Southwest Gas Q3 2026 Earnings: Continuing Operations Return to Profit

Southwest Gas Holdings (NYSE: SWX) reported Q3 2026 consolidated operating revenue of $298.2 million, down approximately 5.9% from $316.9 million, while diluted EPS from continuing operations improved to $0.18 from a loss of $0.05. Continuing net income reached $12.8 million as higher utility operating margin, lower interest deductions, and tax benefits outweighed increases in operating and depreciation costs.

Core Earnings Data

The decline in consolidated revenue did not translate into weaker continuing profitability. For Southwest Gas, operating margin is an important non-GAAP measure because purchased gas costs are passed through to customers without a markup and can move reported revenue without affecting profitability dollar for dollar.

The sharp decline in consolidated EPS reflects a difficult comparison rather than deterioration in continuing operations. The prior-year quarter included a $266.3 million gain from discontinued operations related to the Centuri disposition.

The Q3 2026 adjustment primarily excluded $2.0 million of nonrecurring executive compensation, partly offset by its tax effect.

Business and Regulatory Performance

Natural gas distribution net income increased by $6.9 million. Utility operating margin rose by $3.8 million, including approximately $3.2 million from updated California rates, $1.8 million from regulatory-account recoveries, $1.6 million from customer growth in Arizona and Nevada, and $1.5 million from Arizona’s System Integrity Mechanism.

Those benefits were partially offset by a $3.9 million reduction in nondecoupled billed margin across Arizona and Nevada and a $1.3 million decrease related to Southern Nevada’s variable interest expense recovery mechanism.

Corporate and administrative results also improved materially. The quarterly corporate loss narrowed to $0.5 million from $10.0 million, mainly because of a higher income tax benefit and $2.8 million of lower net interest deductions following the repayment of term-loan and revolving-credit balances.

Regulatory decisions provide additional revenue visibility beyond the reported quarter:

• Nevada approved nearly $48 million of incremental annual revenue, with rates effective in October 2026. The authorized return on equity remained 9.5%.
• California approved $32.6 million of incremental annual revenue and a 10% authorized return on equity, with rates effective January 1, 2026.
• Arizona regulatory staff recommended $58 million of incremental annual revenue, a 9.75% return on equity, and a transition to a formula-rate model. A hearing is scheduled for December, and the company expects new rates to become effective in April 2027.

Profitability and Balance Sheet

Lower financing costs were an important contributor to the return to continuing profitability. Net interest deductions in the utility business decreased by $4.9 million, reflecting lower over-collected purchased-gas balances, changes in regulatory deferrals and recoveries, and greater capitalization of borrowing costs through debt allowance for funds used during construction.

Cost growth partly offset that benefit. The utility earnings bridge included $2.0 million of higher operating and maintenance expense, driven by employee costs and bad-debt expense, while depreciation and amortization increased $1.8 million to $80.9 million. Gas plant in service expanded by $788.2 million, or 7%, due to pipeline reinforcement, required franchise work, pipe replacement, and new infrastructure.

Southwest Gas ended the quarter with nearly $0.7 billion of available liquidity. Capital investment totaled almost $806 million on an accrual basis during the first nine months of 2026, including approximately $148 million for the Great Basin 2028 project. The utility’s trailing 12-month return on period-end equity was 8.0% on both a GAAP and adjusted basis.

Great Basin 2028 Offers Contracted Growth but Carries Execution Risk

The Great Basin expansion is becoming a central part of Southwest Gas’s long-term capital plan. The company expects the estimated $2.3 billion project to generate $270 million to $300 million of incremental annual margin beginning at the anticipated Q4 2028 in-service date.

Shippers have signed binding precedent agreements supporting 1 billion cubic feet per day of contracted demand. Following regulatory approval, those customers would be required to sign transportation agreements with minimum 20-year terms. The company remains on track to file its Federal Energy Regulatory Commission certificate application by year-end 2026.

Project spending is expected to be distributed approximately 15% in 2026, 25% in 2027, and 60% in 2028. The concentration of spending in 2028 makes regulatory approval, construction timing, and cost control increasingly important as the project advances.

Earnings Guidance

Management reaffirmed all 2026 and long-term guidance ranges. The company said the updated Great Basin project estimate should not materially affect 2026 capital expenditure guidance, although its current long-term guidance still incorporates $1.7 billion of incremental Great Basin capital rather than the updated $2.3 billion estimate.

Southwest Gas plans to update its long-term guidance with its annual five-year plan in February 2027. The forward adjusted EPS guidance is non-GAAP and was not reconciled to GAAP because the company said it cannot reliably forecast potential nonrecurring items.

Recent Insider Transactions

The supplied six-month summary showed two insider purchases totaling 2,392 shares and one sale of 2,500 shares, resulting in a net sale of 108 shares. These transactions should be viewed as factual disclosures rather than evidence of insiders’ outlook for the company.

The separate list of the latest 10 reported transactions also included nine stock awards or grants recorded at $0 per share; the supplied data did not provide the number of shares associated with those awards.

Risks Investors Need to Watch

• Arizona rate-case uncertainty: The $58 million annual revenue recommendation, 9.75% return on equity, and formula-rate proposal remain subject to the regulatory process. Timing or terms could differ from the company’s expectations.
• Great Basin approval and construction risk: The $2.3 billion project depends on FERC approval, construction execution, and an expected Q4 2028 completion. Most spending is scheduled for 2028.
• Long-term guidance does not yet reflect the full updated project estimate: Current guidance includes $1.7 billion of incremental Great Basin capital over five years, below the updated $2.3 billion project estimate.
• A rising utility cost base requires continued rate recovery: Quarterly operating expenses, depreciation, and property taxes increased as gas plant in service expanded 7%.
• Billed-margin pressure: Lower nondecoupled billed margin and reduced Southern Nevada recovery benefits offset part of the gains from new rates and customer growth during the quarter.

Summary

Southwest Gas returned its continuing operations to profitability in Q3 2026 despite lower consolidated revenue. Updated rates, customer growth, lower interest costs, and tax benefits more than offset higher operating and depreciation expenses, while the reaffirmed outlook indicates that management remains on track with its 2026 plan. The next major points to monitor are the Arizona rate decision, the Great Basin regulatory filing, and the February 2027 update that will incorporate the project’s revised capital estimate into the longer-term plan.