New Jersey Resources Corp (NJR) 2013 Q2 法說會逐字稿

Good morning, welcome to the New Jersey Resources second-quarter 2013 results teleconference. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn a conference over to Dennis Puma. Please go ahead, sir.

Thank you, Marie, and good morning, everyone. Welcome to the New Jersey Resources second-quarter fiscal 2013 conference call and webcast. I am joined today by Larry Downes, our Chairman and CEO; Glenn Lockwood, our Chief Financial Officer, as well as other members of our senior management team.

As you know certain items 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 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 and in our Form 10-Q to be filed on or after May 3, 2013. Both of these items can be found at FCC.gov. I

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 results.

I would also like to point out that there are slides accompanying today's discussion which are available on our website.

With that being said I would like to turn the call over to our Chairman and CEO, Larry Downes. Larry?

Thanks, Dennis. Good morning, everyone, and thank you for joining us today. During my presentation this morning I will be making forward-looking statements. Our actual results will be affected by many factors including those that are listed on slide two. I would share with you that the complete list is included in our 10-K and I would encourage you to please review them carefully.

Also as noted on slide three, I will be referring to certain non-GAAP measures such as net financial earnings, or NFE, as I'm discussing our results. We believe that NFE provides a better measure of our performance. However, it is a non-GAAP measure and any of the non-GAAP measures including NFE are not intended in any way to be a substitute for GAAP and they are discussed more fully in Item 7 on our 10-K. And I would ask you to please review that disclosure as well.

So moving to slide four, you can see we have given an updated earnings guidance for fiscal 2013. As we announced on Tuesday, we increased the lower end of our fiscal 2013 guidance and now expect our NFE for fiscal 2013 to be in a range of $2.60 to $2.75 per share. That change as you can see from the pie chart reflects better results from NJRES but I would again emphasize that the vast majority of our earnings will be generated by New Jersey Natural Gas.

Slide five summarizes the financial results we announced this morning. Our earnings of $1.64 per share for the quarter are a penny better above the consensus of $1.63 per share and as you look at the individual results, you can see that NJNG, NJRES and Midstream all had strong results. The results that you see from Clean Energy Ventures reflect lower investment tax credits.

Slide six tells the expected key drivers of our results for the balance of this fiscal year and as you can see for the rest of 2013, we expect strong results. Our earnings for the remaining six months of fiscal 2013 should be in a range of $0.10 to $0.25 per share and that would compare with a loss of $0.17 per share during the same period last year.

Slide seven summarizes our proposed capital expenditures for fiscal 2013 which we currently expect to exceed $200 million. That spending level will be driven by a 15% increase in spending by New Jersey Natural Gas compared with last year. NJNG will comprise the majority of our capital spending in fiscal 2013 and spending related to Clean Energy Ventures will make up the difference.

Let me turn to our individual company results beginning with slide eight. Our core distribution business, New Jersey Natural Gas, is having another strong year that is driven primarily by steady customer growth and accelerated infrastructure investments and we expect that New Jersey Natural Gas should contribute between 60% and 70% of our total fiscal 2013 net financial earnings.

Slide nine outlines our continued record of strong utility growth. We have added almost 3700 new customers through March; 53% of those are from conversions. We have increased our forecast for fiscal 2013 and fiscal 2014 to a range of 13,000 to 15,000 which in total would represent a new customer growth rate of between 1.3% and 1.4%. We expect that these new customers are expected to add about $3.6 million of new gross margin each year.

Slide 10 shows how low natural gas prices are supporting our new customer growth. Natural gas continues to enjoy a significant price advantage over other fuels and this price advantage has certainly helped us in attracting new conversion customers.

Slide 11 provides a view of our future growth potential and that longer-term outlook is promising as you can see from the two pie charts. Both new construction and conversion markets have healthy long-term potential and based upon our total growth estimates, we think that that number is currently more than 200,000 potential new customers.

Slide 12 gives an update on our BGSS incentives. These incentives have been in place for more than two decades now and have benefited both customers and shareowners. They are in place through October of 2015. During the first six months of the fiscal year, incentive programs generated $4.1 million of gross margin compared with $6.1 million last year. That decrease is due primarily to a decline in capacity values and the timing of our storage incentive activities.

But I think it is important to note that since inception these programs have saved our customers over $611 million and they add about $0.08 per share annually to our earnings.

Slide 13 gives an overview of our current regulatory initiatives and as you can see, we continue to work closely with our regulators, SAFE program, which is accelerated infrastructure was approved in October 2012. It includes $130 million of new infrastructure over a four-year period. Our conservation and incentive program is in place through September of 2013. We currently have an extension which was filed in March pending before the Board of Public Utilities and in looking at the CIP, it is clear that it has provided value to both our customers and our shareowners.

We are continuing to make good progress on our NGV Advantage program. We made an announcement on that just recently and a decision on the extension of our SAVEGREEN program, which promotes energy efficiency is expected from our regulators in June.

Slide 14 gives an update on Superstorm Sandy. I talked extensively about this in February but just to reiterate the main points, the impact of Sandy is lower than our original post-storm estimates. Our expectation is total storm related capital expenditures are currently estimated at $30 million to $40 million over the next three years, the majority of that will happen in fiscal 2013 and that capital will be treated as additions to our rate base.

The total incremental O&M costs are currently estimated at $15 million to $17 million. So when we look at the impact of Sandy right now, we don't see any direct impact on our fiscal 2013 earnings. We are deferring those costs and we will file that within the Board of Public Utilities on July 1 and we intend to seek recovery in our next base rate case which will be filed no later than November 2015.

So let me move to slide 15 and talk about our nonutility results starting with NJRES and you can see NJRES had a very solid performance in the face of challenging market conditions and we expect that RES will have higher net financial earnings for fiscal 2013.

As you look at the slide, you can also see that we are continuing to make progress in diversifying our sources of gross margin to increase producer services.

Slide 16 begins our discussion of Clean Energy Ventures. The results that you see here reflect lower investment tax credits due to a lower amount of capital that was placed into service but I would note that last year it included over $100 million placed into service including the $60 million McGraw-Hill project.

Our goal remains to commit $70 million to $90 million in capital annually and as I will discuss, the industry continues to be supported by a strong legislative commitment to the solar market in New Jersey.

Slide 17 gives an update on the SREC market. Prices have improved in recent months reflecting primarily a slowdown in construction. Recent prices are about $135 and that is almost double the level they were at on October 1, 2012.

New state legislation was approved in July of 2012 and that includes provisions that are designed to support a sustainable long-term solar market.

An important element of the New Jersey solar market is the Renewable Portfolio Standard which is shown on slide 18. Importantly the new legislation that was approved in July accelerated the RPS and as you look at the chart, you can see that the new RPS as shown on the yellow bars. And if you look closely you will see that as we approach energy year 14 which begins on June 1, the higher RPS comes into play.

So it is our belief right now that these changes should lead to a stronger SREC market and should give us more opportunities to economically deploy capital.

Slide 19 gives a longer-term view of how solar costs have continued to decline particularly during the last several years. This decline is important because it supports our project economics and will gradually reduce the reliance on incentives.

Slide 20 gives a summary of our capital investment in solar. To date we have installed 47 megawatts of capacity which should generate about 55,000 SRECs annually. Both our residential and commercial programs remain active and when we look at each of those programs, we see demand for residential solar is strong and we have a commercial project pipeline in excess of $140 million.

Slide 21 summarizes our Midstream Asset performance. Those assets consist of our investments in the Steckman Ridge storage project and the Iroquois Pipeline. Both of those continue to produce consistent results and we expect that their contribution to our net financial earnings will remain between 5% and 10% this year.

Finally on slide 22, Home Services had strength in installation and generator businesses in the wake of Superstorm Sandy. They continue to look for ways to expand both services provided and the markets that they participate in and we expect that their contribution to be steady 2% to 5% of our net financial earnings.

So on slide 23, we have summarized our primary financial goals which include long-term net financial earnings growth of 4% to 6%; earnings from New Jersey Natural Gas of 60%, 70%; an annual dividend growth rate of 5%, maintaining a payout ratio at or lower than the peer group average and also maintaining a strong financial profile with a minimum equity ratio of 50% to facilitate our access to capital.

Slide 24 shows our track record of how we have achieved long-term net financial earnings growth over a long period of time. And slide 25 shows our dividend growth rate which remains above the industry average and is supported by our consistent financial performance and the strength of our balance sheet.

And then slide 26, we show our current payout ratio which is lower than the peer group which should give us the flexibility to both increase the dividend in the future while at the same time reinvesting in the Company to support net financial growth.

So slide 27 shows you the fundamental drivers of our performance which you can see are strong. We expect that in fiscal 2013 that we will achieve solid earnings performance. As I noted earlier, earnings over the remainder of this fiscal year are expected to exceed last year.

Our core utility in New Jersey Natural Gas continues to provide the majority of our earnings. That is being driven by strong customer growth, accelerated infrastructure investments, and our regulatory incentives.

Our spending on Clean Energy Ventures will be consistent with our tax appetite. The goal there as I noted is to spend between $70 million and $90 million annually and as we have seen recently, an improvement in the SREC market.

Finally, we expect ongoing earnings contributions from our wholesale and retail energy services companies but those fundamentals when taken together and combined with our track record support our objectives of achieving sustainable long-term growth.

As always as I always do, I want to thank our employees. They have done just an outstanding job this year. Obviously there were challenges with Superstorm Sandy but their performance has been stellar.

And so with that, we will open it up and would welcome any questions that you might have.

(Operator Instructions). Mark Barnett, Morningstar.

Good morning, everyone. A couple of small questions here. When you are looking at the New Jersey Energy Services, you have got expanding business I see in the Rockies and the Pacific Northwest. Just wondering what you see as the opportunity there and what types of activities you are moving into in those regions?

I will ask Steve Westhoven to answer that question, Mark.

We have expanded by hiring some additional traders to dive into that region and expand our business. We have had touches into that region but it was never to the depth that we had wanted. But we see some opportunity in those markets to just expand our touch that we currently have.

Okay. A couple of other quick questions if that is all right. What in particular is driving the revised -- sorry if you actually went over this I missed it. But what is driving the lower expenditure forecast for the Sandy repairs on the CapEx side?

As we were able to get into the various areas that were most affected by the storm, Mark, primarily Barrier Islands and Long Beach Island as well as the northern parts of Monmouth County, the level of damage and the amount of investment that we would need to make repairs there was less than we expected.

As you recall going back to the days after the storm, we had a real problem with access getting to the actual areas and it was only when our team was able to get there and assess what actually damage had occurred that we were able to get a better estimate and that is what you see reflected now.

Okay. I promise one last question here on the solar cost slide, slide 19. Obviously a pretty good trajectory there on cost. Would it be reasonable to assume that you'd stay probably fairly flat from here over the next couple of years? I mean that's already a fairly -- you guys are definitely outperforming the average in the nation so --.

I will ask Rick Gardner to answer that question, Mark.

Mark, we will [sell] relatively flat if technology stays the same but as there's breakthroughs with panels, maybe the density of the panels, it will reduce labor because you would handle less panels for the same capacity. That is what will drive costs down in the future.

Okay. Thanks, guys.

Thanks, Mark.

(Operator Instructions). Joanne Fairechio, Energy Research.

Good morning, everyone. I was looking at your numbers for your customer growth on page nine and I noticed that you had 20% of your conversions from electricity and that intrigued me. Is that a result of Sandy? Are you seeing more homes interested in converting to gas because of what happened last year with the power outages or is there something else there?

Joanne, I am going to ask Tom Massaro to answer that question.

Joanne, that is mostly a factor of price differential between electric and natural gas so we have added about across all different fuel sources about 300 customers from the effect of the Superstorm Sandy that would [burn other fuels] over to natural gas and that includes oil and propane and electric. The majority of the electric conversion is driven from the price differential between electric and natural gas.

Okay. Customer additions overall, particularly at the new -- obviously the new construction customers, so I assume you are seeing a pick up in the economy in the area, is that the reason?

Mostly the multifamily that are going up now and especially in Ocean County that is driving the new construction numbers.

Okay, thank you.

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Dennis Puma for any closing remarks.

Thank you, Maureen. Thanks everybody for joining us this morning. As a reminder, a recording of the call will be available on our website for a replay. We appreciate your interest and investment in New Jersey Resources. We will see most of you in Florida. Thank you. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.