Q2 2026 ONE Gas Inc Earnings Call Transcript
Key Points
- Adjusted EPS for Q2 2026 was $0.82, a 52% increase year-over-year, with first-half adjusted EPS growing 16% despite 25% warmer weather.
- The company raised its full-year 2026 adjusted EPS guidance to the upper half of the range ($4.89-$4.95), driven by strong performance and Texas House Bill 4384 benefits.
- Texas House Bill 4384 is expected to contribute approximately $0.42 to full-year EPS, providing a significant tailwind from deferred depreciation and ad valorem taxes.
- Regulatory successes include approval of a $28.7 million rate increase in Oklahoma, a $36.9 million GRIP filing in Texas, and a $14.3 million Kansas surcharge filing, all supporting revenue growth.
- Large load opportunities are expanding, with three high-volume projects under contract (including a gas-fired generation project and a data center) representing $15 million in incremental annual revenue and $175 million in capital, plus a robust pipeline of additional prospects.
- The company maintains a balanced approach, keeping average customer bills flat year-over-year while increasing the dividend, and expects to achieve adjusted earnings in the upper half of guidance.
- Operational efficiency improvements, such as in-sourcing line locating and watch-and-protect functions, have reduced damages by 6% and are expected to moderate O&M expense growth in the second half.
- Capacity release revenues from higher-than-planned storage balances have generated $2.8 million year-to-date, with an additional $1.2 million expected, providing a positive offset to weather impacts.
- O&M expenses increased 6.6% year-over-year in Q2, driven by elevated line locating activity (up 7%) and higher fuel costs due to geopolitical unrest, though expected to moderate in the back half.
- Weather was 25% warmer than normal in the first half, negatively impacting demand and requiring cost discipline to offset margin pressures.
- The company faces uncertainty in the timing and amount of Texas House Bill 4384 benefits, with a larger share recognized in Q2 and a smaller contribution expected in Q3, creating quarterly volatility.
- Interest expense increased by $3.8 million year-over-year (excluding KGS), partly due to higher commercial paper rates, though partially offset by lower rates.
- The company has forward sale agreements for equity issuance, which could dilute existing shareholders, and plans to be opportunistic about issuing equity to meet remaining needs.
- No full rate cases are planned until 2027 (Oklahoma), limiting near-term opportunities for rate base recovery outside of annual filings.
- The dividend growth rate is decelerated to 1%-2% annually, which may be less attractive to income-focused investors compared to peers.
- The company's 5%-7% long-term EPS growth guidance may be conservative, as historical outperformance has been ratcheted forward, potentially understating future growth potential.
Good day, and welcome to the ONE Gas second quarter earnings conference call and webcast. Today's conference is being recorded.
At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey.
Thank you, Dennis. Good morning, everyone, and thank you for joining us on our second quarter 2026 earnings conference call. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we're happy to take your questions.
A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause
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