ATO Financial Analysis

Analysis Date: 2/6/2025

Business Model

Atmos Energy generates revenue from regulated natural gas distribution and pipeline & storage operations. Distribution revenue is derived from the sale and transportation of natural gas to residential, commercial, and industrial customers. Pipeline & Storage revenue comes from transportation and storage services provided to third parties.

Revenue Sources

• Residential, Commercial, and Industrial Customer Sales and Transportation (Distribution Segment)
• Through-system transportation and storage services (Pipeline & Storage Segment)

Income Statement Analysis

• Operating Revenues increased by 7.4% year-over-year, driven by rate increases, customer growth, and higher industrial load and APT throughput.
• Operating Expenses increased by 13.1%, outpacing revenue growth, driven by increased O&M, bad debt expense, employee-related costs, compliance and safety spending, and D&A and property taxes.
• Operating Income remained relatively flat with a slight increase of 0.1% despite revenue growth due to higher operating expenses.
• Net Income increased by 13.2%, a stronger growth than operating income, suggesting positive impacts from non-operating items like interest and taxes.

Balance Sheet Analysis

• Strong equity capitalization at 60% as of December 31, 2024, indicating a healthy financial structure.
• The company maintains a conservative capital structure with no short-term debt outstanding and relies primarily on equity and long-term debt.
• Available liquidity remains strong at $5.2 billion, providing financial flexibility.

Capital Allocation

Atmos Energy's capital allocation strategy prioritizes investment in system modernization and safety and reliability projects, as evidenced by the 86% allocation of Q1 capital expenditures to these areas. The company also demonstrates commitment to shareholders through consistent dividend increases, marking the 41st consecutive year of rising dividends. Share repurchases are not explicitly mentioned as a primary capital allocation strategy in the provided documents, while business reinvestment is significant through the large capital expenditure program.

Management Commentary

First quarter results reflect the continued execution of our proven strategy by all of our 5,300 dedicated employees of operating safely and reliably while we modernize our natural gas distribution, transmission, and storage systems.

Customer growth continued to be solid. As for the twelve months ended 12/31/2024, we added over 59,000 new customers with over 46,000 of those located here in Texas.

Consolidated operating income increased 15% to $459,000,000 in the first quarter.

Partially offsetting these increases was a $41,000,000 increase in consolidated O and M driven by several factors.

Overall Sentiment: Positive. Management expresses confidence in the company's strategy and operational execution, highlighting solid financial performance, customer growth, and regulatory achievements. While acknowledging increased operating expenses, the overall tone is optimistic regarding the company's outlook and continued success.

Recommendation

Rating: Hold

Reason for Rating: Atmos Energy shows stable performance with revenue growth and strong capital investment in infrastructure. However, increased operating expenses are offsetting some of the revenue gains, resulting in relatively flat operating income growth. The company's strong financial position, consistent dividend increases, and positive management outlook are balanced by the rising expenses and need for efficient cost management. Therefore, a Hold recommendation is appropriate at this time, pending further observation of expense management and operating income expansion relative to revenue growth.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 4:26:00 AM