Southwest Gas Swings to Profit as California Rate Relief Lands
Southwest Gas Holdings posted diluted EPS of $0.58 in the second quarter, reversing a year-earlier loss after California regulators approved roughly $40 million of incremental annual revenue.
Southwest Gas Holdings (SWX) reported second-quarter diluted earnings of $0.58 a share from continuing operations, up from a loss of $(0.01) a year earlier, as a long-delayed California rate decision and the exit of its Centuri construction business reshaped the utility's results. Adjusted diluted earnings from continuing operations rose to $0.45 a share from $0.37.
The quarter's swing traces back to a California Public Utilities Commission decision on non-cost-of-capital rate case items, which added about $40 million of incremental annual revenue and triggered recognition of $9.7 million of net income tied to revenue that had been deferred since the first quarter. That deferral had weighed on first-quarter results, so the catch-up effect flowed almost entirely into the June quarter.
Operating margin climbed to $319.7 million from $294.2 million a year earlier, with gross margin reaching $158.4 million, as roughly $19.5 million of California rate relief and $1.4 million of customer growth offset a broader pullback in top-line revenue. Consolidated operating revenues fell to $358.2 million from $396.3 million, and six-month revenue dropped to $943.3 million from $1,142.7 million, a decline attributed to lower gas-cost pass-throughs rather than any erosion in underlying margin. System throughput told a similar story: six-month volumes fell to 106.1 million dekatherms from 116.6 million, led by an 18% drop in residential throughput to 40.1 million dekatherms.
The corporate and administrative segment provided the other major swing factor, moving to net income of $1.4 million from a loss of $(46.4) million, a $47.7 million improvement driven by the absence of a one-time $39.2 million state tax charge from a year earlier and $8.6 million of lower interest expense following repayment of a 2025 term loan. Discontinued operations tied to Centuri, now fully divested, narrowed their net loss by $39.4 million as the prior year's results still carried the utility's construction segment ahead of its Q4 2025 disposition.
Against those gains, depreciation and amortization expense rose 13% year over year, or $8.7 million, in the quarter and 9%, or $14.7 million, over six months, reflecting a $726.7 million increase in gas plant in service as capital spending accelerated. The company's utility trailing-12-month return on equity continued to drift lower, falling to 8.1% (8.0% adjusted) from 8.5% at the first quarter and roughly 8.3% at both the third and fourth quarters of 2025.
Southwest Gas raised its estimate for the Great Basin 2028 Expansion Project to about $2.3 billion of capital investment, with projected annual incremental margin now quantified at $270 million to $300 million. Binding precedent agreements for the project reached roughly 1 Bcf per day, following an open season in the first quarter that had drawn about 2.5 Bcf per day of bid interest not yet converted into contracts. In Nevada, the company raised its requested annual revenue increase in its pending general rate case to about $74 million from the $71 million sought when the case was filed.
Despite the upward revision to Great Basin's economics, Southwest Gas reaffirmed its full-year 2026 guidance for a third straight quarter, having first issued 2026 EPS and rate base targets alongside full-year 2025 results. The company's board approved a 4% increase in the quarterly dividend to $0.645 a share at year-end 2025, a rate that took effect with the second-quarter payment.