New Jersey Resources Corp (NJR) 2008 Q1 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources quarterly earnings 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 session. (OPERATOR INSTRUCTIONS) Thank you.

I will now turn the call over to Mr. Puma, Manager of Treasury Services.

Thank you. Good afternoon everybody and welcome to New Jersey Resources' first quarter fiscal 2008 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 or 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 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 results to materially differ 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, filed on Form 8-K filed on Form 10-K filed on December 10, 2007 and on Form 10-Q which we expect to file later today. All of 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 therein 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, and as always, thanks for joining us on the call. As you know this morning we released our first quarter earnings and I'm pleased to report that we are off to an excellent start in fiscal 2008. Earnings on a GAAP basis which include the impact of changes in the value of the derivatives that we use in our non-utility businesses were $30.2 million for the quarter or $1.09 per basic share, versus $29.4 million or $1.06 per basic share last year. Net financial earnings which is a non-GAAP measure that excludes the changes in the value of the derivative instruments used on non regulated subsidiaries rose to $36.3 million or $1.31 per basic share versus $28.1 million or $1.01 per basic share during the same period last year.

Driving our performance were the strong results of NJR Energy Services which recorded higher earnings due primarily to a larger portfolio of transportation capacity. This year as we have reported previously, we expect NJRES to contribute between 40 and 45% of our total earnings. From a return on investment perspective through December 31, 2007 our share owners were rewarded with a one year total return of 6.1%, compared with 5.5% for the S&P 500. Additionally, on January 22, 2008, our Board of Directors approved a 3 for 2 stock split. Share owners of record at the close of business on February 8, 2008 will receive 1 additional share of NJR stock for every 2 shares of common stock owned as of that date. On the same day the Board approved a 5% increase in the quarterly dividend rate from its current level of $0.40 to $0.42 on a presplit basis. The new quarterly post split rate will be payable on April 1, 2008 to share owners of record on March 14, 2008.

Our dividend payout ratio remains in the 50% range which is allowing us to maintain a very healthy balance between payments to share owners while investing in the Company to support future earnings growth. As noted in today's press release we are increasing our net financial earnings guidance for the year for fiscal 2008 by $0.05 to a range of $3.25 to $3.35 per basic share.

Now, as we all know, conditions in the financial markets remain volatile. Our strong financial profile has enabled us to maintain appropriate access to capital. Also the national slowdown in the housing market has been well documented in the media. However, we are still experiencing steady overall new customer growth. We expect this growth to contribute about $4 million in new margin during fiscal 2008. Although the new construction market has slowed, the conversion and commercial markets in our service territory have been resilient. And our regulated incentive programs in New Jersey Natural Gas also continue to contribute to our profitability. And finally, we continue to make good progress on our base rate filing.

Now, before I turn the call over to Glenn, I just want to take a couple of moments to remind everyone of the key financial goals as we outlined them at our analyst conference in January. At that meeting we put out guidance of $3 to -- $3.20 to $3.30 per share on a net financial earnings basis and as you know today we've increased that guidance by $0.05 per share. We've also said that it's our objective to achieve longer term NFE growth of 5% or better. We said at the meeting that it was our intention to grow the dividend a minimum of 5% annually. We've already exceeded that goal this fiscal year by virtue of two increases totaling more than 10%. We said that we would use our share repurchase plan opportunistically based on market conditions. The strength of our financial profile provides us with the flexibility to do just that. And finally, we said that we would maintain a strong financial profile with a minimum average equity ratio of 50% to provide access to capital as needed. And as always, I want to thank all of our share owners for their investment in New Jersey Resources and I want you to know that we'll continue to do our best to reward your confidence. Glenn.

Thanks, Larry, and good afternoon, everyone. As Larry mentioned this morning we announced a 2.8% increase in earnings for the first quarter of fiscal 2008 of $30.2 million, or $1.09 per share compared with $29.4 million or $1.06 per share last year. On a net financial earnings basis, a non-GAAP measure which excludes unrealized gains on derivative instruments related to our non regulated operations earnings increased to $36.3 million or $1.31 per basic share versus $28.1 million or $1.01 per basic share in the same period last year.

We believe that net financial earnings which exclude unrealized gains or losses related to the Company's unregulated subsidiaries and certain realized gains and losses related to natural gas that has been placed into storage at NJR Energy Services are reflective of NJR's operations, provide transparency to investors and enable period to period comparability of financial performance. We have included a definition of this measure as well as reconciliations to the most comparable GAAP measures in our news release which I encourage you to read. For the remainder of the call we will discuss items in terms of net financial earnings. Earnings at New Jersey Natural Gas, our utility subsidiary was $16.7 million in the first quarter, declining from $19.9 million in the same period last year. The decrease was due primarily to lower utility gross margin from incentive based programs and higher operation and maintenance expenses.

During the first quarter of fiscal 2008 sales in the utility gross margin from our incentive programs totaled 9.7 BCF and $1.4 million, compared with 10.6 BCF and $3.2 million for the same period last year. The decrease is due primarily to opportunities that existed last year to generate gross margin from the storage incentive program that did not exist this year. However, today customers have saved approximately $346 million since the program's inception in 1992. Operation and maintenance expense increased $3.6 million due primarily to higher compensation costs associated with the increase in number of employees and annual wage increases.

In November we filed with the New Jersey Board of Public Utilities for our first base rate increase in 14 years. We are seeking an increase of $58.4 million in base rates which would cover the cost of constructing, operating, and maintaining our infrastructure. Based on the timing of a typical review for a base rate case, any increase is unlikely to affect earnings in fiscal 2008. New Jersey Natural Gas added 1,723 new customers during the first quarter, of which 43% converted from other fuels. New Jersey Natural Gas expects to achieve a new customer growth rate of approximately 1.6 to 1.8% in fiscal 2008.

The weather during the three months was 8.2% warmer than normal, but 13.4% colder than last year. As you know, the impact of weather is significantly offset by our conservation incentive program or CIP which is designed to normalize year to year fluctuations on both our gross margin and customer's bills that may result from change in weather and usage patterns. A total of $6.1 million of utility gross margin was accrued during the first quarter of fiscal 2008 under this CIP. Included in that accrual was $2.9 million associated with the warmer than normal weather and the balance of $3.2 million was associated with non weather factors. Under the program, customers realize annual savings of $10.6 million through fixed cost reductions. Commodity cost savings during the first quarter were an additional $13 million, approximately. Normal weather is based on 20 year average temperatures as calculated based on three reference areas representative of our service territory.

Turning to NJRES, from its net financial earnings basis, the Company continues to provide solid earnings. They contributed $19.1 million to earnings in the first fiscal quarter compared with $7.8 million on a similar basis last year. The increase in net financial earnings was due primarily to increased transportation into the Northeast this quarter, this additional transportation allowed NJRES to transfer greater volumes of gas to the region. Additionally, temperatures in both the Northeast and Mid Continent regions of the United States were colder during the first quarter, compared to the same period last year. And this created the opportunity to transact around our existing assets to increase margin and enabled NJRES to take advantage of higher demand.

Finally, our retail and other segment which consists of NJR Home Services which provides service, sales, installation of appliances to over 143,000 customers and commercial realty and resources which develop commercial real estate. Also included is NJR Energy Holdings which currently consists of a 5.53% equity investment in the Iroquois Gas Transmission System, owner of an interstate natural gas pipeline in Northeast and the 50% equity investment through two wholly owned subsidiaries, Steckman Ridge GP and Steckman Ridge LP and a natural gas storage facility under joint development with a partner in Western Pennsylvania. This is expected to contribute to earnings beginning in fiscal 2010.

This business segment earned $365,000 in the first quarter of fiscal 2008, compared with the loss of $2 million last year on a GAAP basis. The increase was primarily due to unrealized gains and losses related to two long-term natural gas contracts at NJR Energy Corporation. Excluding the after tax unrealized loss of $180,000 for the three months this year and the after tax unrealized loss of $2.4 million last year, this business segment earned $545,000, compared with $402,000 last year. With that, I'll open the line up for questions.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. (OPERATOR INSTRUCTIONS) At this time, there are no questions.

We would like to thank you very much and we'll speak with you next quarter. Thank you.

Thank you for participating in today's New Jersey Resources quarterly earnings conference call. This call will be available for replay beginning at 5:00 p.m. Eastern time today through 11:59 p.m. Eastern time on February 11, 2008. The conference ID number for the replay is 31525355. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. This concludes today's conference. You may now disconnect.