8-K: ONE Gas Announces Fourth Quarter and Full Year 2024 Financial Results; Issues 2025 Guidance

ONE Gas reports its Q4 and full year 2024 financial results, including diluted earnings per share of $1.34 and $3.91, respectively, and provides its 2025 financial outlook.

Summary

• ONE Gas announced its fourth quarter and full year 2024 financial results on February 19, 2025.
• Fourth quarter net income was $77.0 million, or $1.34 per diluted share, compared to $70.7 million, or $1.27 per diluted share, in the fourth quarter of 2023.
• Full year 2024 net income was $222.9 million, or $3.91 per diluted share, compared to $231.2 million, or $4.14 per diluted share, last year.
• The company settled 3,160,465 shares of common stock under its at-the-market equity program and forward contracts for net proceeds of $245.7 million in December.
• Full year 2024 capital expenditures and asset removal costs were $762.1 million compared to $728.7 million in 2023.
• On January 21, 2025, ONE Gas increased the dividend for the first quarter 2025 by 1 cent to $0.67 per share ($2.68 annualized).
• Operating income for the fourth quarter was $124.3 million, compared to $107.1 million in the fourth quarter 2023.
• Operating income for the full year 2024 was $399.0 million, compared to $377.6 million in 2023.
• The company expects 2025 net income to be in the range of $254 million to $261 million, with earnings per diluted share of $4.20 to $4.32.
• Capital investments for 2025 are expected to be approximately $750 million, primarily for system integrity and replacement projects, with an additional $180 million for extensions to new customers.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While full year net income decreased, Q4 results improved, and the company is projecting growth for 2025. The dividend increase is a positive sign, but increased expenses and warmer weather are concerns.

Positives

• Fourth quarter net income increased compared to the same period last year.
• Operating income increased for both the fourth quarter and the full year.
• The company increased its dividend.
• The company is projecting increased net income and earnings per share for 2025.
• New rates contributed an increase of $24.6 million to operating income in Q4 and $67.9 million for the full year.
• Residential sales increased due to net customer growth in Oklahoma and Texas, contributing $1.2 million in Q4 and $6.3 million for the full year.

Negatives

• Full year 2024 net income decreased compared to the previous year.
• Operating expenses increased due to investments in the company's workforce and ongoing in-sourcing efforts.
• Interest expense increased due to debt maturities and senior notes issuances.
• Weather was 24.3 percent warmer than normal for the three months ended Dec. 31, 2024.
• Cost of natural gas decreased revenues by $290 million year over year.

Risks

• The company's ability to recover costs, income taxes, and the allowed rate of return in regulated rates.
• The potential for cyber-attacks and breaches of technology systems.
• Changes in regulation of natural gas distribution services.
• The economic climate and its effect on natural gas requirements.
• The length and severity of a pandemic or other health crisis.
• Competition from alternative forms of energy.
• Adverse weather conditions and variations in weather, including climate change.
• Indebtedness could make the company more vulnerable to adverse economic conditions.
• The company's ability to secure reliable, competitively priced, and flexible natural gas transportation and supply.
• Operational and mechanical hazards or interruptions.
• Adverse labor relations.
• The effectiveness of strategies to reduce earnings lag, revenue protection strategies, and risk mitigation strategies.
• The capital-intensive nature of the business and the availability of funds.
• Limitations on operating flexibility, earnings, and cash flows due to restrictions in financing arrangements.
• Cross-default provisions in borrowing arrangements.
• Changes in the financial markets.
• Actions of rating agencies.
• Changes in inflation and interest rates.
• The company's ability to recover the costs of natural gas purchased for customers.
• Volatility and changes in markets for natural gas.
• Possible loss of local distribution company franchises.
• Payment and performance by counterparties and customers.
• Changes in existing or the addition of new environmental, safety, tax, cybersecurity, and other laws or regulations.
• The effectiveness of risk-management policies and procedures.
• The uncertainty of estimates, including accruals and costs of environmental remediation.
• Advances in technology.
• Population growth rates and changes in the demographic patterns of the markets served.
• Acts of nature and naturally occurring disasters.
• Political unrest and the potential effects of threatened or actual terrorism and war.
• The sufficiency of insurance coverage to cover losses.
• The effects of strategies to reduce tax payments.
• Changes in accounting standards.
• Changes in corporate governance standards.
• Existence of material weaknesses in internal controls.
• The company's ability to comply with all covenants in indentures and the ONE Gas Credit Agreement.
• The company's ability to attract and retain talented employees, management, and directors.
• Unexpected increases in the costs of providing health care benefits, along with pension and postemployment health care benefits.
• The company's ability to successfully complete merger, acquisition, or divestiture plans.

Future Outlook

ONE Gas expects 2025 net income to be in the range of $254 million to $261 million, with earnings per diluted share of $4.20 to $4.32. Capital investments are expected to be approximately $750 million, primarily targeted for system integrity and replacement projects, with an additional $180 million for extensions to new customers.

Management Comments

• Our strong financial performance is a testament to our prudent fiscal planning, execution of our regulatory strategy and disciplined management of operations and maintenance expenses, said Robert S. McAnnally, president and chief executive officer.
• As we embark on a new year, we are prepared to serve a growing customer base while continuing to enhance the safety and reliability of our system.

Industry Context

ONE Gas, as a regulated natural gas utility, operates within a stable but capital-intensive industry. The company's performance is closely tied to regulatory outcomes, weather patterns, and economic conditions in its service territories. Its focus on system integrity and expansion aligns with industry trends emphasizing safety and reliability.

Comparison to Industry Standards

• Comparing ONE Gas to peers like Atmos Energy, Spire, and Northwest Natural, its capital expenditure plans as a percentage of rate base appear consistent with the industry average for maintaining and upgrading infrastructure.
• The projected EPS growth for 2025 places ONE Gas in a competitive position relative to its peers, assuming the company meets its guidance.
• The dividend increase, while modest, reflects a commitment to returning value to shareholders, a common practice among established utilities.
• The company's focus on regulatory filings and rate case outcomes is typical for regulated utilities, as these factors significantly impact financial performance.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and potential for future earnings growth.
• Customers may see increased rates due to infrastructure investments and regulatory filings.
• Employees may benefit from the company's investments in its workforce.
• The company's focus on system integrity and reliability will benefit all stakeholders by ensuring a safe and dependable natural gas supply.

Next Steps

• The ONE Gas executive management team will host a conference call on February 20, 2025, to discuss the results.
• Texas Gas Service's Gas Reliability Infrastructure Program filings are expected to take effect in June 2025, pending regulatory approval.

Key Dates