Southwest Gas targets $265M-$275M net income for 2025 as Centuri separation plans progress

Earnings Call Insights: Southwest Gas Holdings (SWX) Q1 2025

Management View

• Karen Haller, President and CEO, opened the call by addressing a delay in the timing of the earnings announcement due to an issue at Centuri, which has now been resolved. Haller stated, “we continued to make considerable progress positioning Southwest Gas for long-term success and growth.” She highlighted constructive outcomes in Arizona and Great Basin rate cases, noting the utility finished the quarter with record net income and lower quarter-over-quarter O&M expenses. Haller reaffirmed the 2025 net income guidance range of $265 million to $275 million and emphasized robust capital spending needs driven by safety, reliability, and economic activity.
• Haller reiterated commitment to a separation strategy for Centuri, stating, “we remain committed to separating Centuri, and we will provide further updates on timing and structure when available.” She explained that options include taxable sell-downs, share exchanges, or a tax-free spin-off, with execution contingent on market conditions.
• Rob Stefani, CFO, reported, “During the first quarter, the utility Southwest Gas benefited from rate relief in each of our jurisdictions. Nevada rates...went into effect in April 2024 and Arizona rates went into effect in March 2025. We also saw continued customer growth, along with slightly lower O&M expense, all of which contributed to higher net income.” Stefani detailed a strong liquidity position, with more than $400 million in cash on hand and over $1 billion in liquidity.
• Justin Brown, President of Southwest Gas Corporation, outlined regulatory progress including the Arizona rate case’s $80 million revenue increase and an authorized ROE of 9.84%. Brown also highlighted a new system integrity mechanism (SIM) proposal in Arizona and ongoing discussions in California regarding tracker programs and investment allowances.

Outlook

• Management reaffirmed the 2025 utility net income guidance range of $265 million to $275 million. Haller stated, “we reaffirm our 2025 utility net income guidance range of $265 million to $275 million with the completion of the Arizona rate case and strong regional economic outlook in our service area, we remain confident in our previously stated range.”
• The company continues to expect a compound annual growth rate in rate base of 6% to 8% over the next five years, supported by an expected $4.3 billion in capital investments.
• Guidance metrics and expectations remain unchanged from the previous quarter, with continued focus on regulatory strategy and operational efficiency.

Financial Results

• The utility business saw an operating margin increase of $38.9 million in Q1 2025, driven by $27 million in combined rate relief and $5 million from customer growth, with approximately 40,000 new meter sets added over the past 12 months.
• O&M expenses decreased by $1.5 million compared to the prior year quarter, attributed to reduced contractor and professional services costs, partially offset by higher insurance costs.
• Net income at the utility increased by just over $7 million or 5.2% compared to the year-ago quarter. Before the impacts of COLI, the quarter-over-quarter improvement would be 9.4%.
• The company held $386 million in cash at Southwest Gas at quarter-end, with a net liability balance of over $280 million in the PGA.

Q&A

• Ryan Levine, Citi, asked about Centuri separation plans and investor interest: Haller responded, “our plan continues to be...we’re committed to the separation of Centuri. We have several options there.”
• Levine inquired about financial implications of the SIM if approved. Brown replied that clarity on timing and project approval will come after SIM’s approval, and that current plans do not include SIM impacts.
• Levine questioned the impact of the Nevada PGA balance refund on ATM equity issuance needs. Stefani explained that existing cash can support a rapid refund and that “any ATM usage would be impacted by kind of the form of the next separation step that we take at Centuri.”
• On accounting and controls following the delayed earnings call, Haller confirmed, “there have been no changes in controls with Southwest Gas that were related to that or need for those as results.”
• Dylan Lipner, Ladenburg, discussed CapEx opportunities from data centers and manufacturing in Arizona. Brown indicated current guidance does not include material changes for these factors but will adjust as commitments firm.
• Richard Sunderland, JPMorgan, asked about the Great Basin open season and related CapEx. Brown confirmed it is binding, open through month-end, and that incremental CapEx details are confidential until the process closes.

Sentiment Analysis

• Analysts raised questions about Centuri separation, SIM approval, and CapEx impacts, with a neutral to slightly positive tone and focus on regulatory and operational execution.
• Management responded with measured confidence and clarity, reiterating commitment to previous guidance and strategic priorities. Haller’s tone was consistently confident and focused on execution: “we remain excited about the future of the company.”
• Compared to the previous quarter, both analyst and management sentiment remained stable and constructive, with no significant shifts in tone or confidence.

Quarter-over-Quarter Comparison

• Guidance for 2025 net income and capital investment remains unchanged from Q4 2024, reflecting continued confidence in regulatory outcomes and growth in the service area.
• Strategic priorities, including Centuri separation and operational optimization, remain consistent, though the current quarter provided more detail on SIM and regulatory progress.
• Management’s confidence and messaging on balance sheet strength and liquidity is similar to last quarter, with no negative surprises or deterioration in outlook.
• Analysts’ questions continued to center on regulatory mechanisms, CapEx, and separation strategy, consistent with prior focus areas.

Risks and Concerns

• Management highlighted the need for constructive regulatory outcomes in California and pending approval of the SIM in Arizona as key ongoing challenges.
• The execution of Centuri separation transactions is contingent on favorable market conditions, introducing uncertainty to the timing and structure of the separation.
• The company noted the impact of changes in regulatory balances, interest expense, and variability in non-operating income as factors affecting quarterly results.
• Analysts raised concerns about the implications of the delayed earnings call and the pace of PGA balance refunds, with management confirming existing controls and liquidity can accommodate these issues.

Final Takeaway

Southwest Gas Holdings delivered a strong start to 2025, reaffirmed its net income guidance of $265 million to $275 million for the year, and highlighted constructive regulatory outcomes and continued operational efficiency. The company remains focused on advancing its separation from Centuri, supported by a robust balance sheet and ongoing capital investment to address strong economic and customer growth in its service territories. Management expressed confidence in its regulatory and operational strategies as it works to execute on strategic priorities and deliver value to stockholders.

Read the full Earnings Call Transcript