Business Overview and History
Spire Inc. (SR) is a leading natural gas utility company that has been delivering reliable energy services to customers for decades. As a Dividend Aristocrat, the company has demonstrated its commitment to shareholder value by consistently increasing its dividend for over 20 consecutive years. With a well-diversified business model, strategic investments, and a focus on regulatory relations, Spire is poised to continue its track record of consistent performance and shareholder returns.
Spire Inc. was founded in 1857 as the St. Louis Gas Company, initially providing gas lighting to the city of St. Louis. The company has undergone several name changes throughout its history, reflecting its evolution and growth. In 1945, it became Laclede Gas Company, and in 1997, it rebranded as The Laclede Group to showcase its diversification beyond natural gas distribution.
The company faced a significant challenge in 2014 when an explosion and fire occurred at one of its natural gas storage facilities in Missouri. This incident led to increased regulatory scrutiny and required substantial investments to enhance safety and reliability. Despite this setback, the company continued to grow through acquisitions of other natural gas utilities in the region.
In 2018, the company adopted its current name, Spire Inc., to better align its brand with its core natural gas utility business. Over the past decade, Spire has made significant investments to modernize and expand its natural gas distribution infrastructure across its service territories. The company has also expanded into midstream natural gas operations, including gas storage and transportation.
Today, Spire operates as a natural gas utility, serving over 1.7 million customers across Missouri, Alabama, and Mississippi through its three main subsidiaries: Spire Missouri, Spire Alabama, and Spire EnergySouth. With a history spanning 165 years, Spire has demonstrated resilience and commitment to providing safe, reliable, and affordable natural gas service to its customers.
In recent years, Spire has undertaken a strategic transformation to modernize its infrastructure, enhance operational efficiency, and expand its customer base. The company has invested heavily in its utility operations, with a 10-year capital expenditure plan of $7.4 billion. These investments have enabled Spire to improve the safety and reliability of its natural gas distribution systems, while also supporting new customer additions and usage growth.
Business Segments
Spire operates through three reportable segments: Gas Utility, Gas Marketing, and Midstream.
The Gas Utility segment is the core business of Spire, comprising the regulated natural gas distribution operations of the company. It includes the operations of Spire Missouri, Spire Alabama, and the subsidiaries of Spire EnergySouth (Spire Gulf and Spire Mississippi). Spire Missouri is the largest natural gas distribution utility in Missouri and is regulated by the Missouri Public Service Commission (MoPSC). Spire Alabama is the largest natural gas distribution utility in Alabama and is regulated by the Alabama Public Service Commission (APSC). The Gas Utility segment derives the majority of Spire's earnings, with its performance typically concentrated during the heating season from November through April each fiscal year due to the seasonal nature of the business and the volumetric rate design of Spire Missouri.
The Gas Marketing segment includes the results of Spire Marketing, a subsidiary engaged in the non-regulated marketing of natural gas and related activities, including utilizing natural gas storage contracts for providing gas sales. Spire Marketing markets natural gas to customers across the U.S. and into Canada, including customers inside and outside of the Utilities' service areas.
The Midstream segment includes Spire Storage, Spire STL Pipeline, and Spire MoGas Pipeline, which are subsidiaries engaged in the storage and transportation of natural gas. Spire MoGas Pipeline, a 263-mile FERC-regulated natural gas pipeline and a connected 75-mile gas distribution system in Missouri, was acquired by Spire in January 2024. Spire STL Pipeline owns and operates a 65-mile FERC-regulated pipeline connecting natural gas supply to Spire Missouri, and its operating revenue is primarily derived from Spire Missouri as its foundation shipper. Spire Storage is engaged in the storage of natural gas in both the western and midcontinent regions of the United States.
Financial Performance and Ratios
Spire's financial performance has been relatively stable, with the company generating consistent earnings and cash flow. Over the past three fiscal years, Spire has reported the following financial results:
- Annual Revenue: $2.8 billion (FY 2022), $2.7 billion (FY 2021), $2.6 billion (FY 2020) - Annual Net Income: $275 million (FY 2022), $251 million (FY 2021), $239 million (FY 2020) - Annual Operating Cash Flow: $580 million (FY 2022), $545 million (FY 2021), $520 million (FY 2020) - Annual Free Cash Flow: $125 million (FY 2022), $115 million (FY 2021), $100 million (FY 2020)
Spire's financial ratios reflect its stable and capital-intensive business model. As of the most recent quarter, the company's key financial ratios include:
- Debt-to-Equity Ratio: 0.36 - Current Ratio: 0.50 - Quick Ratio: 0.37 - Return on Equity: 7.45%
For the three months ended December 31, 2024, the Gas Utility segment reported operating income of $127.8 million, the Gas Marketing segment reported operating income of $2.7 million, and the Midstream segment reported operating income of $17.3 million. Spire's net income for the quarter was $81.3 million, with adjusted earnings of $81.1 million.
Regulatory Environment and Outlook
Spire operates in a highly regulated industry, with its utility subsidiaries subject to oversight by state public service commissions. The company's ability to recover its investments and earn a fair return on equity is crucial to its long-term success. In recent years, Spire has navigated the regulatory landscape effectively, securing constructive rate case outcomes and timely recovery of its infrastructure investments.
In November 2024, Spire Missouri filed a rate case with the Missouri Public Service Commission, requesting a $289.5 million increase in base rates. The request includes a 10.5% return on equity and a 55% equity ratio, reflecting the significant investments the company has made to modernize its distribution system. If approved, the new rates would be effective in October 2025, and the average customer bill is expected to increase by approximately 15% or $14 per month.
Spire's regulatory strategy is further bolstered by its focus on cost management. The company has consistently maintained flat year-over-year operation and maintenance expenses at its utility subsidiaries, helping to offset the impact of inflationary pressures and supporting its overall financial performance.
Looking ahead, Spire remains confident in its ability to achieve its long-term earnings growth target of 5% to 7%, supported by its planned capital investments, expanding customer base, and constructive regulatory outcomes. The company has reaffirmed its fiscal 2025 adjusted earnings guidance range of $4.40 to $4.60 per share.
Risks and Challenges
While Spire's business model has demonstrated resilience, the company is not without its risks and challenges. Some key considerations include:
1. Regulatory Uncertainty: As a highly regulated utility, Spire's financial performance is heavily dependent on its ability to secure favorable rate case outcomes and timely recovery of investments. Unfavorable regulatory decisions could impact the company's profitability and shareholder returns.
2. Exposure to Commodity Prices: Spire's natural gas utility operations are subject to fluctuations in natural gas prices, which can affect the company's operating costs and customer rates. Effective management of gas supply and hedging strategies is crucial to mitigate this risk.
3. Environmental Regulations: Spire's operations are subject to various environmental laws and regulations, which could result in increased compliance costs or liabilities if the company fails to meet regulatory requirements.
4. Weather Variability: The demand for natural gas is heavily influenced by weather patterns, with colder winters typically driving higher usage and revenues. Prolonged periods of warmer-than-normal weather could adversely impact Spire's financial performance.
Despite these risks, Spire's long-standing track record of consistent performance, prudent risk management, and focus on regulatory relations position the company well to navigate the challenges and continue delivering value to its shareholders.
Financials
Spire's financial performance has remained stable over the years, with consistent growth in revenue and net income. The company's strong cash flow generation has supported its dividend payments and capital investment programs. Spire's financial strategy focuses on maintaining a strong balance sheet and investment-grade credit ratings to ensure access to capital markets at favorable terms.
The company's total assets as of December 31, 2024 were $11.28 billion, with the Gas Utility segment accounting for the majority at $9.08 billion, followed by the Other segment at $2.87 billion, the Midstream segment at $936 million, and the Gas Marketing segment at $246.1 million.
In Q1 2025, Spire reported adjusted earnings of $1.34 per share, compared to $1.47 per share in the prior year's Q1. The company stated that the Q1 2025 results reflect growth in the utility and midstream segments, but lower earnings in the gas marketing segment.
Spire is reaffirming its long-term adjusted EPS growth target of 5% to 7%. The company is also reaffirming its fiscal 2025 earnings guidance of $4.40 to $4.60 per share. The 5% to 7% long-term growth target is supported by 7% to 8% rate-base growth in Spire Missouri, continued timely recovery of investments eligible for ISRIS, equity growth in the Southeast, the $7.4 billion 10-year CapEx plan, and a focus on cost management.
Liquidity
Spire maintains a solid liquidity position to support its operations and capital investment plans. The company has access to various sources of liquidity, including cash on hand, operating cash flows, and credit facilities. As of the most recent quarter, Spire had $450 million in available credit under its revolving credit facility, providing ample financial flexibility to meet its short-term obligations and fund its growth initiatives.
Spire expects to invest a total of $790 million in capital expenditures during fiscal 2025, with a focus on reliability, system modernization, new service connections, and advanced meter installation.
Conclusion
Spire Inc. is a reliable and well-established natural gas utility company that has consistently rewarded its shareholders through dividend payments and steady earnings growth. The company's strategic investments in infrastructure modernization, focus on cost management, and constructive regulatory relationships provide a solid foundation for its future performance. While the utility industry faces certain risks, Spire's diversified business model, financial strength, and commitment to sustainable operations make it an attractive investment opportunity for income-oriented investors seeking a Dividend Aristocrat with a proven track record of delivering consistent returns.