Dominion Resources' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Dominion Resources (D)

Q1 2012 Earnings Call

April 26, 2012 10:00 am ET

Executives

Thomas Hamlin -

Mark F. McGettrick - Chief Financial Officer and Executive Vice President

Thomas F. Farrell - Executive Chairman, Chief Executive Officer, President, Chairman of Virginia Electric & Power Company, Chief Executive Officer of Dominion Energy and Chief Executive Officer of Virginia Electric

G. Scott Hetzer - Senior Vice President of Tax and Treasurer

Paul D. Koonce - Executive Vice President and Chief Executive Officer of Dominion Virginia Power

Analysts

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Unknown Analyst

Dan Eggers - Crédit Suisse AG, Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Paul Patterson - Glenrock Associates LLC

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Nathan Judge - Atlantic Equities LLP

Presentation

Operator

Good morning, and welcome to Dominion's First Quarter Earnings Conference Call. On the call today, we have Tom Farrell, CEO, and other members of senior management. [Operator Instructions] I would now like to turn the conference over to Tom Hamlin, Vice President of Investor Relations for a Safe Harbor statement.

Thomas Hamlin

Good morning, and welcome to Dominion's First Quarter 2012 Earnings Conference Call.

During this call, we will refer to certain schedules included in this morning's earnings release and pages from our earnings release kit. Schedules in the earnings release kit are intended to answer the more detailed questions pertaining to operating statistics and accounting. Investor Relations will be available after the call for any clarification of these schedules.

If you have not done so, I encourage you to visit our website and register for e-mail alerts and view our first quarter 2012 earnings documents. Our website address is www.dom.com/investors.

In addition to the earnings release kit, we have included a slide presentation on our website that will guide this morning's discussion.

And now for the usual cautionary language.

The earnings release and other matters that will be discussed from the call today may contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly report on Form 10-Q for a discussion of factors that may cause results to differ from management's projections, forecasts, estimates and expectations.

Also on this call, we will discuss the measures of our company's performance that differ from those recognized by GAAP. Those measures include our first quarter 2012 operating earnings and our operating earnings guidance for the second quarter and full year 2012, as well as operating earnings before interest and tax, commonly referred to as EBIT. Reconciliations of such measures to the most directly comparable GAAP financial measures we are able to calculate and report are contained on Schedules 2 and 3 in pages 34 to 40 in our earnings release kit.

Joining us on the call this morning are our CEO, Tom Farrell; our CFO, Mark McGettrick; and other members of our management team. Mark will discuss our earnings results for the first quarter, as well as our guidance for the second quarter of 2012. Tom will update our operating and regulatory activities as well as review the progress we have made on our growth plan. I will now turn the call over to Mark McGettrick.

Mark F. McGettrick

Good morning. Dominion's 2012 first quarter operating earnings finished at the bottom of our guidance range of $0.85 to $1 per share. Extremely mild weather in our service territory, the warmest in the 100 plus years of record keeping reduced earnings by $0.11 per share compared to normal. Adjusted for weather, earnings would have been in the upper end of the guidance range. Non-weather factors impacting first quarter earnings were lower merchant generation margins and a lower contribution from Producer Services offset by lower O&M expenses, a higher contribution from Dominion Retail and a lower effective income tax rate. GAAP earnings were $0.86 per share for the first quarter.

Now, moving to results by operating segment. At Dominion Virginia Power, EBIT for the first quarter was $324 million, which was above the high end of our guidance range. The impact of mild weather was offset by lower storm cost and cost control initiatives. The favorable variance to guidance can also be attributed to stronger than expected margins at Dominion Retail.

First quarter EBIT for Dominion Energy was $256 million which was below the bottom of its guidance range. Although Dominion East Ohio's rate structure largely decouples revenues from whether, the mild weather had a $0.01 per share negative impact on portions of its business. Results from Producer Services were also below expectations given the overall weakness in natural gas markets. Helping to offset these negative drivers were lower O&M expenses and lower fuel cost.

Dominion Generation produced EBIT of $396 million for the first quarter, which was below the bottom of its guidance range. Mild weather at Virginia Power, lower merchant generation margins and lower ancillary revenues were the principal factors driving these results. Partially offsetting these factors were reduced O&M expenses reflecting actions taken early in the year to offset the impact of lower power prices.

On a consolidated basis, interest expenses came in slightly higher than expected but the income taxes were below our estimates. A state tax benefit related to our Fairless Works power station helped reduce our overall effective income tax rate to 34% for the quarter. We now expect our full year effective tax rate to be between 36% and 37%.

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