Vectren (VVC)

Q2 2012 Earnings Call

August 02, 2012 3:00 pm ET


Robert L. Goocher - Vice President of Investor Relations and Treasurer

Carl L. Chapman - Chairman of the Board, Chief Executive Officer and President

Jerome A. Benkert - Chief Financial Officer, Executive Vice President, President of Vectren Shared Services and Director of VUHI


Sarah Akers - Wells Fargo Securities, LLC, Research Division



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Good afternoon, my name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vectren Corporation Second Quarter Earnings Call. [Operator Instructions] Thank you. Robert Goocher, Treasurer and Vice President of Investor Relations for Vectren Corporation, you may begin your conference.

Robert L. Goocher

Thank you, operator. Good afternoon, and thank all of you for joining us on the call today to review our 2012 second quarter results. This call is being webcast, and shortly following its conclusion, a replay will be available on our website at in the Investor Relations section. Yesterday, we released our quarterly earnings, and this morning we filed our second quarter 10-Q. Copies of our earnings release, today's slide presentation and the 10-Q can all be found on our website.

As further described on Slide 2, I would like to remind you that many of the statements made on this call will be forward-looking statements. Actual results may differ materially from those discussed in this presentation.

Carl Chapman, Vectren's Chairman, President and CEO, will provide opening comments on the quarter and review our updated 2012 earnings guidance before turning it over to Jerry Benkert, Executive Vice President and CFO, who will further discuss second quarter results and expectations from the specific businesses for the remainder of 2012. Following our prepared remarks, we will be glad to answer questions. Also joining us on today's call is Ron Christian, Executive Vice President and Chief Legal and External Affairs Officer.

With that, I'll turn it over to Carl.

Carl L. Chapman

Thanks, Robert. I'd also like to welcome everyone to today's call, and as always, we appreciate your interest in Vectren.

Turning to Slide 3 and 4, I'd like to start by saying I'm very pleased with our second quarter and year-to-date results, which were well above earnings levels in 2011. Consolidated net income for the second quarter was $25.6 million or $0.31 per share, compared to net income of $15.1 million or $0.19 per share in 2011. Year-to-date, 2012 earnings were $76.9 million or $0.94 per share compared to $59.7 million or $0.73 per share in 2011.

Utility group second quarter earnings were up almost $4 million over the prior-year period, primarily due to the new electric base rates implemented in May 2011. In addition, interest expense associated with our utility operations is lower in 2012, and last year, we were able to refinance a portion of our long-term debt and take advantage of the low interest rate environment. Overall, our utility group's strong first half of 2012 has put us in position to earn at or near our allowed returns in 2012, a goal we established back in February.

Nonutility results also showed improvement in the quarter, up $6.5 million over 2011. The exceptional performance of our Infrastructure Services segment, reflecting strong demand for its services and favorable construction conditions, led the way for the improved nonutility results. In addition, ProLiance results have improved as expected over the corresponding 2011 period, primarily due to lower fixed demand cost. Second quarter and year-to-date nonutility earnings were hampered, however, by the disappointing performance of our Coal Mining segment, which like many other Coal Mining operations, has been impacted by weak demand across the industry. Jerry will provide some details later around our outlook for Coal Mining for the remainder of 2012.

Now let me just share a few broad thoughts about Vectren's investment in Coal Mining. Our performance year-to-date, and expected loss for the year, is driven by nearly 2 million tons of lower-than-expected sales due to mild winter and low natural gas prices. While demand softness, due to the inventory build, may carry into 2013, we continue to be confident in the long-term outlook for Illinois Basin coal and believe that delays in the execution of term contracts are directly related to the temporary high coal inventory levels of current and potential customers.

At Central Appalachian, coal production continues to decline, and scrubbers continue to be installed in order to meet the EPA air quality standards. We believe our coal mines are well positioned to capture future sales when demand recovers. Market indicators suggest improving demand in 2013, with supply and demand more in balance by 2014. While I'm not able to give specific guidance for 2013, we are hopeful of greater sales and improvement beyond that in 2014. With that said, we're not satisfied with current results from our Coal Mining segment and are aggressively pursuing new contracts, including spot and export sales, in order to secure better short-term as well as long-term results. As we've previously stated, the execution of additional term contracts will allow us to give greater clarity on the timing of opening the second mine at our Oaktown, Indiana mining complex. In the meantime, we are completing the remaining development work in order to be positioned to open this to mine, and sales contracts will support the additional production. Somewhat offsetting the weakness in the coal mining operations was the continued outstanding performance of our Infrastructure Services business, which continues to exceed our expectations.

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