Spire Inc. 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to Spire's fiscal 2026 third quarter earnings call.

On the call today are Scott Doyle, President and Chief Executive Officer, and Adam Woodard, Executive Vice President and CFO. We issued an earnings news release this morning that can be accessed on our website at spireenergy.com, along with a slide presentation that accompanies our webcast. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.

These statements include, among others, statements regarding our expectations, plans, and objectives for future performance, future operating results, earnings guidance, capital investment plans, and the expected timing and benefits of, and risks associated with acquisitions, dispositions, and related integration and transition activities. Our forward-looking statements on today's call speak only as of today, and we assume no duty to update them unless required by law. Although our forward-looking statements are based on estimates and assumptions that we believe are reasonable, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing non-GAAP measures used by management when evaluating our performance and results of operations.

Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. With that, I will now turn the call over to Scott.

Good morning, and thank you for joining us. Over the past year, we've taken significant steps to position Spire into a stronger, more focused company. Through the acquisition of Spire Tennessee and the divestiture of our non-core businesses, we have completed our transformation to a fully regulated company, enhancing our earnings quality and improving visibility of our long-term growth. As we look ahead, we believe we are well-positioned to benefit from the growing importance of natural gas in the nation's energy future. The EIA recently forecasted that both U.S. natural gas production and demand will reach record levels in 2026, reinforcing the critical role natural gas plays in providing reliable, affordable energy to homes, businesses, and communities across the country and the world.

Today, we'll discuss our third quarter results, the progress we've made advancing our strategy, and the opportunities we see to continue creating long-term value for our customers, communities, and shareholders. Turning now to our performance for the quarter on slide four. This quarter marked another important step forward in executing our strategy. From a financial perspective, adjusted earnings per share from continuing operations improved to a loss of $0.26 per share compared to a loss of $0.29 per share in the prior year quarter, representing an improvement of $0.03 per share. More importantly, we continued to safely and reliably serve our customers while maintaining our focus on affordability, operational excellence, and disciplined cost management. Strategically, this was a very significant quarter for Spire. We completed the divestitures of Spire Marketing and Spire Storage, further simplifying the company and sharpening our focus on our regulated utility operations.

At the same time, integration of Spire Tennessee continues to progress well, and we remain on track to achieve key milestones to exit transition services in fiscal 2027. On the regulatory front, we continue to make progress across all of our jurisdictions. Spire Alabama and Spire Gulf have renewal hearings for the rate stabilization and equalization, or RSE, mechanism scheduled later this week on August sixth and seventh. In Missouri last week, we reached a settlement in the accounting authority order proceeding. As a reminder, Spire Tennessee filed its annual review mechanism with the Tennessee Public Utility Commission in May. Adam will provide more details on each activity during his remarks. Finally, I'm pleased to reaffirm our fiscal 2026 and 2027 adjusted EPS guidance ranges, as well as our long-term adjusted EPS growth target of 5%-7%. Moving to slide five. Our priorities remain unchanged and centered on operational excellence and customer affordability, constructive regulatory execution, financial discipline, and the successful integration of Spire Tennessee.

These priorities continue to guide our actions and support our long-term growth strategy. With the completion of the marketing and storage divestitures, we're now operating as a fully regulated company. Moving to slide six. Spire is now positioned around a mix of gas utilities in a FERC-regulated pipeline, with the expected sale of Spire Mississippi still targeted to close in the first quarter of fiscal 2027. The exit of the storage and marketing businesses reduces earnings volatility and enhances predictability, representing an important shift. Our earnings outlook is now supported by rate-based growth, constructive regulatory mechanisms, and a more straightforward business model with a clearer path to deliver predictable earnings growth and long-term value creation. With that, I'll now turn the call over to Adam.

Thanks, Scott, and good morning, everyone. I'll begin on slide seven with our third quarter results, which were in line with our expectations and support our outlook for the remainder of the year. For the quarter, we reported an adjusted loss of $15 million, or $0.26 per share, compared to an adjusted loss of $13 million or $0.29 per share in the prior year quarter. Fiscal 2025 results included $0.06 per share of preferred dividend expense that did not recur this year, following the redemption of our preferred shares. The gas utility segment reported an adjusted loss of $3 million in the quarter, improving from a $10 million loss in the prior year. The improvement was primarily driven by new rates in Missouri and Alabama, including ISRS rates implemented in Missouri this spring and the CCM mechanism in Alabama.

Higher customer usage net of weather mitigation in Alabama was partially offset by lower usage net of weather mitigation in Missouri. O&M expense increased by approximately $4 million, primarily due to higher bad debt expense. Utility run rate O&M continues to track below the rate of inflation. Results were also affected by higher depreciation, taxes other than income taxes, and interest expense, reflecting updated amortization schedules, higher long-term debt balances, and other investments supporting our utility operations. Finally, other activities reported an adjusted loss of $12 million compared to a loss of $3 million in the prior year, reflecting higher corporate costs and higher interest expense in the current year. Spire's earnings from discontinued operations were $253.8 million during the third fiscal quarter, which includes an after-tax gain on sale of $254.6 million. Turning to slide eight. We are reaffirming our 5%-7% long-term adjusted EPS growth target using the original fiscal 2027 guidance midpoint of $5.75 as the base.

This growth outlook is supported by approximately 7% rate-based growth and our $11.2 billion 10-year capital plan. For fiscal 2026, we are reaffirming adjusted EPS guidance from continuing operations of $3.90-$4.10 per share. That guidance excludes a full year of Spire Storage, Spire Marketing in Tennessee, but includes Spire Mississippi Inc. For fiscal 2027, we are reaffirming adjusted EPS guidance of $5.40-$5.60 per share. Our gas utility and corporate and other expected earnings ranges remain unchanged from our call in May. Moving to slide nine. In the first nine months of the year, we invested nearly $600 million in capital expenditures driven by system upgrades, infrastructure modernization, and new business connections at the gas utilities.

We continue to expect full year 2026 capital expenditures of approximately $800 million across our utilities, consistent with our 10-year $11.2 billion capital plan. These investments support rate-based growth of 7% in Missouri and 7.5% in Tennessee, with 6% regulated equity growth in Alabama and Spire Gulf Coast Inc., underpinning our confidence in delivering 5%-7% adjusted EPS growth over time. Turning to our financing plan on slide 10. We expect to substantially fund our capital expenditure program with operating company debt and cash from operations, thus requiring limited annual equity issuance. Importantly, to help alleviate pressure from rising interest rates, we have a $375 million interest rate hedge portfolio that helps mitigate exposure to higher borrowing costs. Following the reduction in business risk from our recent portfolio actions, our FFO to debt target is 14%-15%, which we expect to reach by the end of 2028.

While admittedly, 2026 is a transition year for our credit metrics with businesses being both acquired and divested, our current FFO to debt stands at 13% after factoring in trailing 12 months funds from operations inclusive of Spire Tennessee. Our gain on sale of divested businesses pushes this metric even higher through this transition period. Turning now to an update on regulatory matters, starting with Alabama on slide 11. The RSC renewal process began earlier this year and is progressing as expected. As a reminder, the RSC is a formula-based rate-setting mechanism that allows rates to be adjusted annually within an approved ROE range, providing a more streamlined alternative to frequent general rate cases. Every three to four years, the mechanism is renewed, allowing key elements such as the authorized ROE range, capital structure, and other key provisions to be reviewed and approved by the Alabama Public Service Commission.