New Jersey Resources Corp (NJR) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to today's New Jersey Resources quarterly earnings conference call. Today's call is being recorded.

At this time, I'd like to turn the call over to Mr. Dennis Puma. Please proceed, sir.

Thank you, James. Good afternoon, everybody. 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 our 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 to the call that the assumptions forming basis for 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, forward-looking statements in the forward-looking statement section of today's news release filed on Form 8-K, on Form 10-K filed on November 22nd, 2006, and on our quarterly report on Form 10-Q to be filed today. All these items can be found at sec.gov. 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 being said, I'd like to turn the call over to our Chairman and CEO, Larry Downes. Larry?

Thanks, Dennis. Good afternoon, everyone. As always, thanks for joining us on the call today. As you know, this morning we reported first quarter earnings of $28.1 million, which was $1.01 per basic share. That compared with $34.3 million or $1.24 per basic share last year. The decrease in earnings was due primarily to lower earnings at our unregulated wholesale energy services subsidiary, NJR Energy Services. Now you may recall that last year's earnings at NJRES benefited substantially from the increased market volatility in the aftermath of hurricanes Katrina and Rita, and that affected the year to year comparison. But I must tell you that we continue to be pleased with NJRES' execution of its business plan and its financial performance.

New Jersey Natural Gas Company recorded improved results. That improvement was due primarily to our new Conservation Incentive Program, which as you will see, has benefited both our customers and our share owners. Customer growth in New Jersey Natural Gas remains steady. Our incentive plans continue to perform well and our financial profile remains strong, which is supporting our capital expenditure program. Yesterday, in fact, we experienced a one day record send-out of more than 636,000 decatherms, which our system was able to handle without incident. Now, Glenn will provide you with additional details about the financial benefits of the CIP for customers and share owners. But before he does that, I just want to emphasize a few points. First of all, based upon our performance to date and our view of market conditions, we are increasing our earnings guidance for fiscal 2007 by $0.05 to a range of $2.90 to $3 per basic share.

We expect to record our 16th consecutive year of higher earnings, that is the longest streak among all natural gas and electric utilities in the country. Also, I would remind you that for the period ended December 31st, 2006, our share owners were rewarded with a one year total return of 19.4%, and on a longer term basis, have enjoyed a five year average annual total return of 12%. That longer term number compares favorably with the S&P Index return of 5.7% during the same period. We also announced in November that we were raising our dividend for the 12th consecutive year to a new annual rate of $1.52 per share. That represented a 5.6% increase. In addition, once again, actually for the fifth year in a row, we were named to the Forbes Platinum 400 list of America's best big companies.

Moderating wholesale natural gas prices also allowed New Jersey Natural Gas to provide a refund to its customers totaling $51.5 million. But overall, our fundamentals remain strong, and we expect to continue our record of consistent annual performance. And as always, I want to thank all of our investors for your support of NJR, and the fact that you have committed capital to the Company. We're very grateful for that. And with that, I'd like to turn the call over to Glenn.

Thanks, Larry. And good afternoon, everyone. As Larry mentioned, overall earnings for the first quarter were $28.1 million or $1.01 per basic share, compared with $34.3 million or $1.24 per basic share last year. On a diluted basis, earnings per share were $1.01 compared with $1.23 last year. The year to year comparison has obviously been impacted by last year's wholesale market environment and the aftermath of the hurricanes. NJNG's results increased 6.6% to $19.9 million in the quarter compared with $18.7 million in 2006. The increase in earnings was due to the impact of the CIP and continued customer growth. As you know, for the past two years, NJNG's earnings have been tempered by declining usage patterns, which was not captured in our old weather normalization clause. The new CIP captures both the impact of weather and changing usage patterns.

NJNG's gross margin this quarter included a total of $11.3 million accrued for future collection from customers under the CIP. The weather in the first quarter was 18.3% warmer than normal and 18.2% warmer than last year. Normal weather is based on 20 year average temperatures. It was the second warmest first quarter in our history. As with the weather normalization clause which proceeded it, the impact of weather is significantly offset by the recently approved CIP. Included in the CIP accrual was $8 million associated with the warmer than normal weather. The balance, or $3.3 million, was the non-weather portion of the CIP. From the customers' perspective, we have already reduced annual fixed costs by $10.6 million, and estimate that customers saved about $15 million and avoided commodity costs during the first quarter.

During the first quarter we added 2,614 new customers, 36% of which converted from other fuels. We anticipate a customer growth rate of about 2% for full fiscal 2007, with about a third of those customers converting from other fuels. During the quarter, NJNG's gross margin share and incentive programs, which include off-system sales, capacity management, storage optimization and financial risk management programs, totaled 10.6 Bcf and $3.2 million of gross margin, compared with 10.2 Bcf and $3.1 million of gross margin in the same quarter last year. NJNG is seeking regulatory approval for the extension of these programs through October, 2010. Customers saved approximately $14.4 million in natural gas costs through these programs in the first quarter. And since the establishment of these programs in 1992, NJNG's customers have saved nearly $316 million on their natural gas bills, or approximately 4% annually.

NJR Energy Services earned $7.8 million in the first quarter compared with $14.9 million last year. And as we've said, last year was substantially benefited from the market volatility in the post-hurricane market. NJRES' diverse portfolio of pipeline and storage capacity continue to generate strong gross margin. This portfolio, which, with locations in the Gulf Coast, Mid-Continent, Appalachia, Northeast and Eastern Canada, becomes more valuable when there are changing prices between those areas. Storage capacity is more valuable and prices change between time periods. Gross margin from this portfolio is generally greater during the winter months, while fixed costs of these assets are spread throughout the year.

And the balance of our earnings came from our Home Services and Other segment, which includes NJR Home Services, which provides service, sales and installation of appliances to over 141,000 customers, Commercial Realty and Resources, which develops commercial real estate, and NJR Energy, which consists primarily of a 5.53% equity investment in the Iroquois Gas Transmission System. And earnings for the quarter in this segment were $397,000 compared with $684,000 last year. And with that, I'll turn the call back over to Dennis, and open it up for questions.

James, we'd like to open the lines up for questions now.

[OPERATOR INSTRUCTIONS] Jay Yannello.

Larry, you mentioned that this past Monday was a record day, and it was cold as hell. Just wondering, was there anything you learned about the system, any enhancements, expansions or anything? Or is everything just in order, and there's no changes needed?

I think what we learned is the consistent capital expenditures that we continue to make in the system have worked well. This was the largest send-out we've had in three years. And it was really a good test for the system, and we were able to handle it. But I think it underscores the importance of really an ongoing program. We have, as you know, a lot of dollars invested, not only to support customer growth, but also the dollars we put back in for enhancement upgrades and pipeline integrity, that that program has worked well.

Okay, and as far as -- I think you gave us a good update, I think it was December. But any change in the outlook for growth, as far as building and things like that, that would affect your customer growth numbers or switching numbers?

No. We're in the 2% range, as we've said. And I think as we have explained, we have a fairly detailed process inside the Company where we're constantly looking at the conversion market, looking to outside resources to help us evaluate that. And at the same time, with the new construction market, really monitoring the activity at the planning board level and trying to keep a close watch on what various stages the different activity at the planning boards are at. And that has served us well.

Okay. And finally, your stock has done extremely well over the years. But it's been in the ditch lately, and under-performing its peers. Will there be any consideration from the Board to maybe buying back some stock here, maybe more aggressively, or doing something of that nature going forward?

Well I think you have to, first of all, look carefully. We did have some institutional selling that was going on, and I think that put some pressure on the stock. But we have the repurchase program in place. And Jay, we're always looking at a variety of financial strategies that will enhance the value of the stock.

Okay, thank you.

Dan Fidell.

Thanks for the call, as always. Just maybe if you could give us some color on the outlook for the Energy Services segment. I guess, specifically, with the boost -- modest boost to the fiscal '07 guidance, it would seem to assume a strong second quarter might be expected. Am I thinking about this right?

Dan, it's Glenn.

Hi, Glenn.

While we don't give specific quarterly guidance, we can update everyone on our -- within the annual guidance, we are projecting 25% to 35% of the earnings contributions coming from the Energy Services segment. So yes, since we are tracking below last year after the first quarter and we have now upped guidance for the year to -- and you can see the numbers. With 25% to 35% coming from Energy Services, I think you can see we still see a strong year with Energy Services.

And that 25% to 35% is unchanged from prior comments, guidance?

I believe the last guidance we gave was 25% to 30%.

Okay. And just as a clean up issue, are you assuming any one-time sales or gains included in the fiscal '07 EPS guidance?

No.

Okay, and maybe just specifically, couching on Jay's question. Can you give us some specifics on share buybacks in the latest quarter? How much was repurchased?

We'll be filing our 10-Q some time today, and there will be a schedule in there listing those details out.

Okay, great. And what about capital spending for the first quarter?

On track with the annual guidance we gave with the 10-K, so nothing unordinary, high or low, with the capital expenditures.

Okay, great. Thanks very much.

[OPERATOR INSTRUCTIONS] Joanne Fairechio.

Kind of a quick question here. I know it's a relatively small number, but I notice that earnings from the NJR Home Services and Other segment were down for the quarter. Was there anything extraordinary in either of those numbers this year or last year?

Yes, it was very small amount, as you saw. But it was just some corporate overhead that impacted this year versus last year. Operationally, there was nothing unusual in either period.

Okay, thank you.

[Mullen Glen].

Hello, this is Brooke Glenn Mullin. Really quick question. You're looking to seek regulatory approval for an extension of your incentive programs. Do you have an estimate on when you expect the final decision? Will that be close to the October time frame? Or do you expect to get that prior?

That's impossible, as you point out. We are looking for that extension, but it would really be impossible for us to speculate when that would happen.

So there's no time frame set up in terms of a procedural schedule or anything at this point?

No. Actually, the case was -- this is Mark Sperduto from Regulatory Affairs. The case was filed in December, and we've been discussing it with the parties. But this type of case doesn't proceed on any set schedule. But we will have it completed by the end of the fiscal year.

Okay, and then just more of a detail question. Your gross margin for your commercial industrial customers went up, while throughput went down and customers were about flat. Was there a change in the makeup of those customers? Or what was driving that increase?

Well, part and parcel to that is the impact of the CIP, where despite the lower usage, we are now able to capture what we effectively -- is not just the weather, but the non-weather impact through the CIP. So that should be running through all the customer classes, and it's really the CIP that makes it look that way.

Okay, thank you.

[OPERATOR INSTRUCTIONS] And it looks like we have no further questions, sir.

Okay, thank you, James. We'll see you guys next quarter.

Thank you very much for joining today's New Jersey Resources quarterly earnings conference call. The call has concluded. You may now disconnect.