Atmos Energy Corp. President and CEO Kevin Akers cast doubt on the prospect of his company purchasing the natural gas utilities that CenterPoint Energy Inc. plans to divest, saying that Atmos will remain focused on its long-term organic growth strategy.
The Dallas-based gas utility operator announced on Nov. 12 that it intends to invest $11 billion to $12 billion from 2021-2025, with 88% of the capital spending earmarked for safety and reliability investments. Akers said the companies' timely recovery of spending has helped drive solid returns for investors.
"That's where we're going to continue to focus right there," Akers said during the company's Nov. 12 earnings conference call. "That's our strength. We've proven that over the last decade or so that we can execute at that level. It's a very understandable story for our employees, for our investors and for our regulators to follow."
The company forecast the increased capital spending, representing a 7% to 8% compound annual growth rate, would boost its rate base to a range of $19 billion to $21 billion by 2025, up $9.3 billion at the midpoint. It would also underpin a 6% to 8% annual increase in earnings per share and dividend growth over the period, Atmos projected.
Analysts questioned executives about dealmaking following CenterPoint's Nov. 5 announcement that it plans to sell one or two gas utilities to fund $3 billion in incremental capital. The companies operate in neighboring service territories in Texas, Louisiana and Mississippi. CenterPoint's Oklahoma and Arkansas territories also align with Atmos' footprint. In June, Guggenheim Partners classified CenterPoint's Oklahoma franchise and southern territories beyond Texas as more likely to be considered for sale.
Atmos bills itself as the largest pure-play gas utility operator, with 3.2 million customers across eight states. Bank of America analyst Richard Ciciarelli pressed Akers on a potential acquisition, saying it could be "quite accretive" to earnings given the adjacent geography and Atmos' stock price multiple relative to peers.
Akers reiterated his belief in the strength of the company's regulatory construct, particularly the timing of recovery on capital spending. Atmos begins earning on 90% of investments within six months and 99% within a year. "It's hard for me to see that you could get that type of recovery through an acquisition," the CEO said. Integrating operations, labor forces and cultures can also be "extremely difficult," Akers added.
Atmos will focus on getting the right recovery for modernizing its system, Akers said. Over five years, the company plans to replace 5,000-6,000 miles of distribution and transmission pipe, eliminate cast-iron mains throughout its system and bare steel pipe beyond its Mid-Tex division, and upgrade 100,000-150,000 steel service lines. It aims to reduce methane emissions by 15% to 20%.
Atmos on Nov. 11 reported that its fourth-quarter consolidated net income rose nearly 12% to $65.3 million, or 53 cents per share, topping year-ago earnings and beating analysts' estimates. Full fiscal-year earnings were $4.89 per share. The company issued 2021 EPS guidance in a range of $4.90 to $5.10 and capital spending guidance for $2 billion to $2.2 billion.