ONE Gas Inc: Q4 2024 Earnings Call Highlights and Investment Implications

ONE Gas Inc. (NYSE: OGS) recently held its fourth quarter and year-end 2024 earnings call, providing valuable insights into the company's financial performance and strategic initiatives. As a regulated natural gas utility, ONE Gas plays a crucial role in the energy sector, and its earnings call offers investors a glimpse into the company's prospects and the broader energy landscape. This article will delve into the key takeaways from the earnings call and discuss the investment implications for ONE Gas Inc.



Financial Performance and Key Drivers

ONE Gas reported diluted earnings per share (EPS) of $1.34 for the fourth quarter and $3.91 for the full year 2024. The company's strong financial performance was driven by several factors, including:

1. New rates: ONE Gas benefited from an increase of $24.6 million in new rates during the fourth quarter, contributing to the overall increase in operating income.
2. Residential sales growth: Net customer growth in Oklahoma and Texas led to an increase of $1.2 million in residential sales during the fourth quarter.
3. Gas sales-related revenues: ONE Gas experienced an increase of $7.9 million in gas sales-related revenues, further bolstering its financial performance.



Capital Expenditures and Asset Removal Costs

ONE Gas's capital expenditures and asset removal costs for the full year 2024 were $762.1 million, representing an increase of $33.4 million compared to 2023. The key drivers behind this change include:

1. System integrity and extension of service to new areas: Capital expenditures primarily represented investments in maintaining and improving the company's infrastructure, as well as expanding its service areas to accommodate growth.
2. Additional capital investment: The increase in capital expenditures also contributed to an increase in depreciation and amortization expense, reflecting the company's commitment to investing in its assets.



Weather Normalization Mechanisms and Operating Income

In the fourth quarter of 2024, weather was 24.3 percent warmer than normal, which could have potentially impacted ONE Gas's operating income. However, the company mitigated this impact through the use of weather normalization mechanisms. These mechanisms helped to stabilize the company's financial performance by adjusting for the effects of weather on natural gas demand.



Employee-Related Costs and Ad-Valorem Taxes

ONE Gas's employee-related costs and ad-valorem taxes have contributed to the company's financial performance in Q4 2024, with both expenses increasing compared to the same period in 2023. However, the impact on operating income was mitigated by other factors.

1. Employee-related costs:
* In Q4 2024, employee-related costs increased by $6.5 million compared to Q4 2023, primarily due to planned investments in the Company's workforce and ongoing in-sourcing efforts.
* This increase was partially offset by other factors, such as new rates and residential sales growth, which contributed to the overall increase in operating income.
2. Ad-valorem taxes:
* In Q4 2024, ad-valorem taxes increased by $4.8 million compared to Q4 2023, primarily due to regulatory outcomes that took effect during the quarter.
* This increase was also partially offset by other factors, contributing to the overall increase in operating income.



Investment Implications

ONE Gas Inc.'s Q4 2024 earnings call provided valuable insights into the company's financial performance and strategic initiatives. The company's strong financial performance, driven by new rates, residential sales growth, and gas sales-related revenues, demonstrates its ability to navigate the energy landscape effectively. Additionally, ONE Gas's commitment to investing in its infrastructure and workforce, as evidenced by its capital expenditures and employee-related costs, positions the company well for future growth.

Investors should consider the following factors when evaluating ONE Gas Inc. as a potential investment:

1. Regulatory environment: As a regulated natural gas utility, ONE Gas's financial performance is subject to changes in regulatory requirements. Investors should monitor the regulatory environment and assess its potential impact on the company's financial performance.
2. Weather normalization mechanisms: ONE Gas's use of weather normalization mechanisms helps to mitigate the impact of weather fluctuations on its operating income. Investors should consider the effectiveness of these mechanisms and their potential impact on the company's financial performance.
3. Capital expenditures and asset removal costs: ONE Gas's investments in maintaining and improving its infrastructure, as well as expanding its service areas, are crucial for the company's long-term success. Investors should evaluate the company's capital expenditure strategy and its potential impact on financial performance.
4. Employee-related costs and ad-valorem taxes: While employee-related costs and ad-valorem taxes have increased for ONE Gas, the company has been able to mitigate their impact on operating income through other factors. Investors should monitor these expenses and assess their potential impact on the company's financial performance.

In conclusion, ONE Gas Inc.'s Q4 2024 earnings call provided valuable insights into the company's financial performance and strategic initiatives. The company's strong financial performance, driven by new rates, residential sales growth, and gas sales-related revenues, demonstrates its ability to navigate the energy landscape effectively. Investors should consider the factors discussed in this article when evaluating ONE Gas Inc. as a potential investment.