New Jersey Resources Corp (NJR) 2006 Q3 法說會逐字稿

Good day everyone and welcome to today's New Jersey Resources quarterly earnings conference call. [OPERATOR INSTRUCTIONS] At this time, I would like to turn the call over to Mr. Dennis Puma. Please go a head.

Good afternoon everybody and welcome to our third quarter conference call and web cast. I'm joined by 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 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 to this call with the assumptions forming a basis of forward-looking statements include many factors that are beyond NJR's ability to control or estimate precisely which could cause 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 statement section of today's news release on form 10-K filed November 29, 2005 and on NJR's quarterly report filed on form 10-Q on May 4, 2006. Both of which can be found at SEC.gov and in our press release today. 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. With that said, at this time I would like to introduce our CFO, Glenn Lockwood. Glenn?

Thanks Dennis, and good afternoon everyone and thanks for joining us. First of all, Larry sends his regard. He is on vacation out of the country. With the help of my colleagues, I'll be handling today's call. I am pleased to report that our business model continues to generate strong financial results despite the challenges that have been imposed by lower customer usage. I think, as all of you know, this morning we reported fiscal year-to-date earnings of $90.5 million which equated to $3.25 per basic share that compares with $83.7 million or $3.03 per basic share last year.

On a diluted basis, EPS increased 8.4% to $3.22 compared with $2.97 last year. I would like to remind everyone that last years earnings for the 9 months included a $0.22 per basic share gain on the sale of the commercial office building which was partially offset by a charge of $0.05 per share associated with an earlier retirement program for officers. The increase in our earnings this year was attributable primarily to the high results at NJR Energy Services, our unregulated wholesale energy services subsidiary.

NJRES posted strong results due to growth in its portfolio of storage and transportation contracts combined with continued market volatility. Our primary subsidiary New Jersey Natural Gas continues to enjoy strong customer growth. During the first 9 months of the year, we added 7,871 new customers and currently expect a growth rate of about 2.3%, but that growth has been tempered this fiscal year by the impact of higher wholesale natural gas prices on customer usage. On the positive side in the utility our margin share in incentive programs continue to perform very well providing benefits to both our customers and shareowners. In April, the New Jersey Board of Public Utilities extended these incentive programs through October 2007.

Now to address the usage issue. Back in December 2005, we proposed to implement a conservation usage adjustment clause commonly referred to as a decoupling cause. Our proposal as a pilot program that would replace our weather normalization clause and eliminate the length between customer usage and gross margin recovery. The CUA will enable us to help customers save money by more actively promoting conservation energy and efficiency while at the same time allowing the company to maintain a strong financial profile. Today's discussions on proposals are taken place with the [BPU] and the rate payer advocate.

We continue to remain hopeful of successful resolution of the filings so that the CUA would be in place by our fiscal 2007. If we're not successful in receiving approval of the CUA we would consider other regulatory strategies such as expanded incentive programs and/or the filing of a base rate case. Next, assuming the continuation of lower customer usage, stable economic conditions, continued customer growth at NJNG and continued volatility in the wholesale natural gas markets at NJRES, along with the impact of seasonality on a company businesses and subject to the factors that Dennis mentioned earlier on the forward-looking statements today we are estimating that earnings for the entire fiscal 2006 will be toward the upper end of $2.75 to $2.85 per basic share range. This performance would represent the 15th consecutive year of earnings growth for the company which to our knowledge is the longest streak in our industry.

Now a little more behind some of the numbers. As I said, year-to-date earnings were $90.5 million or $3.25 per basic share compared with $83.7 million or $3.03 per basic share last year. On a diluted basis, earnings grew 8.4% to $3.22 and again, the increase in the 9 months was due primarily to NJR Energy Services.

For the quarter, ended June 30, 2006, we posted a loss of $4 million or $0.14 per basic and diluted earnings per share compared with earnings of $0.07 per basic and diluted earnings per share last year. The decrease in earnings for the quarter is attributable primarily to the weaker results at both [RES] and NJNG due primarily to the impact of seasonality and [6 clause] associated with our capacity assets. Another quick update on our share repurchase program. You may recall that earlier this year we announced an increase in the plan to 3.5 million shares.

So far during fiscal 2006 we have purchased 305,100 shares under this plan, bringing the total we have purchased since its inception in September 1996, to 2 million 460,000 shares. To get into the segment information a little more detail at New Jersey Natural Gas, NJNG earnings $53.8 million during the 9 months ended June 30, compared with $57 million last year.

For the 3 months, NJNG earned $1.7 million compared with $3.9 million last year and the decrease in both periods were due primarily to the impact of the lower customer usage I mentioned earlier. We believe that this lower usage was due to primarily to the pass through higher wholesale natural gas prices which offset the continued strong customer growth. NJNG remains our core business and it continues to be characterized by strong retail customer growth, a very stable customer base with about 90% of our customers residential and excellent marketplace demographics.

As I mentioned earlier, we have added 7,871 new customers, 34% of which converted from other fuels. In addition 175 existing customers added natural gas heat to their services. We currently continue to anticipate annual customer growth rate of about 2.3% for the entire fiscal year and again about one-third of those are expected to convert from other fuels. Some information about the weather.

The weather during the 9 months ended June 30th was 9.8% warmer than normal and 11.9% warmer than last year. For the 3 months ended June 30th, the weather was 26.3% warmer than normal and 27.6 % warmer than last year. Again, normal weather is based on 20-year average temperatures. The impact of the weather is offset by our weather normalization clause which is designed to smooth out year-to-year fluctuations and our margins and customers bills that may result from change in weather patterns.

Included in the WNC, is the assumption that usage per degree day is equal to the average of the last four years. As a result of the weather we were able to accrue $10.2 million of gross margin for the 9 months ended June 30 to be collected from customers in the future. However, because of the lower usage per degree day and we calculate that the uses per degree day was 5.6% lower than that 4 year average embedded in the WNC, we believe that this lower usage was primarily related to the higher gas prices and its impact on customer usage.

The December CUA filing I mentioned earlier would replace the WNC and the CUA mechanism would capture the variances related to both customer usage, all variances related to customer usage. The way it would work, a benchmark for the customers usage would be established and NJNG would compare actual results to the benchmark on an annual basis. Any adjustments positive or negative would be made in the following year.

At this time I'd like to introduce Joe Shields, our Senior Vice President of Energy Services, to discuss the results of our utility and incentive programs and NJNG Energy Services. .

Thanks. During the first 5 months of the fiscal year, New Jersey Natural gross margin incentive program which includes off system sales, capacity management, storage optimization and financial risk management programs totaled 30 bcf and 6.5 million of gross margin, compared with 38.7 bcf and 4.8 million of gross margin for the same periods last year. The increase in gross margin was due to the storage incentive of financial risk manager programs both which benefited from the volatility of the wholesale natural gas commodity market.

For the 3 months ended June 30, 2006, these programs totaled 8.3 bcf and 481,000 gross margin compared to 10.1 bcf and 799,000 of gross margin for the same period last year. The decrease in gross margin was due to timing differences in the storage incentive programs. New Jersey Natural shares, the gross margin earned from these incentive programs with customer and shareowners according to a gross margin [inaudible] in effect through October 2007. This fiscal year customers save approximately 32 million in natural gas costs through these programs. Since the establishment of these incentive programs in 1992 New Jersey Natural customers have saved over 297 million of the natural gas bills or approximately 4% annually.

NJRES earned 35.5 million during this first 9 months of the fiscal year compared with 18.7 million for the last year. For the 3 months ended June 30, 2006, NJRES has loss of 6.4 million compared with a loss 3.3 million last year. The larger loss in the quarter reflects the increase amount of demand through out the course and interest expense associated with NJRES's growing portfolio storage and transportation capacity contracts. We have [inaudible] the seasonal nature of NJRES business in connection with the last quarter's earnings release. NJRES has developed a portfolio of storage and pipeline capacity contracts in the Gulf Coast, mid-continent, Appalachia and eastern Canada, which becomes more valuable when these are changes prices between the regions.

These capacity contracts will grow more valuable when prices change between time periods. Gross margin from this portfolio is also generally greater during the winter months while the fixed portion of these assets are spread through out the year. Therefore the results for the 9 months are not expected indicative of the results for the fiscal year. At this time, I'll turn the call back over to Glenn.

Quick comment about our last segment, NJR Home Services and other which includes our investment in [Iraquay] pipeline, that's where the balance of our earnings came from. NJR Home Services provides service sales installation of appliances to nearly 147,000 customers. CR&R develops commercial real estate.

As I mentioned we had a 5.53% equity interest in [Iraquay] gas transmission. Our earnings for the 9 months ended June 30th in this segment were $1.1 million compared with $8 million last year. Quick to point out that last year's large earnings included a gain on a sale of a commercial office building of approximately $6 million. So net of that gain this segment portion of the earnings were $2.6 million last year. For the 3 month ended June 30, this segment earned $724,000 compared with earnings of 1.3 million last year.

The decrease in the earnings in this segment are due primarily to higher corporate expenses and last year's 3 month earnings also included a smaller gain on sale of $210,000. With that, we'll turn the call back over for questions.

[OPERATOR INSTRUCTIONS] We'll take our first question from Dan Fidell.

Good afternoon, guys. Just a quick question on the Home Services segment on corporate expense, can you just talk a little bit about where you see that directionally in the coming quarters? In other words is this third quarter a good run rate for us to be using going forward.

We factored it into the updated guidance for the year which we payed at the upper end of range that we gave at the beginning of the year. So we factored that into that estimate.

Then maybe just another question. Just generally speaking, the discussions you're having with regulators on decoupling are those still going corporative and could we be nearing the end of that process here, it seems like it has be going on for sometime now.

I mentioned earlier that we do still are hopeful for a resolution of our fiscal year '07. Obviously that's October 1st. The board has to schedule board meetings left in August and September. So we are cognizant of the fact that they are very involved in the PSE&G-Exelon merger, as we speak. We are still hopeful of a resolution in time.

You know how important when we do those kind of mechanism really do think they make a lot of sense. Good luck to you as you go forward with it

Thank you.

I would like to remind our audience that is star one if you'd like to ask a question. We'll pause for just a moment. And a final reminder to audience that is star one if you'd like to ask a question. We'll go ahead and take a question from Joanne Fairechio with Janney Montgomery Scott.

Good afternoon, you guys. Obviously high commodity prices impact customer usage and you're starting to see that more and more. Are you seeing any increase in your bad debts? That's something you haven't had a problem with. And how are you preparing your customers for the upcoming winter?

We have not seen any significant change in our write off activity that would necessitate any additional bad debt expense other than normal rate approved accrual. That's obviously also in the numbers that you're seeing and part of our OMN increase. The rate as a percent of revenue has not been affected yet.

As far as getting ready for the winter we noted in a couple of press releases that we are expecting a 6.6% decrease in our [BGSS] rate coming up this winter along with over $20 million of refunds. Going into the winter we obviously needed that big 22% increase based on commodity cost at that time and the NYMEX at that time. Despite what's happening over the last couple of days, the current prices are still much lower than the prices we got in to rates going into the winter. That, combined with the warmer weather and lower sales, we are seeing a pretty good opportunity to lower our rates and given refunds going into next winter.

Okay, thanks, Glenn.

You're welcome.

At this point, appears we have no further questions. Mr Puma, I'll hand the conference back to you.

Thank you. We appreciate your time today and we will talk to you next quarter. Thank you very much, guys.

That does conclude our conference. Thank you all for your participation. We hope you enjoy the rest of your day.