Spire (SR) Q4 2025 Earnings Call Transcript

Call participants

• President and Chief Executive Officer — Scott Edward Doyle
• Executive Vice President and Chief Operating Officer — Steve Greenlee
• Executive Vice President and Chief Financial Officer — Adam W. Woodard
• Vice President, Investor Relations and Treasurer — Megan L. McPhail

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Takeaways

• Adjusted EPS — $4.44, representing 7.5% growth, attributed to infrastructure investment across all segments.
• Capital Investment — $922 million deployed, with nearly 90% allocated to utility operations for reliability and safety enhancements.
• Missouri Rate Settlement — New rates effective October, following a positive regulatory outcome.
• Alabama Rate Process — Currently undergoing rate stabilization and equalization (RSE) proceedings with updates expected upon completion.
• Regulatory Innovation — Missouri adopted a future test year rate model through new legislation, enabling rates to be set on projected rather than historical costs.
• 2026 Adjusted EPS Guidance — $5.25 to $5.45, excluding pending Piedmont, Tennessee acquisition but including a full year of storage earnings.
• 2027 Adjusted EPS Guidance — $5.65 to $5.85, reflecting the full integration of Piedmont, Tennessee and the removal of storage due to the anticipated sale of those assets.
• Long-Term EPS Growth Target — 5%-7% annually, using $5.75 as the fiscal 2027 midpoint base.
• Ten-Year Capital Plan — $11.2 billion, inclusive of Tennessee capital requirements.
• Dividend Increase — 5.1%, setting the annualized dividend at $3.30 per share and marking 23 years of consecutive increases.
• Piedmont, Tennessee Acquisition — Hart-Scott-Rodino review and FERC gas contract transfer approvals complete; Tennessee Public Utility Commission review pending, with closing targeted for 2026.
• Financing Plan — Mix of debt, equity, and hybrids; minimal planned common equity issuance, with storage sale under evaluation as a funding source.
• Rate Base Growth Projections — Expected to reach $10.7 billion in 2030 from $8.2 billion estimated at the close of 2026, backed by Missouri (7%), Tennessee (7.5%), and Alabama and Gulf (6% equity growth) jurisdictions.
• Segment Earnings (Fiscal 2025) — Gas Utilities: $231 million (+5%), Midstream: $56 million (+$23 million), Gas Marketing: $26 million (+$2.5 million), Other Corporate: -$38 million (increased by $8 million, reflecting higher interest and the prior year hedge benefit).
• Midstream Earnings Mix — Projected 65% storage and 35% pipeline for 2026; STL and MoGas pipeline merger targeted by January 1, 2026.
• O&M Cost Guidance — Targeting operations and maintenance expense growth below inflation in 2026, continuing historical performance.
• Projected Segment Earnings 2026 — Gas Utilities: $285–$315 million, Gas Marketing: $19–$23 million, Midstream: $42–$48 million, Corporate and Other: ($31)–($37) million loss, reflecting lower interest expense.
• Three-Year Base Business Financing — Minimal equity needs ($0–$50 million per year), $625 million in planned incremental long-term debt, including $200 million recent first mortgage bonds by Spire Missouri.
• FFO to Debt Target — 15%–16%, providing a cushion above S&P and Moody’s published downgrade triggers (12%-13%).

Summary

Spire (SR 1.85%) announced positive year-end results, highlighted by adjusted EPS growth and substantial capital deployment into utility infrastructure. The company achieved a favorable regulatory outcome in Missouri and is progressing on the transformative acquisition of Piedmont, Tennessee, with major regulatory checkpoints completed but Tennessee Public Utility Commission approval still pending. Multi-year earnings and capital spending guidance was reaffirmed, with plans to finance the Piedmont acquisition through a balanced approach integrating debt, minimal equity, hybrids, and a potential asset sale. Missouri’s shift to a future test year model is set to influence future rate structures and earnings trajectory, while disciplined O&M cost management and careful financing design are intended to preserve shareholder value.

• Spire’s dividend policy targets payout growth in line with earnings and maintains a 55%-65% payout ratio, as confirmed by Adam W. Woodard.
• The company’s integration framework for Piedmont, Tennessee emphasizes operational best practices and leverages an 18-month transition agreement to ensure continuity.
• Full impact of storage asset sale and new rate frameworks in Missouri may alter future EPS outlook, pending further regulatory and transaction updates.
• Management stated, “our three-year financing plan assumes refinancing of maturities and incremental debt of approximately $625 million,” specifying a strategy that excludes the pending acquisition’s requirements.

Industry glossary

• ISRS: Infrastructure System Replacement Surcharge, a rate mechanism allowing utilities to recover eligible capital investments outside of general rate cases in Missouri.
• RSE: Rate Stabilization and Equalization, Alabama’s regulatory approach for annual rate adjustments based on regulated equity returns rather than rate base.
• Future Test Year: A regulatory model permitting rates to be set according to projected, not historical, cost data.
• Hybrid Securities: Financial instruments that have characteristics of both debt and equity, used here as part of Spire’s financing mix.
• Hart-Scott-Rodino Review: A federal antitrust review of proposed mergers and acquisitions required before closing certain transactions.

Conference Call Transcript

Scott Edward Doyle: Thank you for joining us for Spire’s year-end fiscal 2025 update. We appreciate your continued interest and support as we review our financial results, discuss recent developments, and share our outlook for 2026 and beyond. I am incredibly proud of what we accomplished during the year to advance our strategic goals both operationally and financially. We made significant progress towards setting Spire up for long-term success. This includes the pending acquisition of the Piedmont Natural Gas Tennessee business from Duke, which I will provide an update on in a moment. We had a great year, and none of this would be possible without our 3,500 dedicated employees.

I want to thank them for everything they do for our customers and the communities we serve. The commitment and hard work of our employees are the heart of these strong results and the opportunities ahead. We are continuing to build a strong leadership team, and I am delighted to welcome Steve Greenlee, our new Executive Vice President and Chief Operating Officer. Steve has over 25 years of utility operations experience and will oversee our gas utilities in addition to our midstream segment. We are excited about the expertise and collaborative leadership style Steve adds to our team. I am confident that he will play a key role as we continue to advance our strategy.

Turning now to our fiscal 2025 results. Adjusted EPS came in at $4.44, up 7.5% from $4.13 in fiscal 2024, reflecting growth across all segments driven by infrastructure investments. In fiscal 2025, we invested $922 million, with close to 90% being spent at the utilities, enhancing the reliability and safety of our systems for our customers. On the regulatory front, we are pleased to reach a positive settlement and outcome in the Missouri rate case, and new rates were effective in October. In Alabama, we are currently in the rate stabilization and equalization or RSE rate setting process and are working closely with the key stakeholders to update rates.

We remain focused on achieving consistent and constructive regulatory outcomes in all of our jurisdictions, leading to a more sustainable financial performance trajectory. Despite significant critical investments in our systems, customer rate increases over the past several years in both Missouri and Alabama have been in line with the rate of inflation, reinforcing our commitment to affordability. Natural gas remains the most affordable energy source for heating, water heating, and cooking. Across our service territories, electricity is two to three times more expensive than natural gas. In Missouri, new legislation passed establishing a future test year as the rate setting model. This legislation is the result of collaboration among numerous stakeholders across the state.

The new forward-looking approach will allow natural gas and water utilities to set rates based on projected costs rather than historical expenses, enabling prudent planning, attractive investments in energy infrastructure, and fueling economic growth statewide. The bill’s passage marks a major milestone, and we are grateful for the support that helps strengthen Missouri’s regulatory framework for both utilities and their customers. This morning, we issued fiscal 2026 adjusted EPS guidance in the range of $5.25 to $5.45. This range excludes the results of the pending acquisition of the Piedmont, Tennessee business and includes a full year of earnings related to our natural gas storage facilities.

Today, we are also providing fiscal 2027 earnings per share guidance of $5.65 to $5.85, which reflects a full year of expected earnings contribution from the Piedmont, Tennessee business and excludes earnings from Spire Storage due to the expected sale of the assets. Our long-term adjusted EPS growth guidance is 5% to 7% using the fiscal 2027 guidance midpoint of $5.75 as a base. Our ten-year capital plan, including expected capital needs in Tennessee, totals $11.2 billion, demonstrating confidence in the long-term fundamentals of our business. I am pleased to say that the Spire Board of Directors approved a dividend increase of 5.1%, bringing the annualized rate to $3.30 per share. Spire has continuously paid a cash dividend since 1946.

2026 will mark the 23rd consecutive year that the dividend has increased. As you can see on Slide five, we checked all of the boxes on our fiscal 2025 key business priorities and more. It was a year of strong execution, and we are committed to delivering strong results in fiscal 2026 and beyond. With a solid foundation, we are confident in our ability to deliver sustainable value for our customers, communities, and shareholders in the years ahead. Let’s turn now to Slide six for an update on our pending acquisition of the Piedmont, Tennessee business, which remains on track to close in 2026. We completed the Hart-Scott-Rodino review in September, marking an important milestone in the approval process.

We recently received approval from FERC for the transfer of Piedmont, Tennessee’s gas supply contracts. Tennessee Public Utility Commission approval is pending, and we continue to work closely with the commission. Turning to our financing plan, we are pursuing a permanent capital structure that is consistent with Spire’s current credit ratings. Our approach remains largely the same and includes a balanced mix of debt, equity, and hybrid securities, ensuring we maintain financial flexibility and strength. We expect a minimal amount of Spire common shares to be issued as a percentage of total financing, and we have launched a process evaluating the sale of our gas storage facilities as potential sources of funds.

We are targeting calendar year-end for the completion of this evaluation process. Transition planning for the acquisition is well underway. A seamless transition for both customers and employees is our top priority. We are led by an experienced integration team and have an 18-month transition service agreement to provide continuity of support once closed. We are making solid progress on all fronts—regulatory, financial, and operational—and are excited about the opportunities this acquisition brings. We are committed to delivering value to our customers, employees, and shareholders as we move forward. Turning to slide seven. With the addition of Tennessee, Spire will operate across states with constructive regulatory frameworks and minimal regulatory lag.

This strengthens our ability to deliver consistent and balanced growth across our utility businesses, improving diversification and stability of earnings. Importantly, each jurisdiction is supported by recovery mechanisms that encourage investment in critical infrastructure. Looking ahead, by fiscal year 2030, we expect our total rate base and capitalization to grow to $10.7 billion from an estimated $8.2 billion at the end of fiscal 2026, driven by our robust capital plan. Our long-term adjusted EPS growth target is supported by compound annual rate base growth in Missouri of about 7% and compound annual growth in Tennessee of approximately 7.5%. We also expect 6% regulated equity growth in Alabama and Gulf.

As a reminder, under the RSE mechanism in Alabama, we earn on regulated common equity rather than rate base, which is expected to outpace the total capitalization growth rate. Now I will turn the call over to Adam for a financial review and update on guidance and outlook. Adam?

Adam W. Woodard: Thanks, Scott, and good morning, everyone. Let’s review our fiscal 2025 results and our guidance for 2026 and beyond. In fiscal 2025, we reported adjusted earnings of $275.5 million or $4.44 per share compared to $247.4 million or $4.13 per share in the prior year. These results included a fourth-quarter adjusted loss of $24 million or $0.47 per share, reflecting the seasonality of our businesses. In the quarter, adjusted earnings were $3.5 million or $0.07 per share above last year but fell below our expectations due to higher utility O&M expense.

Looking at the full fiscal year for our business segments, gas utilities earned $231 million, up almost 5% or over $10 million from last year, as ISRS recovery in Missouri and new rates in Alabama were partially offset by slightly lower usage in Alabama, higher O&M, and depreciation expense. Usage net of weather mitigation in Missouri was comparable in fiscal 2025 to the prior year. Midstream delivered earnings of $56 million, up almost $23 million from last year, driven by additional capacity and asset optimization at Spire Storage, partially offset by higher operating costs from higher activity and scale. Gas Marketing earned $26 million, an increase of $2.5 million, reflecting the business being well-positioned to create value.

This was partially offset by higher storage and transportation fees. Finally, other corporate costs were $38 million, nearly $8 million higher than the prior year. This reflects the absence of the prior year benefit of an interest rate hedge and higher interest expense in the current year. Turning to Slide 10 and our updated capital plan, which includes the anticipated Tennessee spend. Our latest five-year investment plan totals $4.8 billion from fiscal 2026 through fiscal 2030, and we project a ten-year capital plan of $11.2 billion. The majority of this investment, 70%, is dedicated to safety and reliability, highlighting our commitment to upgrading distribution infrastructure and ensuring the integrity of our systems.

Another 19% supports customer expansion and new business connections, helping us to safely deliver reliable and affordable natural gas to more homes and businesses. As a reminder, almost all of our ten-year capital expenditure plan is targeted towards utility investments, and we expect to recover a significant portion through forward test year rate making, true-up mechanisms, or other constructive regulatory tools, helping balance infrastructure investment with customer affordability. Turning now to our growth outlook on Slide 11. As Scott mentioned, we are reaffirming our long-term adjusted earnings per share growth target of 5% to 7%, anchored on the midpoint of our fiscal 2027 guidance range of $5.75 per share.

This growth is supported by expected rate base growth of approximately 7% in Missouri, 7.5% in Tennessee, in addition to 6% equity growth at Alabama Utilities. This also reflects timely recovery of investments across all of our jurisdictions. For fiscal 2026, we have issued an adjusted EPS guidance range of $5.25 to $5.45 per share. At the midpoint, that represents over 20% growth from our 2025 results, driven by the rate case outcome in Missouri. This range excludes the pending acquisition of the Piedmont, Tennessee business but does include a full year of anticipated earnings from our gas storage facilities. We will revise our earnings expectations if the outcome of the storage asset sale evaluation materially affects our outlook.

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