The third quarter is typically a weaker quarter for natural gas distribution companies like ONE Gas (NYSE:OGS), largely because consumers aren't using it to heat their homes. However, for a seasonally weak quarter, the company reported strong earnings growth after the market closed on Wednesday due to the impact of new rates as well as lower expenses. Thanks in part to this quarter's strong showing, as well as solid performance thus far in 2015, the company updated its net income guidance by boosting the low end of that range.

ONE Gas results: The raw numbers


Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Net Margin

$170.5 million

$166.5 million


Net Income

$7.4 million

$4.7 million






Source: ONE Gas. (Note: Net margin is revenue minus cost of natural gas.)

What happened with ONE Gas this quarter? 
ONE Gas operated well in a seasonally sleepy quarter.

  • Net margin increased by $4 million, or 2%, year over year due primarily to a $4.6 million increase from new rates in the company's operations in Texas and Oklahoma.
  • The company also reduced its operating costs by 4% to $111.6 million. While ONE Gas reduced a number of its expenses, $3.3 million of the expense reduction is the result of costs it had last year associated to its separation from ONEOK (NYSE:OKE).
  • Total natural gas volumes delivered fell 2% from the year-ago quarter.

What management had to say 
CEO Pierce Norton didn't have a lot to say about the quarter in the earnings release. However, he did point out, "We are on track with our capital investment plan, which demonstrates our commitment to pipeline system integrity." Through the third quarter the company had spent $199.7 million of its $300 million capital expenditures budget with 70% of that spending targeted to keep its pipelines running safely. While the spending rate at this point is off of last year's pace of $224.6 million spent through the third quarter, the difference is primarily due to the information technology assets it acquired due to its separation from ONEOK and not the result of an underinvestment in its pipelines or growth projects.

Speaking of ONEOK, it is set to report results on Tuesday. However, given its much larger size, it's unlikely that it will mention much, if anything, from the impact to its costs relating to the separation because they would have been so minor. 

Looking forward 
Thanks to its solid results so far this year, due primarily to its lower expenses, ONE Gas is bumping up the low end of its guidance range. The company now expects net income to be in a range of $113 million to $118 million, which is slightly higher than the $108 million to $118 million range it provided earlier this year.

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