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ONE Gas (OGS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Utilities· Aug 5, 2026

Source: earnings call transcript

Executive summary

ONE Gas Q2 FY26 — Strong Performance Driven by Regulatory Wins and Large Load Opportunities

ONE Gas delivered a strong second quarter, exceeding expectations due to favorable regulatory outcomes, particularly in Texas, and successful execution on large load customer opportunities. The company raised its full-year adjusted EPS guidance to the upper half of its range, reflecting confidence in its strategy of disciplined investment in a 100% regulated business model. Management highlighted ongoing efforts to manage O&M costs through insourcing initiatives, despite current inflationary pressures.

Highlights

5

  • Adjusted EPS increased 52% to $0.82 in Q2 FY26, and 16% for the first half of the year, despite 25% warmer weather.

  • Full-year FY26 adjusted EPS guidance raised to the upper half of the range, $4.89-$4.95, supported by new rates and Texas legislation.

  • Three high-volume large load projects are now under contract, representing $15 million of incremental annual revenue and $175 million in associated capital.

  • Capacity release opportunities generated $2.8 million in revenue year-to-date, with an additional $1.2 million expected.

  • Oklahoma Natural Gas and Texas Gas Service secured rate increases of $28.7 million and $36.9 million respectively, with Kansas Gas Service seeking $14.3 million.

Concerns

2

  • O&M expenses increased 6.6% year-over-year in Q2 FY26, driven by elevated line locating tickets and increased fuel costs.

  • The company is experiencing increased fuel costs for its fleet due to geopolitical unrest, contributing to O&M increases.

Guidance & targets

CategoryTargetConfidence
Adjusted Net Income
$310M-$314M
high materiality
High
Adjusted EPS
$4.89-$4.95
high materiality
High
Annual O&M increases
3% to 4%
medium materiality
High
Dividend growth
1% to 2%
medium materiality
High

Orderbook & backlog

Contracted high-volume projects (incremental annual revenue) $15M Q2 FY26

Represents incremental annual revenue from 3 contracted projects. Associated capital is $175M, with in-service dates spanning H2 2026 through 2028.

Contracted high-volume projects (associated capital) $175M Q2 FY26

Associated capital for 3 contracted projects, with in-service dates spanning H2 2026 through 2028. Includes Western Farmers gas-fired generation, El Paso advanced manufacturing, and an Oklahoma data center.

Deals & partnerships

Western Farmers Gas supply for new generation facility

Includes construction of a 43-mile 24-inch pipeline in Southern Oklahoma. Construction expected to begin early 2027.

Advanced manufacturing facility Gas service for new manufacturing facility

Located in El Paso, expected to be placed in service this quarter.

Data center Gas service for new data center

Located in Oklahoma, expected to be placed in service this quarter. Leverages existing pipeline network.

Capital programs

Western Farmers gas-fired generation project underway
Start: early 2027 (construction)

Benefit:43-mile 24-inch pipeline

Project in Southern Oklahoma, construction contract bidding underway, remains on track for Q3 2028 in-service date.

Risks & headwinds

Warmer weather H1 FY26

25% warmer

Mitigation:Offset by capacity release revenues and cost discipline.

Elevated O&M expenses Q2 FY26

increased 6.6% YoY in Q2 FY26

Mitigation:Expect sequential growth to move meaningfully lower over H2 FY26 due to in-sourcing benefits and cost discipline.

Increased fuel costs for fleet Q2 FY26

Approximately 15% of $9M additional O&M expense in Q2 FY26

Mitigation:Baked into full-year expectations; closely monitoring refined product inventories.

What to watch in Q3 FY26

O&M expense trajectory

H2 FY26
Current 6.6% YoY increase in Q2 FY26
Target Meaningfully lower sequential growth

Why it matters

Management expects significant moderation in O&M growth in the second half, crucial for achieving full-year EPS guidance.

Your expectation should be meaningfully below that in the third and fourth quarters.

Find out whether OGS delivers this. Inve re-checks your case every morning.

Q&A highlights

Does improved regulatory contracts lead to a CapEx shift or pull-forward, and how does it affect the 5-7% long-term growth?

Management stated that capital focus is primarily on system integrity (60-70% of budget), which is regulatory-agnostic. Growth capital is driven by customer needs, with Texas offering greater opportunities due to beneficial legislation. They expressed confidence in execution and will provide 2027 guidance later this year.

“So where there is the opportunity the greater opportunities are or in Texas. That, again, is driven a lot by what the customer needs are and being able to respond to what's in the marketplace.”

asked by Unknown Analyst · answered by Curtis Dinan

2 min read 5 chapters

Detailed narrative

Regulatory Framework and Growth Strategy

ONE Gas operates as a 100% regulated company, focusing on strengthening its delivery system and growing the business through disciplined investment. This strategy is supported by constructive legislative and regulatory frameworks in Kansas, Oklahoma, and Texas, which attract investment and economic development. The company aims to keep long-term customer bill growth in line with inflation while delivering durable and sustainable growth.

Large Load Customer Opportunities

The company is experiencing a broadening opportunity to serve large load customers, driven by ongoing electric load growth and the demand for reliable, dispatchable energy. Interest from gas-fired generation, data centers, and advanced manufacturing has grown significantly, creating additional avenues for long-term growth across all three service territories. Management highlighted leveraging existing pipeline networks to quickly meet customer needs for these projects.

Texas House Bill 4384 Impact

Texas House Bill 4384 has provided significant benefits, allowing natural gas utilities to defer depreciation expense and ad valorem taxes, and accrue carrying costs on capital expenditures between project in-service and inclusion in rates. This legislation is expected to contribute approximately $0.42 to full-year EPS, with the second quarter typically representing a larger share of the annual benefit due to the cadence of annual GRIP filings.

O&M Management and In-sourcing Initiatives

The company is actively managing O&M expenses through in-sourcing initiatives, particularly for line locating and Watch and Protect functions. These efforts have demonstrated improved quality and cost efficiency compared to external services. While Q2 O&M expenses increased year-over-year due to elevated line locating tickets and fuel costs, management expects sequential growth to moderate significantly in the second half of the year, aligning with their long-term O&M growth target of 3% to 4%.

Dividend Policy and Capital Structure

ONE Gas maintains a credit-supportive dividend policy, with a 1% to 2% annual growth target through 2030. This strategy is designed to pivot the funding structure towards greater self-funding of capital investments, aiming to achieve the fastest EPS growth rates. The implied GAAP payout ratio has decreased to 57% this year from 68% a couple of years ago, reflecting this shift towards internal funding.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.