DTE Energy Management Discusses Q1 2012 Results - Earnings Call Transcript

DTE Energy (DTE)

Q1 2012 Earnings Call

April 27, 2012 9:00 am ET

Executives

David E. Meador - Chief Financial officer, Executive Vice President and Member of Internal Risk Management Committee

Peter B. Oleksiak - Chief Accounting Officer, Vice President, Controller and Investor Relations Officer

Nick A. Khouri - Vice President, Treasurer and Member of Internal Risk Management Committee

Don Stanczak -

Analysts

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

Leslie Rich - J.P. Morgan Asset Management, Inc.

Kevin Cole - Crédit Suisse AG, Research Division

Brian Chin - Citigroup Inc, Research Division

Paul Patterson - Glenrock Associates LLC

Andrew Levi

Unknown Analyst

Ashar Khan

Presentation

Operator

Good day, and welcome to the DTE Energy First Quarter 2012 Earnings Release Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to your host, to Mr. Meador. Please go ahead, sir.

David E. Meador

Thank you, and good morning, everybody, and welcome to our first quarter earnings call. Before we get started, I encourage you to read the Safe Harbor statement on Page 2, including the reference to forward-looking statements. With me this morning are Peter Oleksiak, our Vice President and Controller; Nick Khouri, our VP and Treasurer; and Mark Rolling, our Director of Investor Relations. I also have members of the management team with me if needed during the Q&A session.

If you turn to Page 4, this morning we're going to cover our first quarter results, and we'll also discuss the recently filed rate case at MichCon. We'll be at the AGA financial forum on May 7 and 8, and we'll take that opportunity to update you on some of our growth projects of the 2 utilities, as well as the Gas Storage & Pipelines' Bluestone Project in the Power & Industrial, Reduced Emissions Fuel business line.

We're expecting a high today of about 55 degrees here in Detroit. Actually it's a nice, sunny day, which is consistent with what you would expect here in Michigan in April. This is a sharp contrast to the first quarter, where we experienced anything but seasonal weather. Similar to many other parts of the country, the MichCon service territory saw one of the warmest winters on record. The mild temperatures were great news for our customers in form of lower utility bills. But as you've seen in our recent press release, the warm weather had an impact on the first quarter. We did include about $8 million of that weather from January and early February when we provide the guidance.

So with that said, let me start on Page 5. We have a disciplined growth plan that will provide 5% to 6% long-terms earning growth per share. And when you combine that with our attractive dividends, it provides a 9% to 10% total shareholder return. All of this is set around one of our Northstars [ph] and that's maintaining a strong balance sheet. Both of the utilities have robust growth plans. At Detroit Edison, as we played out for you, the growth is driven primarily by mandated environmental controls and renewable energy, while at MichCon, the growth is driven by infrastructure investments, including a long-term cast iron main replacement plan and a program to move gas meters out of customer homes. The importance of these infrastructure investments is evident in the rate case that we filed last Friday at MichCon. We have a very constructive energy legislation framework in Michigan and also a regulatory structure, and we see it as our responsibility to earn that favorable construct every single day. We utilize continuous improvement, capabilities in everything we do to ensure that our utilities are controlling costs and minimizing rate increases to our customers and also ensuring great customer experiences.

Many of you have heard us talk about our intense focus that we have on continuous improvement. This is something we've been working on for many years, and I'll talk more about that when I talk about how we're going to offset weather this year. But it's something we take great pride in. As we look at the challenges of the quarter, we're going to use this continuous improvement program as a lever to help pull us in line with what our goals are for the entire year.

We continue to see attractive growth opportunities in our non-utility businesses, both at the power industrial projects and Gas Storage & Pipelines. And as I mentioned, we'll give you a more detailed update on that at AGA in just over a week.

On Page 6 is an overview of the quarter. In the face of the unusually warm winter, DTE Energy had operating earnings per share of $0.91 compared to $1.11 on the first quarter of last year. Detroit Edison earnings were flat year-over-year, while MichCon's earnings were down significantly due to the weather. Earnings at Energy Trading were down a little from last year, and we are reaffirming our full year operating earnings per share guidance of $3.65 to $3.95, and we're targeting the midpoint of $3.80. We'll leverage our cost and revenue opportunities across the portfolio businesses to offset the first quarter weather. And as we've indicated, it's a priority for us, and our balance sheet continues to remain strong. We generated over $600 million of cash from operations from the first quarter, and Nick will talk about that a little bit later in the call.

Turning to Page 7, with the first quarter behind us, I'd like to take a few minutes to take you through how I'm thinking about our full year 2012 guidance. With a final order in the Detroit Edison rate case last fall, we are expecting earnings to be relatively flat year-over-year. And this is consistent with our original guidance that we provided you. As you know, the summer cooling months and storm activities are drivers of results at Detroit Edison, and much of that still lies ahead of us. Assuming normal weather, I am confident that Detroit Edison will hit its target and actually might get slightly above midpoint. With the biggest part of 2012 heating season behind us, MichCon is going to need to work hard to reach its guidance range for the year. But with continuous improvement and potential onetime cost actions, the bottom end of the range is achievable.

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