Most gas utilities beat quarterly EPS expectations; little post-year earnings growth

Natural gas utilities comfortably beat Wall Street expectations during the latest earnings reporting period, although year-over-year earnings growth remained elusive for many gas distributors.

Six of the nine gas utility operators selected by S&P Global Commodity Insights beat S&P Capital IQ’s consensus EPS forecast in the quarter ending March 31.

Spire Inc. posted the biggest profit advance in the group, followed by gas distributors Garden State New Jersey Resources Corp. and South Jersey Industries Inc.

Southwest Gas Holdings Inc. fell short of expectations by the widest margin. One Gas Inc. and Northwest Natural Holding Co. also missed the mark.

However, few members of the group managed to grow EPS compared to the prior year period. In each of the last three reporting periods, less than half of the group posted year-over-year earnings growth.

Only three gas distributors topped EPS a year ago in the most recent period: Chesapeake Utilities Corp., Atmos Energy Corp. and One Gas.

SNL Picture

Chesapeake Utilities has posted nine straight quarters of year-over-year profit growth, and has posted only one decline since 2019. Atmos and One Gas also posted strong track records. Both have posted year-over-year EPS declines only twice in the past four years.

New Jersey Resources posted the largest year-over-year EPS decline in the latest reporting period, in part due to an unfavorable comparison with exceptionally strong performance in the first quarter of 2021. Southwest Gas, which recorded the second largest decline in EPS from a year ago, has now recorded declines for four consecutive quarters.

Despite the series of declines, Southwest Gas now leads the group in share price gains for the year. Southwest Gas recently resolved a proxy battle with activist investor Carl Icahn, and executives are preparing for a possible sale of the company.

Until recently, South Jersey Industries led the group in year-to-date stock market gains, buoyed by news of its planned $8.1 billion takeover by an investment fund advised by JPMorgan Chase & Co.

SNL Picture

The select gas utility index as a whole has strongly outperformed the broader stock market, which has recently approached bear market territory. In addition to recent transactions that have bolstered gas utility valuations, investors have turned to safe-haven assets such as utility stocks at a time when market conditions were already supporting gas distributor stocks, according to industry observers.

Chesapeake Utilities and UGI Corp., two diversified gas utility operators that led their peers in stock price gains in 2021, were the only constituents of the group still trading in negative territory in 2022.

While many gas distributors reported inflationary headwinds were yet to impact their business, commodity price volatility rocked UGI’s European energy segment. Company executives said they would consider selling UGI International LLC’s natural gas and electricity marketing businesses.

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