Spectra Energy's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Spectra Energy (SE)

Q4 2011 Earnings Call

February 02, 2012 10:00 am ET

Executives

John R. Arensdorf - Chief Communications Officer

Gregory L. Ebel - Chief Executive Officer, President and Director

John Patrick Reddy - Chief Financial Officer

Analysts

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Faisel Khan - Citigroup Inc, Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Matthew Akman - Scotiabank Global Banking and Market, Research Division

Craig Shere - Tuohy Brothers Investment Research, Inc.

Unknown Analyst

Presentation

Operator

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» Spectra Energy Corp., 2012 Guidance/Update Call, Jan 17, 2012
» Spectra Energy Corp. - Shareholder/Analyst Call
» Spectra Energy's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Good morning. My name is Wade, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectra Energy Earnings Conference Call. [Operator Instructions] Please note that today's call is being recorded. Thank you. Mr. John Arensdorf, you may begin your conference.

John R. Arensdorf

Thanks, Wade. Good morning, everyone. I'm John Arensdorf, Chief Communications Officer for Spectra Energy, and I'd like to thank you for joining us today. We were with many of you recently in New York, providing an overview of our 2012 business and financial plans, and we're pleased to share with you today our 2011 fourth quarter and year-end results. Leading our discussion today will be Greg Ebel, our President and CEO; and Pat Reddy, our Chief Financial Officer.

Since we had an in-depth discussion with you just a few weeks ago, we're going to move quickly through our presentation, allowing plenty of time for your questions. Greg will kick things off with an overview of 2011, then Pat will provide a more detailed look at our financial performance for the quarter and year. And Greg will return to wrap things up and provide his perspective on 2012 and beyond.

As you know, some of what we'll discuss today concerning future company performance will be forward-looking information within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and you should refer to the additional information contained in Spectra Energy's Form 10-K and other filings made with the SEC concerning factors that could cause these results to differ from those contemplated in today's discussion. In addition, today's discussion will include certain non-GAAP financial measures as defined under SEC Reg G. A reconciliation of those measures to the most directly comparable GAAP measures is available at the end of the package of information you have before you and on our website at spectraenergy.com. With that, let me now turn things over to Greg.

Gregory L. Ebel

Thanks, John. And good morning, everyone, and thanks for joining us today. As you know, we released today our full year results for 2011, a year in which we continued our track record of delivering on our commitments to you and realized net income in doing so. With respect to the fourth quarter, I'm aware that the outcome was lower than some of you had estimated, and while Pat will take you through the details, I thought it'd be worthwhile to speak to some of the unusual items and unique timing of some of those items as context for the quarter.

In the quarter, we booked a number of items that reduced income. They were associated with one, software amortization; two, employee benefits; three, acquisition-related settlements; four, captive insurance claims; and five, some tax adjustments. In total, these items weighed on earnings by about $0.03 a share. Added to these were NGL curtailments and plant reliability challenges that lowered DCPs earnings by about $0.01 this year. And then finally, with the warm start to the winter, we were able to do more plant maintenance work at U.S. Transmission and Union Gas, which increased O&M costs at those business units. Together, these items resulted in a reduction of $0.04 to $0.05 per share, and represented an accumulation of relatively small items that either would not typically cluster in a single quarter or, as in the case of NGL curtailments, are short lived, thanks to DCP's current investment in NGL pipelines and plant capacity. To the extent that any of these items may occur again in 2012, they've been taken into account in our guidance to you.

So turning back now to the bigger picture and the overall year, as I mentioned, we finished the year with record net income. We indicated that we expected to exceed our ongoing EPS target of $1.65 for the year, and we did, delivering earnings per share of $1.77. In support of that achievement, each of our business segments delivered nice EBIT increases for the year. We're benefiting from changing market fundamentals that support our growing Gas Transmission business and our Gas Processing and Distribution business throughout North America. As we look back on the year, we saw a healthy pickup at DCP from favorable NGL pricing. But as a result of the curtailments I've previously mentioned and the effects of winter storms that you'll recall early in 2011, as well as plant reliability challenges, we didn't realize all of that pickup. Fortunately, the new infrastructure being built at DCP such as Southern Hills and Sand Hills will ensure that we do unlock our growing NGL volumes and reach premium pricing markets such as Mont Belvieu.

Despite that Q4 curtailment issues I mentioned, DCP's year-end NGL production volumes were 6% above fourth quarter 2010 levels. During the year, U.S. Transmission grew its ongoing EBIT by approximately 5%, as it realized earnings from new projects brought into service. U.S. Transmission continues on a stable track. While we have growth in both 2012 and 2013 EBIT in this business unit, we expect the next significant growth in its EBIT to occur when we realized the full year benefits of our New Jersey - New York project in 2014.

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