Southwest Gas ((SWX)) has held its Q4 earnings call. Read on for the main highlights of the call.
Southwest Gas Holdings’ recent earnings call painted a picture of robust financial health and operational success, highlighted by record margin performance and favorable regulatory outcomes. Despite these achievements, the company faces some hurdles, particularly in Century’s business and rising interest expenses. Nevertheless, Southwest Gas is well-positioned for future growth, buoyed by strong customer additions and strategic regulatory initiatives.
Record Annual Operating Margin Performance
Southwest Gas Holdings concluded the year with an impressive record in annual operating margin performance, marking the second consecutive year of achieving a return on equity exceeding 8%. This milestone underscores the company’s effective financial strategies and operational efficiencies.
Strong Customer Growth
The company experienced significant customer growth, adding approximately 41,000 new meter sets over the past year. This expansion is attributed to robust economic activity and substantial in-migration, reflecting the company’s ability to capitalize on favorable market conditions.
Positive Regulatory Outcomes
Southwest Gas Holdings achieved notable regulatory successes, securing approval for a nearly $59 million revenue increase in Nevada, which represents 98% of their request. Additionally, the company is advancing a $50 million case in California, further solidifying its regulatory standing.
Strong Financial Position
Ending 2024 with over $360 million in cash, Southwest Gas Holdings demonstrates strong liquidity and financial flexibility. This solid financial footing provides the company with the capacity to navigate future challenges and opportunities.
Reduced Performance in Century’s Business
The performance of Century’s business segment saw a decline in 2024, primarily due to a reduction in the volume of work under MSAs in natural gas business lines and the absence of the previous year’s higher offshore wind work. This downturn highlights a key area of concern for the company.
Higher Interest Expense
Southwest Gas Holdings encountered increased interest expenses, driven by changes in regulatory balances and higher variable interest rates. This rise in expenses presents a financial challenge that the company must address moving forward.
Nonlinear Growth Challenges
The company anticipates challenges in achieving linear net income growth due to existing regulatory structures. However, the implementation of formula rates in Arizona may offer some improvement in this area in the future.
Forward-Looking Guidance
Looking ahead, Southwest Gas Holdings has provided guidance for 2025 and beyond, projecting utility net income between $265 million and $275 million for the full year 2025. This forecast is supported by margin improvements, regulatory strategies, and cost management efforts. The company plans a substantial capital expenditure of approximately $880 million in 2025, aiming to achieve a compound annual growth rate in rate base between 6% and 8% from 2025 to 2029. Despite these investments, Southwest Gas remains committed to maintaining an investment-grade balance sheet and paying competitive dividends, while strategically separating Century from its operations.
In conclusion, Southwest Gas Holdings’ earnings call reflects a company with strong financial and operational performance, poised for future growth despite some challenges. The record margin performance, customer growth, and positive regulatory outcomes are key highlights, while the issues in Century’s business and rising interest expenses require attention. The company’s forward-looking guidance suggests a focus on strategic investments and maintaining financial stability, promising a positive outlook for stakeholders.