埃特莫斯能源 (ATO) 2014 Q1 法說會逐字稿

Greetings and welcome to the Fiscal 2014 first-quarter results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susan Giles, from Atmos Energy Inc. Thank you. Ms. Giles, you may now begin.

Thank you, Shae. Good morning, everyone, and thank you all for joining us.

This call is open to the general public and media, but designed for financial analysts. It is being webcast live over the Internet.

We have placed slides on our website that summarize our financial results. We will refer to just a few of the slides during this live call, but we'll be happy to take questions on any of them at the end of our prepared remarks. If you would like to access the webcast and slides, please visit our website at atmosenergy.com and click on the Conference Call link. Additionally the Company's Form 10-Q was filed last night and is also available on our website.

Our speakers this morning are Kim Cocklin, President and CEO; and Bret Eckert, Senior Vice President and CFO. There are also other members of our leadership team here to assist with questions, as needed.

As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Please see slide 18 for more information regarding the risks and uncertainties we consider in making these forward-looking statements, and where to go to get more information on such risks and uncertainties.

And now, I'd like to turn the call over to Kim Cocklin. Kim?

Thank you very much, Susan, and good morning, everyone. We certainly appreciate you joining us and your continued interest in Atmos Energy.

Yesterday, we reported first-quarter consolidated net income of $87 million, or $0.95 per diluted share, compared to $80 million, or $0.88 per diluted share one year ago. After excluding unrealized margins in both periods, net income was $81 million, or $0.88 per diluted share in the current quarter, compared to $67 million, or $0.74 last year.

Regulated operations contributed 94% of our earnings. The execution of our regulatory strategy continues to drive our financial performance, and has improved the stability and predictability of earnings for the enterprise. Also, colder than normal weather positively impacted financial results in both our regulated and non-regulated segments this first quarter.

Our liquidity and financial position remains strong. Our debt capitalization ratio was 54.2% at December 31, compared with 53.5% 1 year ago.

Last week, we welcomed the news from Moody's, who upgraded our debt rating to A2 with a stable outlook. The agency upgraded our rating two notches, versus one notch for most other US utilities. Moody's cited our jurisdictional diversity and our success in increasing and stabilizing regulated margins, through rate increases and rate design improvements, as rationale for the upgrade.

Yesterday, our Board of Directors declared our 121st consecutive quarterly cash dividend. The indicated annual dividend rate for Fiscal 2014 is $1.48, which is a 5.7% increase over the 2013 annual dividend rate.

We remain very focused on enhancing system safety and reliability through infrastructure investment, and delivering shareholder value and consistent earnings growth. For the calendar year ended December 31, we delivered a total return to our shareholders of nearly 34%.

Our CFO, Bret Eckert, will review our financial results in great detail. And then we'll return for closing comments and open the call up to questions. Bret?

Thanks, Kim, and good morning, everyone.

If you follow me on slide 2, reported net income for the quarter was $87 million, or $0.95 per diluted share, compared with $80 million, or $0.88, one year ago, as Kim said. After excluding unrealized margins in both periods, net income was $81 million, or $0.88 per diluted share, compared with $67 million, or $0.74 per share last year. Results in the prior year included $3 million of income from discontinued operations from the Georgia distribution assets, which were sold in April 2013.

The first quarter of Fiscal 2014 was strong, mainly due to colder weather which, as Kim mentioned, positively affected each of our segments. Colder weather drove higher customer consumption across our distribution service territories. The cold weather increased transportation volumes in our Transmission and Storage segment, ATT, and also increased delivered volumes and margins in our non-regulated segments.

Turning to slide 3, in the current quarter, gross profit in our Natural Gas Distribution segment increased by about $20 million. $11 million of the increase is a result of weather that was 30% colder than last year, which drove a 19% increase in distribution throughput as a result of substantially colder weather, particularly in December. Rate increases contributed another $2 million.

Finally, revenue-related taxes increased by $5 million, primarily due to higher revenues in the Mid-Tex Division. However, this increase had no material impact to operating income, as the associated tax expense increased by about the same amount.

Turning to slide 4, our regulated interstate pipeline, Atmos Pipeline - Texas, generated almost $11 million of incremental margin, quarter-over-quarter. About $7 million of that amount reflects the impact of our GRIP filing that became effective in May 2013. APT also experienced an increase of about $1.4 million from higher transportation volumes, due to the colder weather.

Turning now to our non-regulated segment, and you may want to turn to slide 12, gross profit decreased about $4 million in our non-regulated segment, mainly as a result of an $8.5 million increase in realized margins, offset by a $12 million decrease in unrealized margins, quarter-over-quarter. Realized margins for gas delivery and related services increased $2.4 million due to an increase in gas delivery per-unit margin to $0.12 per MCF, from $0.10 a year ago.

The increase in per-unit margins reflects the impact of higher-margin incremental sales, particularly in December, as a result of the colder weather, coupled with a 9% increase in consolidated sales volumes of the utilities, municipalities and industrial customers. Additionally, we experienced the $6.1 million increase in other realized margins, primarily due to the timing and magnitude of losses realized on the settlement of financial positions, quarter-over-quarter.

Turning now to the expense side of the income statement. O&M increased by $9 million, quarter-over-quarter, mainly due to higher employee-related expense. The increase reflects annual merit increases, increased employee benefit costs, and lower capitalization rates associated with the lower capital spending in the current quarter. Details about our capital spending are presented on slide 5.

As you can see, CapEx decreased $9.5 million in the first quarter, compared to one year ago. Spending in our Natural Gas Distribution segment decreased about $18 million, due to our crew's inability to perform construction work in the wintery weather experienced in December. In addition, some of our cities deferred some of the projects to later in Fiscal 2014, which were originally slated for the October through December time frame.

Lastly, the prior-year quarter includes spending on a new customer information system that was completed last spring. These decreases were partially offset by a $9.5 million increase in spending at Atmos Pipeline - Texas. In the first quarter, APT completed its Line WX expansion project in the DFW area and performed higher levels of cathodic protection work to enhance the safety of the pipeline.

Moving now to our earnings guidance for Fiscal 2014. As a reminder, our practice is to provide annual earnings guidance only. We expect Fiscal 2014 earnings-per-share to be in the previously announced range of between $2.66 to $2.76 per diluted share, excluding unrealized margins. We expect the continued execution of our rate strategy to be the primary driver for the year's results.

Looking on slide 25, we anticipate annual operating income increases, up between $110 million and $130 million from approved rate outcomes in the year. In the first quarter, weather was 21% colder than normal, and O&M was lower than expected, primarily due to the weather. As the weather improves, we anticipate our crews will catch up on work initially slated for our first quarter. As a result, the O&M run rate for the remainder of the year should be higher than what we experienced in the first quarter, but still within our previously-announced targeted range, as shown on page 15.

Looking on slide 16, our capital budget range has not changed, and remains between $830 million and $850 million for Fiscal 2014. We will continue to finance these investments via cash flows, long-term debt securities, and equity while maintaining a balanced capital structure. Most importantly, our financing plans have been reflected in both our 2014 earnings-per-share guidance of $2.66, $2.76 per diluted share, and our plans to grow EPS by 6% to 8% annually through Fiscal 2018.

Thank you for your time. And now, I will hand the call back over to Kim.

Thank you, Bret. Great report.

We are certainly encouraged by our earnings report for this first quarter of Fiscal 2014, which really represents another successful chapter in our growth story that we announced at the beginning of Fiscal 2012. Our fundamental business continues to be delivering safe and reliable natural gas service to our customers, and successful execution of our rate strategy is critical to meeting our financial commitments of growing earnings-per-share 6% to 8% through Fiscal 2018 annually, as Bret said.

In the first quarter of Fiscal 2014, we did complete a number of rate proceedings which, when combined with regulatory expense deferrals, result in an increase of about $18.6 million in annual operating income. The bulk of this came from a 2012 Mid-Tex Cities' Rate Review Mechanism filing of $12.5 million.

We also currently have several rate actions that are filed and pending, which total about $43 million in requests, and intend to file another 10 to 12 cases this fiscal year that, in total, would request about $90 million. You can see slide 7 through 11 providing more detail on these rate cases.

On our regulated intrastate pipeline, Atmos Pipeline - Texas, we continue to invest capital to increase capacity, secure long-term gas supply, and enhance the reliability of our service in certain critical locations on the Mid-Tex system. Capital expenses are GRIP eligible again, with an 11.8% return on equity.

Fiscal 2013 was the third year of the three-year pilot program for the Rider REV on our APT pipeline, and we did request an extension of that Rider REV in late Fiscal 2013. And in December, the Texas Railroad Commission did grant an extension of this rider until November of 2017. That rider is an annual mechanism that adjusts regulated rates by tracking any difference between APT's non-regulated annual revenue and a benchmark credit of $84 million, and sharing that difference 75% to customers and 25% to the Company.

We remain very focused on executing our capital plan of strategically spending between $850 million and $950 million annually through Fiscal 2018 to enhance the safety and reliability of our system. We're firmly committed to delivering dependable, long-term financial success, and do intend to grow earnings-per-share 6% to 8% annually through Fiscal 2018.

We thank you very much for your time, your interest, and we'll open the call up now for questions. Shae?

Thank you.

(Operator Instructions) Gabe Moreen, Bank of America.

Good morning, all, and I will say congrats on a nice quarter, Kim.

Very good. Thank you, Gabe. It's good to hear from you.

Thank you. Two questions for me. One, Bret, I just wondered if you could walk a little bit through the O&M drivers? I think O&M came in a bit higher than we were expecting this quarter. Said you'll still be within your guidance.

It sounds like you're still expecting a decent growth rate in O&M for the remaining quarters. Can you just maybe walk us through the drivers a little bit more on that?

Yes, Gabe. Good question.

It really is just driven by the weather. If you look at the first quarter of last year, it was warmer. We got a big jumpstart last year on our CapEx, which is why CapEx in the first quarter was higher, and that caused O&M to be lower.

And we kind of had the reverse situation this quarter, being significantly colder than normal, lagging behind both a CapEx and a O&M planned spend. With that said, slide 15 has our O&M range of $470 million to $480 million, which is lower than 2013 O&M of $488 million. So, it's really just timing with regard to the weather and the crew's ability to get out and manage through it.

Got it. Thanks.

And shifting gears. Kim, can I ask you? There's -- it's been pretty public out there that there's a couple gas utility properties out there on the market. Can you speak to your appetite for potentially looking at some of those properties and whether Atmos will be looking at those?

Gosh, we haven't heard any of that. (Laughter)

I'm sure you haven't. (Laughter)

No. Yes, we've heard the same rumors that you've heard. We have publicly expressed our position that our growth strategy continues to be focused on investing in our infrastructure and having a capital budget of $850 million to $950 million -- $950 million every year through Fiscal 2018.

We're not interested in pursuing any acquisitions. We think that the prices are not within a reasonable range. They certainly don't provide the same opportunity for growth long-term for our shareholders or short-term, and they won't generate the accretion that we're showing, certainly, this first quarter and when we started our program in 2012.

So, no. We're sticking to our commitment that we made beginning in 2012 that the best growth, and the highest and best use for our capital, is investing it in our infrastructure, and providing the safe and reliable, making our system much safer and trying to pursue our goal of becoming the safest natural gas pipe -- or natural gas utility in the country.

So, no. We're not interested. We're not looking to add growth through anybody that might be on the market.

I think that was clear.

I don't know if I can be any more clear than that, but I hope that answers the question.

Perfectly clear.

It puts the concern to bed that we might be in any kind of opportunity for growth through acquisition.

That was clear. Thank you, Kim.

Great. Thank you, Gabe.

(Operator Instructions) We have no further questions at this time.

Thank you, Shae. A recording of this call is available for replay on our website through May the 5th. We appreciate your interest in Atmos Energy and thank you for joining us this morning. Good bye.