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Gas utilities mostly beat Q2 profit expectations, reaffirm 2020 outlooks

Gas utilities largely surpassed quarterly earnings expectations and stuck with their 2020 outlooks, as many executives said COVID-19 impacts had been manageable in their first full quarter of operating through the pandemic.

Six out of nine selected gas utility operators topped Wall Street's profit expectations, while a seventh company matched expectations, according to S&P Capital IQ consensus normalized earnings estimates. Signaling their confidence, local distribution companies, or LDCs, mostly left in place their guidance for full-year earnings and capital spending.

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Some industry watchers expected LDCs to temper their outlook in light of the ongoing national health crisis and its recessionary impact. However, with several months of data in hand, executives struck a hopeful, if cautious, tone.

"We had some concerns at the end of the first quarter about whether we might see some slowdowns in permitting that might impact that work," ONE Gas Inc. Senior Vice President, Treasurer and CFO Caron Lawhorn said. "That has not materialized. Also, the economic impact of the pandemic has not adversely impacted customer interest in new connections."

Executives acknowledged significant uncertainty in regards to cost recovery for coronavirus-related expenses and lost revenue. While many state regulators have approved mechanisms that allow LDCs to defer those expenses, companies said the timing and scope of cost recovery remains uncertain.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

King of Prussia, Pa.-based UGI Corp. dropped a warning that COVID-19 headwinds could strip 20 cents to 30 cents off its 2020 guidance of $2.45 to $2.55 per share. The company logged the biggest earnings beat in the select group.

Along with disciplined expense management, UGI credited cold April weather that offset COVID-19's impact on sales to commercial customers in its gas utility business. It also pointed to a jump in propane cylinder sales at its AmeriGas Inc. subsidiary, partly driven by an uptick in home cooking as Americans self-isolated throughout the quarter.

Tulsa, Okla.-based One Gas similarly walked back its earlier warning that 2020 net income could fall below the midpoint of its guidance of $3.44 to $3.68 per share.

One Gas also raised its 2020 capital spending guidance to a range of $500 million to $525 million, up from $475 million, on better-than-anticipated growth in customer hookups driven by strong construction activity in Texas and Oklahoma. Residential customer growth and new Texas and Kansas rates powered the company's second-quarter earnings beat.

The company's results illustrated a trend: Companies operating in Southern and Western states, which have recently experienced a surge in COVID-19 cases, posted some of the biggest earnings beats, as well as upward revisions to 2020 spending plans.

Executives at Southwest Gas Holdings Inc. also expressed confidence in new home starts, which underpin customer growth. With construction permitting still robust in Las Vegas, Phoenix and Tucson, Southwest Gas reaffirmed its 2020 earnings guidance of $3.75 per share to $4 per share. Executives also firmed up capex plans in their gas operations at $700 million, compared with a previous range of $650 million to $700 million.

"While we continue to have, of course, expanded numbers of cases in both Arizona and Nevada, I think that the governors in each of those states, including California, have taken a lot of measures to try to guard against that being a larger problem than it needs to be," Southwest Gas President and CEO John Hester said. "So I think that things are going OK at the current time."

Southwest Gas said cost savings, including for canceled travel and in-person training, more than offset COVID-19 expenses. These savings, along with record second-quarter profits in its infrastructure construction business and a benefit linked to company-owned life insurance, drove Southwest Gas' earnings beat.

Dallas-based Atmos Energy Corp. rounded out the list of companies posting earnings beats despite operating in COVID-19 hotspots. St. Louis-headquartered Spire Inc. matched expectations even as it signaled challenges in its storage and compressed natural gas fuels business.

Northwest Natural Holding Co., which missed profit expectations by the widest margin, said COVID-19 has produced roughly $4 million, or 12 cents per share, in negative earnings impact. Most of that impact occurred in the second-quarter, exacerbating an 11 cents per share drag due to higher year-over-year environmental remediation expenses. Executives expected 2020 earnings to fall at the low end of their $2.25 per share to $2.45 per share guidance due to coronavirus implications.

New Jersey Resources Corp. swung to an unanticipated loss and also guided toward the low end of its 2020 earnings outlook. The company was alone among its peers in lowering 2020 capex guidance, though the revision was due to permitting delays for its Adelphia Gateway pipeline project.

Despite recent regulatory and legal challenges for fossil fuel pipelines, New Jersey Resources joined Chesapeake Utilities Corp. in reaffirming a belief in the midstream business. Improvement in unregulated non-utilities businesses helped power Chesapeake Utilities to an earnings beat in the second quarter.