Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spire Inc (SR, Financial) reported a significant improvement in net economic earnings, with a fiscal third quarter loss of $0.14 per share compared to a loss of $0.42 per share a year ago.
- The company has maintained a strong focus on cost management and operational efficiency, launching initiatives to improve long-term customer affordability.
- Spire Inc (SR) has seen substantial economic development in Missouri and Alabama, with significant investments and job creation in both states.
- The company published its sixth sustainability report, highlighting progress in environmental, safety, people, and governance priorities.
- Spire Inc (SR) continues to invest heavily in infrastructure, with a capital expenditure plan of $7.3 billion over the next 10 years, focusing on modernizing its gas utilities.
Negative Points
- The company experienced lower-than-expected margins due to warm winter weather in Missouri and higher interest rates, impacting overall performance.
- Despite cost-saving initiatives, Spire Inc (SR) faced higher bad debt expenses and increased depreciation costs year-over-year.
- Interest expenses were higher than anticipated, driven by higher interest rates and short-term debt balances.
- The company had to lower its earnings guidance for fiscal year 2024 to $4.15 to $4.25 per share due to the aforementioned headwinds.
- Spire Inc (SR) is preparing for a general rate case in Missouri, which could introduce regulatory uncertainties and potential challenges in updating cost of service, rate base, and rate of return.
Q & A Highlights
Q: Starting with the cost efforts, what is the potential magnitude of benefits here? And is this directly in response to the 2024 headwinds? How much is embedded in 2024 for cost savings versus what you can realize in '25 and '26?
A: (Steven Lindsey, CEO) Cost management is not new to us, but we are ramping up efforts. We expect some benefits in late '24, but the focus is on '25 and '26. This initiative is comprehensive, involving workforce optimization, process improvements, and leveraging technology investments. (Scott Doyle, COO) We have targeted leadership consolidation, facility consolidation, and workforce reductions. (Steven Rasche, CFO) Most savings will be realized in '25 and beyond, with minimal impact in Q3 '24.
Q: Regarding the 5% to 7% growth language versus the lower 2024 guidance, do you expect 2025 to be at the midpoint of the 5% to 7% range?
A: (Steven Rasche, CFO) We are targeting the middle of the range for 2025. The timing of cost savings and regulatory factors will influence this. We will provide more details in the year-end call.
Q: Can you elaborate on the puts and takes into 2025, such as weather normalization, interest rate headwinds, and the strength in marketing and midstream segments?
A: (Steven Rasche, CFO) Midstream business is stepping up due to capital investments, and marketing business growth is expected to stabilize. (Steven Lindsey, CEO) We assume more normal weather and full-year O&M impacts. (Adam Woodard, VP & Treasurer) Interest rate headwinds may persist, but we expect some mitigation from lower balances.
Q: Any early indications on the rate increase you might request in Missouri with the upcoming rate case?
A: (Steven Lindsey, CEO) We will address weather normalization and recover capital deployed. More details will be provided later.
Q: On restructuring charges, do you expect these to show up in '25 or on an ongoing basis?
A: (Steven Rasche, CFO) Most restructuring costs are related to employee separation and are largely behind us. Any future costs will be highlighted at year-end, with associated benefits expected in '25.
Q: Thoughts on dividend growth given the cost savings and rate case work over the next 12 to 24 months?
A: (Steven Rasche, CFO) No plans to slow dividend growth. We will discuss with the Board at year-end, but expect to continue growing the dividend, potentially at the lower end of the range.
Q: Given the success in midstream, will you allocate more capital to this area?
A: (Steven Lindsey, CEO) Our focus is on completing current projects and delivering on commitments. Future investments will be considered, but current focus is on existing projects. (Steven Rasche, CFO) Long-term capital forecast shows a drop to maintenance CapEx after current projects.
Q: Where is your FFO to debt ratio currently?
A: (Adam Woodard, VP & Treasurer) S&P reported approximately 11% in June. We are now above 12%, closer to 13% based on our calculations.
Q: Assumptions for long-term growth in the marketing business?
A: (Steven Rasche, CFO) Growth is driven by customer acquisition and market penetration. Base business growth aligns with overall business growth, with additional opportunities from market volatility.
Q: How did interest rates impact the revision in this year's guidance?
A: (Adam Woodard, VP & Treasurer) Interest rates were in line with expectations, but higher balances due to deferred gas costs led to higher interest expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
