Questar's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Questar (STR)

Q1 2012 Earnings Call

April 25, 2012 9:30 am ET

Executives

Kevin W. Hadlock - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Ronald W. Jibson - Chief Executive Officer, President, Director, Chief Executive Officer of Questar Gas Company and President of Questar Gas Company

Craig C. Wagstaff - Senior Vice President

R. Allan Bradley - Executive Vice President, Chief Executive Officer of Questar Pipeline Company and President of Questar Pipeline Company

James R. Livsey - Executive Vice President and General Manager of Wexpro Company

Analysts

Kevin A. Smith - Raymond James & Associates, Inc., Research Division

Kevin Smith

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

James Bellessa - D.A. Davidson & Co., Research Division

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division

Presentation

Operator

Good morning. My name is Lindsay and I will be your conference operator today. At this time, I would like to welcome everyone to the Questar's First Quarter 2012 Earnings Conference Call. [Operator Instructions] Kevin Hadlock, you may begin your conference.

Kevin W. Hadlock

Thank you, Lindsay. Good morning, everyone and thank you for joining us for Questar's First Quarter 2012 Earnings Conference Call. I am Kevin Hadlock, Questar's Chief Financial Officer. With me today are Ron Jibson, President and CEO of Questar Corporation; Jim Livsey, Executive Vice President of Wexpro; Allan Bradley, CEO of Questar Pipeline; and Craig Wagstaff, Senior Vice President of Questar Gas.

During this call we will be referring to our first quarter 2012 earnings presentation that can be found on our website at www.questar.com.

Moving to Slide 2. Before we begin, let me remind you that we will be making forward-looking statements during our call today and actual results could differ from our estimates for a variety of reasons that we described in our SEC filings. Also this call may reference non-GAAP financial measures. Our slides in the appendix provide reconciliations to these measures.

Let's begin on Slide 4. Yesterday, we reported first quarter 2012 net income of $75.2 million or $0.42 per diluted share. This compares to net income of $69.9 million or $0.39 per diluted share in the same period of 2011. We continue to focus on controlling costs across the company despite higher labor and pension costs, combined operating and maintenance and general and administrative costs were up only slightly in the first quarter of 2012. Operating cash flow was strong in the first quarter of 2012, totaling $162 million, up about 11% versus the same period last year. Overall capital investment was $104.2 million, up more than 37% from the first quarter of 2011.

Turning to Slide 5. All 3 business units showed earnings increases in the first quarter of 2012 versus the prior year. Corporate also showed improvement due to lower interest expense. Overall, net income in the first quarter of 2012 increased by $5.3 million or $0.03 per diluted share over net income in the same period last year.

Moving to Slide 6. Questar Gas, our retail gas distribution utility, saw an increase in gross margin of $4.6 million. EBITDA and net income were both higher by $3.5 million and $1.5 million, respectively. Questar Gas' capital investment in the first quarter of 2012 was $44.8 million, an increase of $18.9 million over last year's first quarter.

Turning to Slide 7. Wexpro, our cost of service natural gas development company, grew EBITDA to $54.5 million, up $3.6 million or 7% compared to the first quarter of 2011. Net income was up $2 million to $24.3 million, an increase of 9% over the same period last year. These results were driven largely by a higher average investment base which saw a year-over-year increase of $22.8 million or about 5%. Wexpro invested capital of $43.4 million in the first quarter of 2012 compared to $23.9 million in last year's first quarter.

Moving to Slide 8. Questar Pipeline, our interstate natural gas pipeline and storage business, delivered solid performance in the first quarter of 2012. Revenue was up slightly driven primarily by additional transportation revenues from the Overthrust Loop Expansion. Net income was $16.6 million, up $1.3 million over the first quarter of 2011. Capital investment in the first quarter of 2012 was $13.6 million, lower than the same period last year driven by the completion of several key projects in 2011.

Moving to Slide 9. With regard to costs, Questar's first quarter 2012 consolidated operating and maintenance costs were up $5.3 million primarily due to higher demand side management cost at Questar Gas, which are offset in revenue and higher work over expenses at Wexpro. General and administrative expenses were down $3.9 million primarily due to lower employee related cost. Production and other taxes were $700,000 higher due to property taxes on higher plant investment. Depreciation in the first quarter of 2012 was up $4.8 million compared to the first quarter of 2011 due to higher capital investment. Consolidated interest expense was $1.3 million lower primarily due to lower interest rates.

Turning to Slide 10. The company continues to generate strong cash flow. For the first quarter of 2012, operating cash flow before working capital changes totaled about $162 million, an 11% increase over the same period last year. At March 31, Questar had a net available liquidity of $379 million, including $8 million in cash and $371 million of unused commercial paper capacity. From a capital markets perspective, we are anticipating issuing long-term debt at Questar Gas in the second half of 2012 to refinance $132 million of maturing debt and to fund a portion of the ongoing infrastructure replacement program.

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