New Jersey Resources Corp (NJR) 2005 Q1 法說會逐字稿

Good morning, my name is Sheeka (ph), and I will be your conference facilitator today. At this time, I would like to welcome everyone to the first-quarter fiscal 2005 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Thank you, Mr. Puma; you may begin your conference.

Thank you, Sheeka. Good morning, everybody. And welcome to our first-quarter conference call and webcast. I'm joined by Larry Downes, our Chairman and CEO; Glenn Lockwood, our CFO; as well as other members of the New Jersey Resources senior management team.

As you know, certain statements in our news release and in today's call contain estimates and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We wish to caution readers of our news release and listeners of this call that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR's ability to control or estimate precisely, which could cause our results to differ materially from the Company's expectations.

A list of these items can be found but is not limited to items in the forward-looking statements section of today's news release and on Form 10-K, filed with the SEC on December 1, 2004, which can be found at SEC.gov, in our news release issued this morning, and filed with the SEC on Form 8-K. NJR does not by including this statement assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.

At this time, I would like to introduce our Chairman and CEO, Larry Downes. Larry?

Thanks, Dennis, and good morning, everyone. And thank you for joining us this morning. Once again, I am pleased to report to you that our business model continues to generate consistent financial results. As you all know, this morning, we announced earnings for the first-quarter fiscal 2005 of $30.2 million, which represented $1.09 per basic share. That compared with 24.4 million or $.89 per basic share last year, which is an increase of 22 percent.

We did have some unusual items that affected our results in the quarter. I'd like to bring those to your attention. They included a gain on the sale of a commercial office building and a charge associated with an early retirement program for officers. Net of these items, which totaled 4.5 million or $0.16 per basic share, our earnings were $25.7 million or $0.93 per basic share. That compared with 24.3 million or $0.89 per basic share last year, as I noted, which is an increase of 4.5 percent.

Before I turn the call over to Glenn to give you some more of the details behind the numbers for the quarter, there are a number of points I'd like to make. First of all, for the twelve months ended December 31, 2004, our shareowners were rewarded with a total return of 16.7 percent and on a longer-term basis have enjoyed a three-year average annual total return of almost 15 percent. That compares with 3.3 percent for the S&P 500 index during the same period of time.

Secondly, we were also pleased to announce today that our Board of Directors has authorized an increase in the Company share repurchase program, from 2 million to 2.5 million shares. As you know, it is the strength of our financial profile that allows us to have this plan in place. And as you also may recall, back in 1996, we were one of the first companies in the utility industry to implement a repurchase plan. And basically what the plan does is gives us another tool to enhance value for our shareowners.

And third, we were pleased to learn recently that for the third consecutive year, New Jersey Resources has been selected as a member of the 2005 Forbes Platinum 400 list, which recognizes top-performing companies throughout all industries that meets Forbes criteria for sales, net worth and share price.

And finally, subject to the factors discussed in the forward-looking statements that you have and that Dennis reminded us of this morning, we are on track to achieve the earnings guidance we previously disclosed for fiscal 2005. That guidance is a range of $2.65 to $2.75 per basic share. And I would remind everyone that this guidance excludes the gain on the real estate sale of $0.21 per basic share, partially offset by the charge of $0.05 per basic share associated with the early retirement program.

And finally, as always, I want to say thanks to our employees. All of this happens because of everything that they do. And they continue to be the driver who allow us to carry out everything that we're able to do in meeting our primary mission of providing safe, reliable, affordable service to our customers, while meeting the needs of all of our stakeholders. A very solid quarter for the Company; we are proud of it. And I will now turn the call over to Glenn who will get into some of the details.

Thanks, Larry. Good morning, everybody. As Larry mentioned, overall earnings were $1.09 per basic share, compared with $0.89 per basic share last year.

Some details on the unusual items Larry mentioned -- during the quarter, CR&R, our real estate subsidiary, had a pretax gain on the sale of a building of $10.1 million, which is included in operating revenues in the detailed financial attachment and is included in our NJR Home Services and other business segment. On an after-tax basis, this equates to $0.21 per basic share during the quarter.

Also during the quarter, Larry mentioned a charge for our early retirement program for officers. The pretax charge was $2.5 million, which is included in operation and maintenance expenses and is spread over all of our business segments. On an after-tax basis, this equates to $0.05 per share.

Included in today's press release -- because of these unusual items and an attempt to be as transparent as possible, we have included an extra schedule on page 7 of our press release, which provides a reconciliation of recorded and as-adjusted net income, as we've just discussed, by business segment for both of these items. And I've done the same with our total earnings-per-share calculations.

So, net of these items, our earnings were 25.7 million or $0.93 per basic share versus 24.3 million or $0.89 per basic share last year. And on a diluted basis, net of these items earnings were $0.91 per share versus $0.87 last year, an increase of 5 percent.

A little bit more detail behind our share repurchase plan. As Larry mentioned, we did increase authorized shares to 2.5 million shares during this past -- this first quarter we purchased 157,600 shares, bringing the total number of shares purchased since 1996 to 1.8 million shares at a total investment of about $64 million.

Now, into the segments in a little bit more detail -- in New Jersey Natural Gas Company, the utility earned $17.8 million in a quarter, compared with 19.1 last year. The decrease again was due primarily to their portion of the early retirement charges and some lower than expected customer usage based on the weather patterns we had in the first quarter.

Some details again about our service territory -- New Jersey Natural Gas remains our core business. We continue to see a very strong growth prospects with a stable, mainly retail, residential customer base with excellent demographics. And again, this provides the foundation for all of our activities.

Some details again about the first-quarter results from a marketing perspective -- in the quarter, New Jersey Natural Gas added approximately a half of Bcf of new throughput, which is expected to generate about 1.4 million in annual gross margin.

Looking at the year, NJNG continued to anticipate continuing to maintain an annual customer growth rate of about 2.4 percent at an approximately 1.8 Bcf of sales, which would represent approximately 5.6 percent million of annual gross margin. About 35 percent of this anticipated growth is expected to be conversions from other fuels.

The weather in the quarter was 2.5 percent warmer than normal and 1.6 percent colder than last year. Normal again for us is based on 20-year average temperatures. The impact of weather is offset by NJNG's weather normalization clause, which is designed to smooth out fluctuations both in our margin and in our customers' bills that result from the temperature.

And during the quarter, because of the warmer weather, we did accrue $800,000 of gross margin for future collection from customers based on the clause. The margin during the quarter was negatively impacted by a much lower than normal usage-per-degree day, as a few cold days during the quarter did mask an overall very warm quarter.

In the utilities incentive programs during the first quarter, those programs include our off-systems sales, capacity management, storage optimization and financial risk manager programs. They totaled 14.5 Bcf of throughput and $1.6 million of gross margin, which compares to 13.5 Bcf throughput and 1.5 million gross margin for the same period last year. I think as most everybody knows, we share those margins with our customers and shareowners according to a formula that is in effect through October 2006.

During the quarter, customers saved approximately $7.8 million in gas costs because of these programs. And since the establishment of the programs in 1992, our customers have saved $242 million on their bills or approximately 4 percent annually.

Our energies services segment, NJR Energy services, earned $6.6 million in the quarter, compared with 5.3 million during the same period last year. This increase was due primarily to the higher margin from our expanded storage in transportation portfolio. NJRES has developed a portfolio of storage and transportation capacity assets in the Gulf Coast, Mid-Continent, Appalachia and Eastern Canada and recently added capacity into the Chicago market, which becomes more valuable when there are changing prices between these areas and between different time periods.

During the quarter, NJR also entered into a transaction, which expanded our asset management services -- a transaction with Niagra Mohawk, where we will help them optimize their assets.

In our other -- the last segment, NJR Home Services and Other, this segment consists of NJR Home Services, which provides service, sales, installation of appliances to about 139,000 customers. CR&R, the real estate subsidiary I mentioned earlier, and NJR Energy, which primarily consists of our 3.2 percent equity interest in the Iroquois Gas Transmission System limited partnership. As I mentioned earlier, this is the segment that includes the impact of the gain from CR&R sales. It was a 200,000 square foot building located here in Monmouth Shores Corporate Office Park to the tenant of the building, who is Horizon Blue Cross Blue Shield of New Jersey. As I mentioned earlier, this transaction generated a $10.1 million pretax gain or $0.21 on an after-tax basis per basic share. And again, it continues our strategy of over time reducing our investment in the real estate industry.

Net of the gain on the sale of this building and this segment's portion of early retirement charges, this segment still had an improvement in earnings of $406,000 this year, compared with $40,000 last year due to strong results at Home Services business.

And with that, I'd like to turn the call back over to Dennis and any questions.

Okay Sheeka, we are ready to open the lines for questions (indiscernible).

At this time, I'd like to remind everyone (OPERATOR INSTRUCTIONS). Daniel Fidell, A.G. Edwards.

Just a few questions -- first, if you give us some -- maybe detail on O&M or some -- what earnings impact you expect from the employee restructuring -- any kind of details on workforce reductions or other improvements that should come out of this restructuring.

Yes. We are in the process now, Dan, going to the transition of the retirements and adding new people to the team. The retirement program itself right now is limited to the officer group. We had previously announced last year that we had offered an early retirement for our service companies, which was implemented. But this one we're announcing today is just at the officer level. Now, they say we are in the process of bringing new members to the team on right now.

Okay. Second question -- just on your outlook for the energy services segment as we go forward into this March quarter and for the rest of the year, especially with the additionality (ph) optimization deal with Niagara.

Dan, we would, as we've said in the past, and we wouldn't changed it -- that we expect that over time the contribution of energies services to the Company's total overall earnings would be somewhere in the range of 15 to 20 percent, over the long term. And the investments that we made this quarter are consistent with achieving that goal.

Third (ph), to say the addition of Niagara makes it more likely to be perhaps toward the higher end of that range than lower? Is that a fair question?

No, just 15 to 20 is still where we see that happening.

Okay, great.

Remember the basis growing -- the total base is growing too. So we have to add new assets to the portfolio to maintain that range.

Sure, and then maybe one more question and I'll let someone else ask a question here. Just wondering about the use of the proceeds from the building sale -- fairly significant sale. Specifically, in terms of -- will it be used to pay down debt? Are there other asset sales really looking for an interest expense run rate here.

The proceeds will be used to pay down debt, but it also -- it improves our financial structure and gives us greater flexibility to use the share repurchase program.

Okay. And in terms of -- are there additional asset sales you see over in the next few quarters -- anything of the meaningful significants like this transaction was?

No. This was a project, as you recall, we have been -- I think we announced probably about a year and a half ago and just completed it towards the latter part of last fiscal year, beginning of this fiscal year. So this was the -- actually the largest transaction, building transaction, that CR&R had been involved with in many, many years -- but nothing of that magnitude, no.

(OPERATOR INSTRUCTIONS).

Sheeka, if there's no other questions, we will close out the call at this time.

(Multiple speakers) Thank you for participating in today's first-quarter fiscal 2005 conference call. This call will be available for replay beginning at 2:00 PM Eastern Time today through 11:59 PM Eastern Time on Sunday, January 30, 2005. The conference ID number for the replay is 324-7761. Again, the conference ID number for the replay is 324-7761. The number to dial for the replay is 1-800-642-1687 4706-645-9291. Thank you, and have a nice day.