LAS VEGAS, Aug. 6, 2019 /PRNewswire/ -- Southwest Gas
Holdings, Inc. (NYSE: SWX) announced consolidated earnings of
$0.41 per diluted share for the
second quarter of 2019, a $0.03 decrease from consolidated earnings of
$0.44 per diluted share for the
second quarter of 2018. Consolidated net income was
$22.1 million for the second
quarter of 2019, compared to consolidated net income of
$21.6 million for the second
quarter of 2018. The natural gas segment had net income of
$3.4 million in the second
quarter of 2019 compared to net income of $2.6 million in the second quarter of 2018,
while the utility infrastructure services segment had net income of
$18.9 million in the current
quarter compared to net income of $19.2 million in the second quarter of 2018,
which included $9 million of incremental revenue as part of a
negotiated settlement of an outstanding contract dispute from 2017
associated with a water pipe replacement project. Due to the
seasonal nature of the Company's businesses, results for quarterly
periods are not generally indicative of earnings for a complete
twelve-month period. Consolidated current quarter results include
$3.4 million, or $0.06 per share, in other income due to increases
in the cash surrender value of company-owned life insurance
("COLI") policies, while the prior-year quarter included
$2 million, or $0.04 per share, associated with COLI
policies.
Commenting on Southwest Gas Holdings' performance, John P. Hester, President and
Chief Executive Officer, said: "We are pleased to report
diluted earnings per share of $0.41
for the second quarter of 2019. Results for the utility
infrastructure services segment were bolstered by $57 million
of incremental revenues and $3.1 million of net income from Linetec that
we acquired in November 2018. Linetec continues to meet and
exceed our internal business case projections while also expanding
our geographic footprint and diversifying our utility
infrastructure service offerings. Natural gas segment income
improved between quarters as 34,000 net new customers fueled
operating margin growth. On a consolidated basis, we reached
a major milestone by recording record revenues of over
$3 billion during the past 12 months.
"We continue to experience robust economic growth throughout our
service territories and we are investing in our utility
infrastructure to ensure safe and reliable natural gas service to
our growing customer base. We are also seeking to provide
safe, clean, and affordable natural gas service to customers and
communities that do not fully enjoy that advantage. As part
of that effort, we filed in June 2019
for approval to construct the infrastructure necessary to expand
natural gas service into Spring
Creek, Nevada. Coupled with the expanded service
offerings for our utility infrastructure service customers, we are
positioned to grow our businesses well into the
future."
For the twelve months ended June 30,
2019, consolidated net income was $198.5 million, or $3.82 per share, compared to $207.3 million, or $4.28 per share, for the twelve-month period
ended June 30, 2018.
Consolidated results for the twelve-month period ended June 30, 2018 reflect approximately $20 million, or $0.41 per share, of one-time tax benefits due to
the remeasurement of deferred tax balances in December 2017.
Natural gas segment net income was $152.6 million in the current twelve-month
period, and $163.3 million in the
prior-year period. Utility infrastructure services segment
net income was $47.6 million in the
current twelve-month period and $45.2 million in the prior-year
period.
Natural Gas Operations Segment Results
Second Quarter
Operating margin increased a net $1
million. Approximately $2
million of incremental margin was attributable to customer
growth, as 34,000 net new customers were added during the last
twelve months (a 1.7% growth rate). Rate relief in
California and Nevada contributed an additional $2 million. Offsetting these increases were
the regulatory impacts of tax reform and the effects of regulatory
surcharges. The surcharges and credits are offset in
amortization expense.
Operations and maintenance expense was relatively flat between
quarters as higher general cost increases were offset by lower
pension and medical costs. Depreciation and amortization
expense increased $1.7 million, or
4%, primarily due to a $579 million,
or 9%, increase in average gas plant in service since the
corresponding quarter a year ago, mitigated by the impact of
regulatory program amortization.
Other income and deductions improved $3.7
million between quarters primarily due to an increase in
income from COLI policies. Net interest deductions increased
$3.2 million due to higher
interest associated with the issuance of $300 million of senior notes in May 2019, higher borrowings under the revolving
credit and term-loan facility, and the impacts of carrying costs on
regulatory liability account balances.
Twelve Months to Date
Operating margin increased $18
million between the twelve-month periods. Customer
growth provided $11 million and combined rate relief in
Nevada and California provided $7
million of incremental operating margin. Other mostly
offsetting impacts resulted from recoveries of regulatory assets,
infrastructure replacement mechanisms, customers outside the
decoupling mechanisms, impacts of U.S. tax reform, and other
miscellaneous revenues.
Operations and maintenance expense increased $10.7 million, or 3%, between periods, including
expenditures for pipeline damage prevention programs and other
general cost increases. Depreciation and amortization expense
increased $9 million, or 5%, between periods due to a
$520 million, or 8%, increase in
average gas plant in service, mitigated by lower regulatory account
amortization. Taxes other than income taxes increased $2.7 million between periods primarily due
to higher property taxes associated with net plant additions.
Other income and deductions improved $6
million between the comparative twelve-month periods due to
higher interest income and over $3
million related to the equity component of the allowance for
funds used during construction ("AFUDC") resulting from higher
construction expenditures and AFUDC rates in the current
period. Additionally, the non-service components of employee
pension and other postretirement benefit costs improved by
$2 million in the current
period. Net interest deductions increased $13.8 million between periods due to higher
interest associated with issuance of $300
million of senior notes in March
2018 and $300 million of senior notes in May 2019, in addition to higher interest rates
and average outstanding credit facility balances, collectively, in
support of ongoing capital investment.
Utility Infrastructure Services Segment
Results
Second Quarter
Revenues increased $59.1 million
in the second quarter of 2019 compared to the same period in 2018
primarily due to $56.7 million in
revenues contributed by the operations of Linetec Services, LLC
("Linetec"), which was acquired in November
2018, and to a higher volume of pipe replacement work under
existing master services agreements and bid contracts.
Revenue for the prior-year quarter included a $9 million negotiated settlement of an
outstanding contract dispute from 2017 associated with a water pipe
replacement project.
Utility infrastructure services expenses increased $49.5 million between quarters, including
$45.1 million of Linetec expenses and
costs, to complete additional pipe replacement work.
Depreciation and amortization increased $7.4 million between quarters, $6 million of which resulted from the Linetec
acquisition, including amortization of finite-lived intangible
assets and depreciation of property and equipment.
Depreciation expense also reflects additional equipment used to
support the growing volume of work performed.
Twelve Months to Date
Revenues increased $225 million in
the current twelve-month period compared to the prior-year period,
including approximately $118.4
million in revenues from Linetec since the acquisition date
in November 2018. New England Utility Constructors, Inc.
("Neuco"), acquired in November 2017,
provided revenues of approximately $155.8 million and $65.4 million during the comparative twelve-month
periods ended June 30, 2019 and 2018,
respectively. In addition, revenues were favorably impacted
by work performed by Centuri on a higher volume of pipe replacement
work under new and existing blanket and bid contracts and certain
non-routine projects (including customer-requested support during
strike-related and emergency response situations primarily in the
second half of 2018).
Utility infrastructure services expenses increased $182.1 million between periods primarily due
to related expenses for Linetec and Neuco of $93.2 million and $50.2
million, respectively, in addition to additional pipe
replacement work and higher labor-related operating expenses to
support growth in operations.
Depreciation and amortization increased $20.1 million between periods primarily due
to incremental depreciation and amortization of finite-lived
tangible and intangible assets recognized from the Linetec and
Neuco acquisitions, as well as an increase in depreciation on
additional equipment purchased to support the growing volume of
work being performed. Net interest deductions increased
$3.1 million between periods due
primarily to higher average debt outstanding and amortization of
debt issuance costs, partially offset by lower borrowing rates on
variable rate debt.
Income tax expense for the twelve months ended June 30, 2018 was favorably impacted by
approximately $12 million of one-time tax benefits related to
the remeasurement of deferred tax balances when U.S. tax reform was
enacted in December 2017.
Outlook for 2019
Management affirms estimated 2019 diluted earnings per share
between $3.75 and $4.00 and provides the following supplemental
expectations:
Natural Gas Operations Segment:
- Operating margin for 2019 is anticipated to benefit from
customer growth (similar to 2018), infrastructure tracker
mechanisms, expansion projects, and rate relief. Combined, these
items are expected to produce an increase in operating margin of 4%
to 5%.
- On a comparative basis, operating income is expected to
increase modestly.
- Capital expenditures in 2019 are estimated at approximately
$710 million, in support of customer
growth, system improvements, and accelerated pipe replacement
programs.
Utility Infrastructure Services Segment:
- Centuri has a strong base of large utility clients that are
expected to sustain, and over time, grow its business, including
the recent Linetec acquisition. Revenues for 2019 are expected to
be 10% to 15% greater than 2018 levels.
- Operating income is expected to be approximately 6.0% to 6.5%
of revenues.
- Net income expectations reflect earnings attributable to
Southwest Gas Holdings, net of noncontrolling interests. Changes in
Canadian exchange rates could influence results.
Southwest Gas Holdings has two business segments:
Southwest Gas Corporation provides safe and reliable natural gas
service to over 2 million customers in Arizona, Nevada, and California.
Centuri Group, Inc. is a comprehensive utility infrastructure
services enterprise dedicated to delivering a diverse array of
solutions to North America's gas
and electric providers. Centuri derives revenue from
installation, replacement, repair, and maintenance of energy
distribution systems, and developing industrial construction
solutions.
Forward-Looking Statements:
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements include, without limitation,
statements regarding Southwest Gas Holdings, Inc. (the "Company")
and the Company's expectations or intentions regarding the
future. These forward-looking statements can often be
identified by the use of words such as "will", "predict",
"continue", "forecast", "expect", "believe", "anticipate",
"outlook", "could", "target", "project", "intend", "plan", "seek",
"estimate", "should", "may" and "assume", as well as variations of
such words and similar expressions referring to the future, and
include (without limitation) statements regarding expectations of
continuing growth in 2019. In addition, the statements under
the heading "Outlook for 2019" that are not historic, constitute
forward-looking statements. A number of important factors
affecting the business and financial results of the Company could
cause actual results to differ materially from those stated in the
forward-looking statements. These factors include, but are
not limited to, the timing and amount of rate relief, changes in
rate design, customer growth rates, the effects of
regulation/deregulation, tax reform and related regulatory
decisions, the impacts of construction activity at Centuri, future
earnings trends, seasonal patterns, and the impacts of stock market
volatility. In addition, the Company can provide no assurance
that its discussions about future operating margin, operating
income, and capital expenditures of the natural gas segment will
occur. Likewise, the Company can provide no assurance that
discussions regarding utility infrastructure services segment
revenues and operating income percentage of revenues will
transpire. Because of these and other factors, the Company
can provide no assurances that estimates of 2019 earnings per share
will be realized. Factors that could cause actual results to
differ also include (without limitation) those discussed under the
heading "Risk Factors" in Southwest Gas Holdings, Inc.'s most
recent Annual Report on Form 10-K and in the Company's and
Southwest Gas Corporation's current and periodic reports filed from
time to time with the SEC. The statements in this press
release are made as of the date of this press release, even if
subsequently made available by the Company on its Web site or
otherwise. The Company does not assume any obligation to
update the forward-looking statements provided to reflect events
that occur or circumstances that exist after the date on which they
were made.
Non-GAAP Measures. Southwest recognizes
operating revenues from the distribution and transportation of
natural gas (and related services) to customers. Gas cost is
a tracked cost, which is passed through to customers without markup
under purchased gas adjustment ("PGA") mechanisms, impacting
revenues and net cost of gas sold on a dollar-for-dollar basis,
thereby having no impact on Southwest's profitability.
Therefore, management routinely uses operating margin, defined as
operating revenues less the net cost of gas sold, in its analysis
of Southwest's financial performance. Operating margin also
forms a basis for Southwest's various regulatory decoupling
mechanisms. Operating margin is not, however, specifically
defined in accounting principles generally accepted in the United States ("U.S. GAAP") and is
considered a non-GAAP measure. Management believes supplying
information regarding operating margin provides investors and other
interested parties with useful and relevant information to analyze
Southwest's financial performance in a rate-regulated
environment. (Refer to the Southwest Gas Holdings, Inc.
Consolidated Earnings Digest for a reconciliation of revenues to
operating margin.)
SOUTHWEST GAS
HOLDINGS, INC. CONSOLIDATED EARNINGS DIGEST
|
(In thousands,
except per share amounts)
|
|
QUARTER ENDED JUNE
30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
713,011
|
|
$
670,883
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
22,056
|
|
$
21,551
|
|
|
|
|
|
Average Number of
Common Shares
|
|
53,935
|
|
48,826
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
0.41
|
|
$
0.44
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
0.41
|
|
$
0.44
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
Natural Gas Segment
Revenues
|
|
$
258,711
|
|
$
275,679
|
Less: Net Cost of Gas
Sold
|
|
65,182
|
|
83,466
|
Operating
Margin
|
|
$
193,529
|
|
$
192,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
JUNE 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
1,546,550
|
|
$
1,425,213
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
116,865
|
|
$
100,642
|
|
|
|
|
|
Average Number of
Common Shares
|
|
53,654
|
|
48,622
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
2.18
|
|
$
2.07
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
2.18
|
|
$
2.07
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
Natural Gas Segment
Revenues
|
|
$
779,388
|
|
$
769,992
|
Less: Net Cost of Gas
Sold
|
|
257,786
|
|
269,198
|
Operating
Margin
|
|
$
521,602
|
|
$
500,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TWELVE MONTHS
ENDED JUNE 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Consolidated
Operating Revenues
|
|
$
3,001,350
|
|
$
2,758,799
|
|
|
|
|
|
Net Income applicable
to Southwest Gas Holdings
|
|
$
198,500
|
|
$
207,311
|
|
|
|
|
|
Average Number of
Common Shares
|
|
51,914
|
|
48,338
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
$
3.82
|
|
$
4.29
|
|
|
|
|
|
Diluted Earnings Per
Share
|
|
$
3.82
|
|
$
4.28
|
|
|
|
|
|
Reconciliation of
Revenue to Operating Margin (Non-GAAP measure)
|
|
|
Natural Gas Segment
Revenues
|
|
$
1,367,124
|
|
$
1,349,536
|
Less: Net Cost of Gas
Sold
|
|
407,976
|
|
407,943
|
Operating
Margin
|
|
$
959,148
|
|
$
941,593
|
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SOURCE Southwest Gas Holdings, Inc.