Southwest Gas Q1 2025 slides: EPS jumps 21%, stock falls despite strong results

Introduction & Market Context

Southwest Gas Holdings, Inc. (NYSE:SWX) presented its first quarter 2025 earnings results on May 12, 2025, reporting significant earnings growth despite a negative market reaction. The stock fell 4.33% to $72.40 on the day of the presentation, continuing a downward trend that began after the company’s Q4 2024 earnings release in February, when shares dropped 3.02% despite beating earnings expectations.

The natural gas utility, which serves customers across Arizona, Nevada, and California, highlighted strong operational performance and regulatory wins that supported its first quarter results. However, investors appeared to focus on broader market concerns and the still-pending separation of the company’s Centuri infrastructure services business.

Quarterly Performance Highlights

Southwest Gas reported GAAP net income of approximately $143 million for Q1 2025, representing a $7.1 million increase compared to the same period last year. This translated to GAAP earnings per share of $1.58, up from $1.22 in Q1 2024, while adjusted EPS reached $1.66, a 21% increase from $1.37 in the prior-year quarter.

As shown in the following earnings bridge chart, both the utility business (SWG) and Centuri segment contributed to the year-over-year EPS improvement:

The utility segment’s performance was driven by several factors, including rate relief, customer growth, and cost control measures. Operating margin increased by $38.9 million year-over-year, primarily due to $27 million from combined rate relief and $5 million from customer growth. Meanwhile, operations and maintenance (O&M) expenses decreased by 1.1% compared to the first quarter of 2024, reflecting the company’s utility optimization and cost discipline initiatives.

The following chart breaks down the key drivers of the utility segment’s net income growth:

Customer growth remained robust, with approximately 40,000 new meter sets added during the last 12 months, representing a 1.8% growth rate. This growth was supported by strong population trends in the company’s service territories, with projected population growth of 4.40% in Arizona and 3.42% in Nevada from 2025-2030, significantly outpacing the U.S. average of 2.40%.

The company’s consolidated financial results showed improvement across all key metrics:

Regulatory Developments

A significant highlight of the quarter was the approval of Southwest Gas’ Arizona general rate case, which resulted in approximately $80.2 million in additional annual revenue. The regulatory decision included an increase in the allowed return on equity to 9.84% and an equity capitalization of 48.5%.

The company also received approval for its Great Basin Gas Transmission Company (GBGTC) rate case in the first quarter, which will provide an additional $9.6 million in revenue. While this was below the company’s initial request of $13 million, it still represents a substantial increase and includes an approved return on equity of 11.95%.

Southwest Gas is continuing to advance its regulatory strategy with several pending cases, including an Arizona System Integrity Mechanism (SIM) capital tracker and a California rate case. The SIM proposal would allow the company to recover costs for safety-related infrastructure investments that account for approximately 40% of its Arizona dedicated infrastructure capital budget.

The company’s strong regulatory positioning is supporting its capital investment plans, with a focus on safety, reliability, and growth:

Strategic Initiatives

Southwest Gas continues to progress toward becoming a "premier, fully regulated natural gas utility" through several strategic initiatives. The company is advancing the separation of its Centuri infrastructure services business, though specific timing details were not provided in the presentation.

Management highlighted its utility optimization efforts, which are focused on improving operational efficiency and financial performance. These initiatives include financial systems consolidation, customer interaction improvements, warehouse optimization, and data management strategy development. The optimization program has already contributed to the year-over-year decrease in O&M expenses.

The company also emphasized its strong demand dynamics, supported by population growth in its service territories and increasing interest from data centers and semiconductor manufacturers:

Southwest Gas has maintained its commitment to dividend growth, with plans to target a dividend payout ratio in line with gas utility peers upon completion of the Centuri separation. The company has paid dividends every year since 1956, with the annual dividend per share projected to reach $2.48 in 2025.

Forward-Looking Guidance

Southwest Gas reaffirmed its 2025 guidance, projecting utility net income of $265-$275 million and capital expenditures of approximately $880 million. For the longer term (2025-2029), the company continues to target 6.0-8.0% compound annual growth rates for both net income and rate base, supported by $4.3 billion in planned capital expenditures over this period.

The company’s financing plan for 2025 includes less than $100 million in equity issuance through its existing at-the-market (ATM) program, pending the Centuri exit path. Management noted that beginning cash and cash flow from operations are expected to fully fund the capital plan with modest equity from SWX and small revolver draws toward the end of the year.

Southwest Gas highlighted several factors that position it to unlock significant stockholder value going forward:

Despite the positive quarterly results and reaffirmed guidance, investors appeared cautious, as reflected in the stock’s 4.33% decline on the day of the presentation. This reaction may reflect broader market concerns about interest rates, inflation, or specific questions about the timing and execution of the Centuri separation.

As Southwest Gas continues its transformation into a pure-play utility, management remains focused on optimizing performance, maintaining financial discipline, and delivering sustainable energy solutions to its growing customer base across the southwestern United States.

Full presentation:

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