constructive outcome in this case, with new rates expected by October 2025, will improve earned returns in Missouri and position the company to return fully to its 5-7% long-term growth trajectory in fiscal year 2026 and beyond.

The Missouri rate case, filed in November 2024, is a critical strategic initiative. Spire is seeking to recover costs associated with significant system investments and inflationary impacts, proposing a base rate increase based on a $4.4 billion rate base, a 55% equity ratio, and a 10.5% return on equity. Importantly, the company is also proposing changes to improve the recovery of volumetric revenue, addressing the impacts of weather and conservation, which have caused headwinds. While the MoPSC Staff has recommended a lower revenue increase and a different cost of capital structure, Spire is engaged in the process, with evidentiary hearings scheduled for August 2025. The recent signing of Senate Bill 4 into law, allowing for future test year rate setting in Missouri starting in July 2026, is viewed as a constructive development for future regulatory filings.

Other strategic initiatives supporting the outlook include the ongoing customer affordability initiative, which is expected to yield further cost savings and efficiency gains in FY25 and FY26, contributing to the goal of flat run rate O&M expenses at the utilities in FY25. Continued timely recovery through the ISRS mechanism in Missouri and the RSE mechanism in Alabama also underpin the growth plan.

Risks and Challenges

Despite a clear strategic path and recent performance gains, Spire faces several pertinent risks. Weather variability remains a significant factor, directly impacting volumetric sales and the effectiveness of existing weather mitigation mechanisms, as highlighted by the Q2 FY25 results in Missouri. The volatility of wholesale natural gas prices can affect both gas cost recovery and the need for margin deposits related to derivative instruments. Regulatory and legislative decisions pose a fundamental risk, as outcomes related to rate cases, allowed returns, cost recovery, and industry structure can significantly impact financial performance. While recent legislative developments in Missouri are viewed positively, the outcome of the current rate case remains subject to negotiation and commission approval. Higher interest rates can increase borrowing costs, impacting profitability, particularly given the company's debt levels and ongoing financing needs for its capital program. Although currently deemed immaterial, environmental liabilities related to former manufactured gas plant sites represent a potential long-term risk requiring ongoing monitoring and potential remediation costs, for which regulatory recovery is sought.

Conclusion

Spire Inc. is executing a focused strategy centered on investing in and modernizing its natural gas utility infrastructure, complemented by growth in its gas-related businesses. The company's long history and established regulatory framework provide a stable foundation, while its significant capital expenditure plan and efforts to enhance operational efficiency through initiatives like advanced meter deployment and cost management are designed to drive future earnings growth.

While recent results reflect the impact of weather variability and higher corporate costs, the underlying performance of the core utility and expanding midstream segments remains strong. The ongoing Missouri rate case is a critical near-term catalyst, expected to provide clarity on future cost recovery and potentially improve mechanisms for addressing volumetric risk, paving the way for Spire to return to its targeted 5-7% long-term EPS growth trajectory in fiscal year 2026. Investors should monitor the outcome of this regulatory process, the effectiveness of cost management initiatives, and trends in weather and market conditions as key indicators of Spire's ability to deliver on its strategic objectives and enhance shareholder value.