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Atmos Fiscal '06 Earnings Climb on Nonutility Growth

Dallas-based Atmos Energy Corp. on Tuesday reported fiscal 2006 earnings climbed dramatically on the back of its nonutility operations, which contributed more than half of the year's profit.

Net income for fiscal 2006 reached $147.7 million ($1.82/share), compared with $135.8 million ($1.72) in fiscal 2005. Utility operations contributed $53 million (65 cents/share). The segment's profit, which was budgeted to reflect 30-year normal weather, was adversely affected by $49.2 million primarily from weather that was 13% warmer than normal, as well as an $8 million reduction due to the impact of Hurricane Katrina.

Nonutility businesses contributed $94.7 million ($1.17/share) in fiscal 2006. Profits from natural gas marketing added unrealized mark-to-market gains of $17.2 million, compared with unrealized losses of $26 million in fiscal 2005. Excluding the impact of a nonrecurring, noncash after-tax charge of $14.6 million (18 cents/share) for the impairment of irrigation properties in the West Texas Utility Division, Atmos' fiscal 2006 net income was $162.3 million ($2/share).

"Our complementary business strategy has paid off nicely again this year," said CEO Robert W. Best. "While weather had a negative impact on our utility operations, the unprecedented contribution from our nonutility marketing business allowed us to deliver on our 2006 earnings goal." Best said, "significant rate design changes in our two largest utility divisions should insulate over 90% of our utility margins from warm weather going forward, providing a stable platform to deliver core earnings growth at the utility." He said Atmos is "well positioned" to deliver earnings growth of 4-6% going forward.

Consolidated utility throughput decreased from 411 Bcf in fiscal 2005 to 394 Bcf in fiscal 2006. The weather, as adjusted for jurisdictions with weather-normalized rates, was 2% warmer in 2006 than a year ago, which resulted in a $22.9 million decrease in utility gross profit and related throughput, primarily in the Mid-Tex Division where weather was 11% warmer than the prior year.

Within its natural gas marketing business, Atmos' storage and marketing margin of $130.6 million included a favorable $17.2 million mark-to-market impact, which resulted from the change in value of the physical/financial portfolio from Sept. 30, 2005. Atmos' physical storage position at the end of September was 14.5 Bcf with equal and offsetting financial hedges, compared with a physical storage position of 6.9 Bcf at Sept. 30, 2005. Consolidated natural gas marketing sales volumes were 284 Bcf during fiscal 2006, compared with 238.1 Bcf for fiscal 2005.

Pipeline and storage gross profit was $159.7 million, up from $146.5 million for fiscal 2005. Consolidated pipeline and storage throughput increased to 410.5 Bcf from 375.6 Bcf in fiscal 2005. The $13.2 million increase in gross profit was primarily attributable to higher transportation and related services margins coupled with increased throughput on the Atmos Pipeline-Texas system and Atmos Pipeline & Storage LLC's ability to capture more favorable arbitrage spreads in its asset management contracts.

For fiscal 2006, cash flow generated from operating activities provided cash of $311.4 million, down from $386.9 million in 2005. Period over period, operating cash flow was adversely impacted by significantly higher natural gas prices, which resulted in higher cash payments for gas purchases during fiscal 2006, partially offset by increased customer account collections and reduced cash margin deposit requirements to collateralize certain risk management positions.

Atmos expects fiscal 2007 earnings to range between $1.90-2.00/share. Capital expenditures for fiscal 2007 are expected to be in the range of $425-440 million.

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