South Jersey Industries, Inc. (SJI)

Q1 2010 Earnings Call Transcript

May 6, 2010 10:00 am ET

Executives

Steve Clark – Treasurer

Ed Graham – Chairman, President & CEO

Dave Kindlick – VP & CFO

Analysts

Ryan Rosenthal – Sidoti & Co.

Jim Lykins – Hilliard Lyons

John Hanson – Praesidis

Kathleen Vuchetich – W. H. Reaves

Dan Fidell – Brean Murray, Carret

Igor Grinman – Zimmer Lucas Partners

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter South Jersey Industries earnings conference call. My name is Alicia and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be conducting a question and answer session towards the end of the conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Steve Clark, Treasurer of South Jersey Industries. Please proceed, sir.

Steve Clark

Thank you, Alicia. Good morning. I would like to welcome you to the South Jersey Industries first quarter 2010 earnings conference call and webcast. Joining me today on the call are Ed Graham, our Chief Executive Officer, Dave Kindlick, our Chief Financial Officer.

During the course of this call, we may make various remarks about future expectations, plans and prospects for South Jersey Industries. These remarks constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the company’s Form 10-K filed with the SEC and our 10-Q as well. Further, we assume no duty to update these statements should actual events differ from expectations.

I’d also like to remind you about some changes to the way we present our results. As we did on our full year 2009 conference call we’ll be discussing our business in the context of three business segments. Wholesale Energy, Retail Energy and our Regulated Utility, South Jersey Gas.

Wholesale Energy consisted South Jersey Research Group, which encompasses our pipeline and storage management activities and our Marcellus assets. Retail Energy is comprised of those non-utility, SJI entities that serve the ultimate consumer, which include Marina Energy projects, South Jersey Energy companies, commodity marketing and consulting services and the remaining non-utility businesses within South Jersey Energy Solutions.

The Regulated Utilities, South Jersey Gas will continue to be presented as we were used to seeing it. I’d like to reemphasize that there’s no change to any of the legal entity structures within South Jersey Industries rather this is simply how we view the business from a management perspective.

Now, I’d like to turn the call over to Dave Kindlick, who briefly walks you through the financial results for the first quarter of 2010. Dave?

Dave Kindlick

Thanks, Steve. Although we review our results I’d like to refer you to our first quarter 2010 earnings release which was issued earlier today for an in-depth discussion of our results both on a GAAP and economic earnings basis.

Managing the company we measure our performance based upon economic earnings. Economic earnings eliminates all unrealized gains and losses on both commodity and ineffective portion of interest rate derivative transactions and adjust for realized gains and losses attributed to hedges on inventory transactions.

The first quarter of 2010, SJI posted income from continuing operations on an economic earnings basis of $44.6 million or $1.49 per share. This represents an improvement over first quarter 2009 results of $43.7 million or $1.46 per share.

Before we look at our businesses in detail, I’d like to make a few general comments. On the Wholesale side, we benefited from volatility, commodity pricing first quarter of ‘010 that was driven heavily by weather events.

Our Retail businesses continue to see the impacts of the economic downturn. We’re also impacted by the same weather events that benefited the Wholesale business. However, despite these factors, these businesses remain overly profitable and should show significant growth for the balance of the year. This growth will be driven by renewable energy and electric marketing.

On the Utility, new business remains relatively soft; however, the strong interest in conversion activities. CIRT and CIP regulatory mechanisms are performing as expected benefiting utility performance and our customers.

Forward gas costs continue to provide working capital benefits as cash flow was positively impacted. This somewhat offset the additional CapEx required by CIRT.

Looking specifically at our non-utility activities as a whole, these businesses contributed $18.7 million of economic earnings for the first quarter of 2010, equaling performance for the same quarter of last year.

Economic earnings for the first three months of 2010 as for our Wholesale Energy segment totaled $16.3 million as compared with income of $16.1 million in the first quarter of '09.

The contributing segment of this upstream business to-date has been our asset management marketing activity. We initially lock in margins and trade around the assets we control, as market price volatility occurs.

Performance during the quarter provided a good example of trading around assets as we took advantage of weather-related volatility in January and February.

With the 2009-2010 winter season our portfolio of storage and transportation assets produced pretax value of $42 million compared with $39.5 million the prior winter season. This business segment natural gas marketing has been a significant business line for SJI.

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