ONE Gas, Inc. (OGS) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance, with an increase in adjusted EPS and net income, driven by new rates and operational efficiencies. The company maintains a stable dividend and has ongoing capital projects. Despite some uncertainties in project execution and macroeconomic conditions, the company's long-term growth expectations and strategic capital investments are positive indicators. The Q&A section reveals confidence in navigating challenges and executing plans, though some EPS impacts remain unspecified. Given the market cap of $3.56 billion, these factors suggest a positive stock price movement of 2% to 8% over the next two weeks.

Key Financial Performance

Adjusted EPS $2.11 per diluted share in Q1 2026, up 6% year-over-year from $1.99. The increase was attributed to disciplined execution of the long-term plan, regulatory strategy advancements, operational efficiencies, and new rates taking effect.

Adjusted Net Income $133.4 million in Q1 2026, up from $120.1 million in the same period last year. The increase was driven by new rates and the impact of Texas House Bill 4384.

First Quarter Revenues Increased by approximately $27 million year-over-year due to new rates.

Depreciation and Amortization Expense Down 6% year-over-year in Q1 2026. No specific reason for the decrease was mentioned.

Interest Expense Down 9% year-over-year in Q1 2026, partly due to Texas House Bill 4384 and 2025 Federal Reserve rate cuts.

O&M Expenses Increased approximately 8.6% year-over-year in Q1 2026, compared to 1.9% growth in the prior year period. The increase was primarily driven by employee-related costs and elevated line locating activity due to more fiber installations.

Other Income Net Decreased by $2.6 million year-over-year in Q1 2026, partly due to decreases in the market value of investments associated with the nonqualified deferred compensation plan.

Capital Projects $170 million worth of capital projects completed in Q1 2026, relatively in line with the same period last year.

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Operating Highlights

Residential customer growth: Steady growth observed with over 6,300 new meters installed through April, with Oklahoma City and El Paso showing the strongest growth year-to-date.

Large-load customer opportunities: Active discussions with prospects such as manufacturing facilities, data centers, and utility generation. Six projects in late-stage discussions could support approximately 3 gigawatts of generation and up to 1 Bcf per day of demand across Kansas, Oklahoma, and Texas.

Operational efficiencies: First quarter line locating activity increased by 8.5% year-over-year while damages declined by 2%, highlighting benefits of bringing certain work in-house. Plans to in-source the Watch and Protect function in Oklahoma to enhance safety and manage O&M expenses.

AI technology implementation: AI-driven process improvements have generated over 12,000 hours of annualized labor savings, allowing employees to focus on higher-value work and improving operational efficiency.

Capital projects: Completed $170 million worth of capital projects in the quarter. Key projects include a 43-mile pipeline in Southern Oklahoma (on track for 2028) and a 1.6-mile pipeline near El Paso (to be operational by early Q3).

Economic growth support: Signed a transportation agreement to supply 20 million cubic feet of natural gas per day to an Oklahoma data center, leveraging existing systems to support economic growth.

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Risk or Challenges

Weather Impact: Historically warm winter conditions across Kansas, Oklahoma, and Texas reduced gas monetization and affected cash flows. Weather normalization mechanisms tempered earnings impact but did not fully insulate the company.

Operational Costs: First quarter O&M expenses increased by 8.6% year-over-year, driven by employee-related costs and elevated line-locating activity due to more fiber installations.

Cash Flow Challenges: Higher spring storage balances due to reduced gas monetization during the warm winter will impact cash flow normalization throughout the year.

Regulatory Adjustments: Oklahoma Natural Gas and Texas Gas Service filed for rate adjustments, but these regulatory processes could introduce delays or uncertainties in revenue realization.

Macroeconomic Conditions: Slower new housing starts due to macroeconomic conditions could impact residential customer growth.

Project Execution Risks: Complex infrastructure projects, such as the Western Farmers pipeline and other large-scale initiatives, involve risks related to design, right-of-way acquisition, and coordination with stakeholders.

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Guidance & Outlook

Financial Guidance: Affirmed adjusted net income guidance of $306 million to $314 million and adjusted earnings per diluted share of $4.83 to $4.95 for 2026.

Cash Flow and Storage Impact: Higher spring storage balances are expected to normalize cash flow impacts as the year progresses.

O&M Expense Growth: Projected compound annual O&M expense growth of 3% to 4% over the 5-year plan.

Capital Projects: Completion of $170 million worth of capital projects in Q1 2026. The Western Farmers project, a 43-mile pipeline in Southern Oklahoma, is on track for service in 2028. A 1.6-mile pipeline near El Paso is scheduled to be operational early in Q3 2026.

Customer Growth: Steady residential customer growth with over 6,300 new meters installed year-to-date. Strong growth observed in Oklahoma City and El Paso.

Large-Load Customer Projects: Six late-stage projects could support approximately 3 gigawatts of generation and up to 1 Bcf per day of demand across Kansas, Oklahoma, and Texas. A transportation agreement was signed to supply 20 million cubic feet of natural gas per day to an Oklahoma data center.

Regulatory Filings: Oklahoma Natural Gas filed for a $28.7 million adjustment with rates expected in late June 2026. Texas Gas Service filed for a $36.9 million revenue increase effective July 2026. Kansas Gas Service plans to file in Q3 2026 under amended GSRS statute.

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Shareholder Return Plan

Dividend Declaration: The ONE Gas' Board of Directors declared a dividend of $0.68 per share, unchanged from the previous quarter.

Equity Issuance: During the first quarter, ONE Gas executed forward sale agreements under its at-the-market equity program for approximately 237,000 shares of common stock. Additionally, there are roughly 269,000 shares remaining to be issued under a forward sale agreement executed in May of last year. If all shares under forward sale agreements were fully settled as of March 31, net proceeds would have totaled approximately $41.5 million.

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Key Q&A

Q:How does the company view the impact of weather and other factors on their 2026 outlook?

A:The company acknowledges that weather normalization mechanisms didn't fully mitigate the impact of the warm first quarter. Structural benefits, such as capacity release in Kansas, will be recognized later in the year. Discretionary decisions, like deferring non-time-sensitive projects, provide flexibility. The company remains confident in its ability to execute its plan despite these challenges.

Q:Are the six large-load projects in late-stage discussions incremental to the current capital plan, and what is the capital opportunity?

A:The six projects are in late-stage discussions, involving final contract terms and customer needs. Some projects, like the Western Farmers project, are large, while others are smaller but immediately accretive. The capital plan includes identified projects in earlier years, with flexibility for additional projects in later years. The company will update its growth profile as projects progress.

Q:What is the EPS impact of abnormal weather and storage excess capacity, and the benefit from House Bill 4384?

A:The CFO did not provide specific EPS impact figures for abnormal weather or the benefit from House Bill 4384 during the call but mentioned that capacity release benefits are in the couple of million-dollar territory. He offered to follow up with more detailed information.

Q:What is the benefit of capital-light large-load opportunities to shareholders and customers?

A:The company has not quantified the benefit of specific projects but indicated that such opportunities are included in overall guidance. These projects are designed to be accretive and align with the company's long-term strategy.

Q:Are there any refinements being considered for weather normalization mechanisms?

A:The company believes its weather normalization mechanisms have been effective overall, despite extraordinary situations like the recent mild winter. They do not see a need for refinements and highlighted the Kansas Commission's capacity release solution as an effective measure.

Q:Review of Unclear Management Responses

A:The CFO avoided providing specific EPS impact figures for abnormal weather and the benefit from House Bill 4384, stating that he would need to follow up with more detailed information. Additionally, the company did not quantify the benefit of specific capital-light large-load projects, citing a policy of not commenting on individual projects.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

OGS Transcript

ONE Gas, Inc. (OGS) Q1 2026 Earnings Call Transcript

Positive5-5

ONE Gas, Inc. (OGS) Q4 2025 Earnings Call Transcript

Positive2-19

The earnings call revealed solid financial performance with a year-over-year increase in net income and adjusted net income, driven by regulatory benefits and customer growth. Despite some uncertainties in regulatory risks and short-term cost increases from the in-sourcing program, the company's strategic projects and legislative support in Kansas are promising. The Q&A session highlighted competitive advantages and regulatory benefits that align with guidance, although some management responses lacked clarity. Given the company's market cap and positive financial metrics, a positive stock price movement is anticipated over the next two weeks.

ONE Gas, Inc. (OGS) Q3 2025 Earnings Call Transcript

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The earnings call and Q&A highlight strong financial performance, optimistic guidance, and strategic growth initiatives, including regulatory benefits and in-sourcing efficiencies. The company demonstrates resilience and adaptability, with positive EPS growth and capital plans. Despite some vagueness in future CapEx details, the overall sentiment is positive, with market expansion, legislative tailwinds, and operational improvements suggesting a likely stock price increase.

ONE Gas, Inc. (OGS) Q2 2025 Earnings Call Transcript

Positive8-7

The earnings call shows strong financial performance with increased net income and revenue, driven by new rates and customer growth. The Q&A reveals optimism about strategic growth opportunities, especially in Texas, and the impact of House Bill 4384 on earnings. Despite some strategic execution risks, the positive guidance and revenue increases outweigh concerns. The unchanged dividend and forward sale agreements are neutral factors. Given the company's market cap, the stock is likely to see a positive reaction in the short term.

OGS Report

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