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Why Is Atmos (ATO) Up 3.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Atmos Energy (ATO - Free Report) . Shares have added about 3.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Atmos due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts. <p style="text-align: justify;"><strong>Atmos Energy Q3 Earnings Miss, Revenues Improve Y/Y</strong><br /><br />Atmos Energy Corporation posted third-quarter fiscal 2018 earnings of 64 cents per share, which missed the Zacks Consensus Estimate of 68 cents by 5.9%. Earnings also declined 4.5% from the prior-year quarter figure.<br /><br /><strong>Total Revenues</strong><br /><br />Total revenues of $562.2 million lagged the Zacks Consensus Estimate of $637 million by 11.7%. However, total revenues improved 6.8% from $526.5 million in the prior-year quarter.<br /><br /><strong>Segment Revenues</strong><br /><br /><strong>Distribution</strong>: Revenues for the segment increased 8.4% year over year to $535.5 million in the reported quarter from $494 million in the prior-year quarter. Distribution contribution margin increased to $304.6 million from $296.3 million in the year-ago quarter, driven by the increase in rates in the Mid-Tex and Kentucky/Mid-States Divisions.<br /><br /><strong>Pipeline and Storage</strong>: Revenues for the segment increased 8.8% year over year to $127.6 million from $117.3 million. Contribution margin for this segment rose year over year to $127.1 million. The upside was on account of increase in rates due to the Atmos Pipeline&ndash;Texas rate case and the Gas Reliability Infrastructure Program (GRIP) filings approved in December 2017 and May 2018, respectively.<br /><br /><strong>Quarterly Highlights</strong><br /><br />Total operating expenses in the reported quarter increased 13.5% to $308.4 million from the year-ago quarter due to increase in operation and maintenance expenses, depreciation and amortization expenses as well as taxes, other than income expenditures.<br /><br />Operating income in the reported quarter was down 12.6% year over year to $123 million. The decrease primarily reflects the lower statutory tax rate in revenues due to the TCJA and higher operating expenses in the reported quarter including higher depreciation expenses, and ad valorem taxes due to increased infrastructure investments.<br /><br />The company incurred interest expenses of $23.3 million, down 18.1% from the year-ago period.<br /><br />The company&#39;s board of directors declared a quarterly dividend of 48.5 cents per common share. The indicated annual dividend for fiscal 2018 is $1.94, thereby representing a 7.8% increase from fiscal 2017.<br /><br /><strong>Financial Highlights</strong><br /><br />As of Jun 30, 2018, Atmos Energy had cash and cash equivalents of $20.9 million compared with $26.4 million as of Sep 30, 2017.<br /><br />Long-term debt was $2.62 billion as of Jun 30, 2018, down from $3.07 billion as of Sep 30, 2017.<br /><br />The company&rsquo;s cash flow from operating activities for the nine months ended Jun 30, 2018, was $1.04 billion, up from $0.75 billion recorded in the prior fiscal.<br /><br /><strong>Guidance</strong><br /><br />Atmos Energy has re-affirmed its fiscal 2018 guidance and continues to expect earnings per share in the range of $3.85-$4.05, excluding the one-time, non-cash income tax benefit. Capital expenditures for fiscal 2018 are still expected to be approximately $1.4 billion.<br />&nbsp;</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Atmos has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Atmos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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