8-K: Southwest Gas Holdings Reports Strong 2024 Results, Initiates 2025 Guidance

Southwest Gas Holdings announces its fourth quarter and full-year 2024 financial results, highlighting an 8.1% utility ROE and initiating 2025 net income and capital expenditure guidance.

Summary

• Southwest Gas Holdings reported a consolidated net income of $92.5 million, or $1.28 per diluted share, for the fourth quarter of 2024.
• Adjusted consolidated net income for the fourth quarter was $100.1 million, or $1.39 per diluted share.
• For the full year 2024, consolidated net income was $198.8 million, or $2.76 per diluted share, while adjusted consolidated net income reached $227.9 million, or $3.16 per diluted share.
• Southwest Gas Corporation, the utility segment, reported a net income of $97.2 million for the fourth quarter and $261.2 million for the full year.
• The company completed an IPO of Centuri Holdings, Inc. in April 2024, using the proceeds to repay Centuri debt.
• Southwest Gas added approximately 41,000 new meter sets during 2024, representing a 1.8% growth rate.
• The company achieved a full-year utility gross margin of $0.7 billion and a record annual operating margin of $1.3 billion.
• Southwest Gas initiated 2025 net income guidance of $265-$275 million and expects capital expenditures of approximately $880 million.
• The company projects a 6.0%-8.0% CAGR for both adjusted net income and rate base for the period 2025-2029.
• Centuri's revenues decreased by 9% to $2.6 billion in 2024, with operating income decreasing by $49.6 million compared to 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, successful strategic initiatives like the Centuri IPO, and promising future guidance. While there are some challenges noted, the overall tone is optimistic and suggests a well-managed company with a clear path forward.

Positives

• Utility ROE reached 8.1%.
• Utility net income grew by nearly 8%.
• O&M expenses per customer were flat year-over-year.
• Customer growth added approximately 41,000 new meter sets.
• The IPO of Centuri Holdings, Inc. was successfully completed.
• The company has ample liquidity with over $360 million in cash.
• The company extended a $550 million term loan credit agreement to July 31, 2025.
• The company was ranked #1 in Customer Satisfaction with Residential Natural Gas Service in the West among Large Utilities by J.D. Power for the 5th year in a row.

Negatives

• Centuri's revenues decreased by 9% to $2.6 billion in 2024.
• Centuri's operating income decreased by $49.6 million compared to 2023.
• Other income decreased $16.4 million compared to 2023, reflecting $17.2 million lower interest income.
• Interest expense increased $12.4 million compared to 2023, due to higher variable debt costs.

Risks

• The company's forward-looking statements are subject to various risks and uncertainties.
• These risks include the timing and impact of executing a separation of the remaining interest in Centuri.
• Other risks include changes in rate design, customer growth rates, and the effects of regulation/deregulation.
• The company also faces risks related to tax reform, construction activity at Centuri, and potential credit rating downgrades.
• The company can provide no assurance that its discussions about future operating margin, operating income, COLI earnings, interest expense, and capital expenditures of the natural gas distribution segment will occur.

Future Outlook

Southwest Gas expects 2025 Southwest Gas net income to be in the range of $265 $275 million and capital expenditures of ~$880 million. The company also projects a 6.0% 8.0% Southwest Gas adjusted net income CAGR and rate base CAGR from 2025-2029.

Management Comments

• Karen Haller, President and Chief Executive Officer, stated that the company made excellent progress advancing its strategic priorities and delivering improved outcomes for stakeholders.
• Haller noted the successful IPO of Centuri Holdings, Inc. and the focus on completing a full separation efficiently.
• Haller added that the utility delivered net income growth of nearly 8% through the execution of its regulatory strategy, effective cost management, and strong customer growth.
• Haller is optimistic that the company's efforts will enable it to deliver on its commitments to all of its stakeholders.

Industry Context

This announcement reflects the ongoing trend in the utility industry of focusing on core regulated operations and separating non-core businesses to unlock value. The successful IPO of Centuri aligns with this trend, allowing Southwest Gas to focus on its natural gas distribution business. The company's emphasis on regulatory strategy and cost management is also consistent with industry best practices for achieving stable and predictable earnings growth.

Comparison to Industry Standards

• An 8.1% utility ROE is competitive within the natural gas distribution industry, with many peers targeting ROEs in the 8-10% range.
• Companies like Atmos Energy and ONE Gas also focus on regulated utility operations and aim for similar ROE levels.
• The projected 6.0%-8.0% CAGR for adjusted net income and rate base is a solid growth target, comparable to the growth expectations of other large-cap utilities.
• Capital expenditure plans of ~$880 million for 2025 reflect the ongoing need for infrastructure investment in the natural gas distribution sector, similar to the capital spending plans of peers like National Fuel Gas Company.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the improved financial performance and strategic focus.
• Customers will benefit from the company's investments in infrastructure and service reliability.
• Employees will benefit from the company's commitment to maintaining a safe and reliable natural gas system.
• The company's strong financial performance contributes to the economic well-being of the communities it serves.

Next Steps

• Southwest Gas Holdings will update investors on its plans with respect to the balance of its 81% ownership stake held in Centuri at a future date.
• The company will host a conference call on February 26, 2025, to discuss its fourth quarter and full year 2024 results.

Key Dates