Spire Inc. (SR) is a leading natural gas company that has been efficiently serving over 1.7 million customers across the United States for more than two decades. Founded in 2000 and headquartered in St. Louis, Missouri, Spire has established itself as a reliable and innovative utility provider, continuously enhancing its operations to meet the evolving energy needs of its diverse customer base.
Business Overview
Spire's business operations are primarily divided into three segments: Gas Utility, Gas Marketing, and Midstream. The Gas Utility segment, which accounts for the majority of the company's earnings, encompasses the regulated natural gas distribution activities of Spire Missouri, Spire Alabama, and the subsidiaries of Spire EnergySouth. The Gas Marketing segment, through Spire Marketing, engages in the non-regulated marketing of natural gas and related activities, while the Midstream segment includes Spire's storage and transportation operations, such as Spire Storage, Spire STL Pipeline, and Spire MoGas Pipeline.
Throughout its history, Spire has pursued a strategy of growth through strategic acquisitions and expansion of its service territories. In 2005, the company made a significant move by acquiring Missouri Gas Energy, which substantially increased its presence in the state. This was followed by another major acquisition in 2014 when Spire purchased Alabama Gas Corporation, establishing itself as the largest natural gas distribution utility in Alabama.
The company's growth trajectory has not been without challenges. In 2020, Spire faced the impacts of Winter Storm Uri, which led to supply curtailments and commercial disputes. Additionally, the company has had to address environmental regulations related to former manufactured gas plant sites in its service areas. Despite these obstacles, Spire has demonstrated resilience by working closely with state regulators to recover costs through various rate mechanisms.
Spire's Commitment to Delivering Shareholder Value
Spire has a long-standing history of delivering value to its shareholders through consistent dividend payments and growth. The company has continuously paid a cash dividend since 1946 and has increased its annual common stock dividend for 22 consecutive years. In the most recent fiscal year, Spire reported adjusted earnings per share (EPS) of $4.13, an 8% increase from the prior year's $4.05. The board of directors has also recently approved a 4% increase in the annual common stock dividend, bringing the new annualized rate to $3.14 per share.
Prudent Capital Deployment and Operational Efficiency
Spire's management team has demonstrated a disciplined approach to capital allocation, investing primarily in its regulated Gas Utility segment to modernize and enhance its infrastructure. In fiscal year 2024, the company invested $861 million, with over 80% of the capital expenditures directed towards the Gas Utility segment. This includes $184 million invested in the deployment of advanced meters, bringing the total number of customers benefiting from this technology to over 850,000.
Furthermore, Spire has been focused on improving its operational efficiency and cost structure. In fiscal year 2024, the company's Gas Utility segment achieved a 3% reduction in run-rate operation and maintenance (O&M) expenses compared to the prior year. Looking ahead to fiscal year 2025, Spire expects to maintain these cost savings, with flat run-rate O&M expenses at the utilities, despite inflationary pressures in areas such as wages, insurance, and third-party costs.
Strengthening Regulatory Relationships and Mechanisms
Spire's success is also driven by its ability to navigate the regulatory landscape and maintain constructive relationships with key stakeholders. The company operates in several jurisdictions, including Missouri and Alabama, where it has secured favorable regulatory mechanisms to support its infrastructure investment and cost recovery.
In Missouri, Spire recently filed a rate case to recover investments in infrastructure and technology upgrades, with a goal of updating its cost of service, rate base, and rate of return. The company also received approval from the Missouri Public Service Commission for a $16.7 million annual increase in its Infrastructure System Replacement Surcharge (ISRS), which will allow it to recover revenues for eligible projects between rate cases.
In Alabama, Spire's rates are updated annually through the Rate Stabilization and Equalization (RSE) mechanism, providing the company with a real-time rate recovery process. The company is currently engaged in the RSE rate-setting process for the upcoming fiscal year, working closely with the Alabama Public Service Commission to update rates.
Diverse and Stable Revenue Streams
Spire's business model is designed to provide a balanced and diversified revenue stream, reducing its exposure to market volatility and ensuring a stable financial foundation. The company's Gas Utility segment, which accounts for the majority of its earnings, generates revenue through residential, commercial, and industrial customer sales, as well as transportation and off-system sales. This diversification helps mitigate the impact of fluctuations in natural gas prices and weather patterns.
The Gas Marketing segment, through Spire Marketing, further enhances Spire's revenue profile by engaging in non-regulated natural gas marketing and related activities. While this segment's earnings can be more volatile, it has historically contributed to the company's overall profitability and provided a valuable complement to the stability of the regulated utility operations.
Midstream Segment Bolsters Growth Potential
Spire's Midstream segment, which includes its storage and pipeline operations, has become an increasingly important contributor to the company's financial performance. In fiscal year 2024, the Midstream segment's earnings increased by $19 million, driven by the acquisitions of Spire Storage Salt Plains and Spire MoGas Pipeline, as well as the continued expansion of Spire Storage West's capacity and contract renewals at higher rates.
Going forward, Spire expects the Midstream segment to account for approximately 55% storage and 45% pipelines in fiscal year 2025, further diversifying the company's revenue streams and enhancing its growth potential. The strategic investments in this segment are designed to capitalize on the growing demand for natural gas transportation and storage services, positioning Spire as a key player in the broader energy infrastructure landscape.
Financials
Fiscal Year 2024 Performance
In fiscal year 2024, Spire reported total revenue of $2.59 billion, with a net income of $250.9 million. The company generated operating cash flow (OCF) of $912.4 million and free cash flow (FCF) of $51.1 million. These results demonstrate Spire's ability to generate strong cash flows from its operations, supporting its ongoing capital investments and dividend payments.
Fourth Quarter 2024 Results
For the fourth quarter of fiscal year 2024, Spire reported revenue of $293.8 million, representing a 5.3% decrease compared to the same period in the previous year. The company recorded a net loss of $29.6 million, or $0.51 per share, during this quarter. It's important to note that the natural gas utility business is seasonal, with the fourth quarter typically being a lower-demand period.
Segment Performance
Gas Utility Segment: For the nine months ended June 30, 2024, the Gas Utility segment reported operating revenues of $2.16 billion and operating income of $401.10 million. The year-over-year increase in operating income was driven by higher contribution margin, primarily due to the implementation of a 2022 Missouri rate case order, favorable rate adjustments in Alabama, and growth in infrastructure replacement surcharge revenues.
Gas Marketing Segment: For the nine months ended June 30, 2024, the Gas Marketing segment reported operating revenues of $103.50 million and operating income of $39.50 million. The segment experienced a year-over-year decline in net economic earnings, primarily due to less favorable market conditions compared to the prior year.
Midstream Segment: For the nine months ended June 30, 2024, the Midstream segment reported operating revenues of $68.90 million and operating income of $29.50 million. The segment saw a year-over-year increase in net economic earnings, driven by higher storage earnings and increased contracted rates at newly acquired facilities.
Outlook and Guidance
Spire has a positive long-term outlook, reaffirming its adjusted EPS growth target of 5% to 7%. For fiscal year 2025, the company has provided guidance of $4.40 to $4.60 per share, representing a 9% growth rate at the midpoint compared to the actual results in fiscal year 2024.
This guidance is underpinned by several key factors, including the expected benefits from incremental ISRS revenues and the return to normal weather in Missouri, new rates in Alabama and the Southeast under the RSE mechanism, and the company's continued focus on cost efficiency initiatives.
Spire has provided segment-specific guidance for fiscal year 2025:
- Gas Utilities earnings are expected to be between $238 million and $258 million - Gas Marketing earnings are expected to be between $21 million and $25 million - Midstream earnings are expected to be between $40 million and $46 million - Corporate & Other (primarily interest cost) is expected to be between negative $30 million and negative $36 million
Additionally, Spire has updated its 10-year capital expenditure plan, increasing it to $7.4 billion, with approximately 98% allocated to the Gas Utility segment. This investment will support the company's strategy of modernizing its infrastructure and driving 7% to 8% rate base growth at its largest utility, Spire Missouri.
Liquidity
Spire maintains a strong liquidity position to support its operations and capital expenditure programs. As of September 30, 2024, the company had cash on hand of $4.5 million. Spire also has access to a $1.3 billion revolving credit facility with 12 banks, providing significant financial flexibility. The credit facility includes sublimits of $450 million for the parent company, $575 million for Spire Missouri, and $275 million for Spire Alabama.
The company's debt-to-equity ratio stood at 0.3059 as of June 30, 2024, indicating a manageable level of leverage. Spire's current ratio was 0.4527, and its quick ratio was 0.2978 as of the same date, reflecting the company's ability to meet its short-term obligations.
Industry Trends and Market Position
Spire operates in the natural gas utility industry, which has seen a compound annual growth rate (CAGR) of 3-5% in recent years. This growth has been driven by infrastructure investments and customer growth. As a leading player in this industry, Spire is well-positioned to capitalize on these trends through its ongoing infrastructure modernization efforts and strategic expansion initiatives.
The company's primary focus remains on its core markets in the United States, particularly in the Midwest and Southeast regions. Spire does not have significant international operations, allowing it to concentrate on optimizing its performance in its established service territories.
Conclusion
Spire Inc. (SR) has demonstrated its resilience and adaptability as a leading natural gas utility provider in the United States. With a diversified business model, prudent capital deployment, and a focus on operational efficiency and regulatory relationships, the company has consistently delivered value to its shareholders through dividend growth and earnings expansion.
As Spire continues to invest in its infrastructure, leverage its Midstream operations, and navigate the evolving energy landscape, the company is well-positioned to capitalize on the growing demand for reliable and sustainable natural gas services. With a positive long-term outlook, strong liquidity position, and a commitment to shareholder value creation, Spire remains an attractive investment opportunity for both income-oriented and growth-seeking investors in the utility sector.