TECO Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

TECO Energy (TE)

Q1 2012 Earnings Call

May 01, 2012 5:00 pm ET

Executives

Mark M. Kane - Director of Investor Relations

Sandra W. Callahan - Chief Financial Officer, Senior Vice President of Finance & Accounting and Chief Accounting Officer

John B. Ramil - Chief Executive Officer, President, Director and Member of Finance Committee

Analysts

Andrew Levi - Caris & Company, Inc., Research Division

Greg Gordon - ISI Group Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Andrew Bischof - Morningstar Inc., Research Division

Dan Eggers - Crédit Suisse AG, Research Division

Jeff Gildersleeve

Maurice E. May - Wellington Shields & Co., LLC, Research Division

Presentation

Operator

Good afternoon, my name is Jared, and I will be your conference operator today. At this time, I would like to welcome everyone to the TECO Energy's First Quarter Results and 2012 Outlook Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mark Kane, Director of Investor Relations. Mr. Kane, you may begin.

Mark M. Kane

Thank you, Jared. Good afternoon, everyone, and thank you for joining us for TECO Energy's First Quarter Results Conference Call and Webcast. Our earnings and -- along with unaudited financial statements were released and filed with the SEC after the market closed a little while ago today. This presentation is being webcast and our earnings release, financial statements and the slides for this presentation are available on our website at tecoenergy.com. Presentation will be available for replay through the website approximately 2 hours after the end of the presentation and will be available for 30 days.

In the course of our remarks today, we'll be making forward-looking statements regarding our financial outlook for 2012. There are a number of factors that could cause our actual results to differ materially from those that we'll discuss as our outlook and expectations today. For a more complete discussion of these factors, we refer you to the discussion of the risk factors in our Annual Report on Form 10-K for the period ended December 31, 2011. There is also helpful information related to the state and local economies contained in the appendix to today's presentation.

Today, Sandy Callahan, TECO Energy's Chief Financial Officer, will cover our results. Also with us today to participate in answering your questions is John Ramil, our Chief Executive Officer.

Now I'll turn it over to Sandy.

Sandra W. Callahan

Thank you, Mark. Good afternoon, everyone, and thank you for joining us this late in the day. As we've done in prior years, we're holding our first quarter call ahead of our shareholder meeting tomorrow.

Today, I'll cover our first quarter results and business drivers, a Florida economic update and then our outlook for the remainder of this year. In the first quarter, net income was $50.5 million or $0.24 a share compared to $51.7 million or $0.24 in 2011. There were no non-GAAP charges or gains in either year.

I'll briefly highlight the quarter's drivers that were covered on our earnings release. At Tampa Electric, we had a full 1% customer growth in the first quarter, and that's the highest we've seen since the first quarter of 2007. Tampa Electric's first quarter energy sales reflected an interesting weather mix. In the extremely mild winter of January and February, the heating degree days were half of what we would've expect to see in those months. Fortunately, March was unusually hot, and so cooling degree days were almost twice what we would normally see in March, although you're doubling a small number as it's not known as a month with much air-conditioning load. So overall, base revenues were up slightly from last year, when the weather was mild throughout the quarter, and with normal increase in depreciation expense, that resulted in net income at about last year's first quarter.

First quarter therm sales at Peoples Gas also reflected the mild weather in January and February and lower sales to residential and commercial customers. Unfortunately, Peoples does not benefit from cooling degree days, so the weather impact was more pronounced on the gas company, resulting in net income lower than last year. Peoples did benefit from higher throughput for power generation customers, as gas-fired units ran more in response to the low natural gas prices. Peoples Gas also continues to experience steady customer growth, with an increase of 0.9% this quarter.

Earnings at TECO Coal were higher this quarter, the result of margin expansion of $4 per ton. Sales volumes were lower than last year, as we projected they would be in January when we reduced our volume expectations in response to market condition. The average selling price for the quarter rose to $96 per ton. This reflects met coal prices contracted when the market was stronger and higher average steam coal prices, following the expiration of a below-market contract at the end of last year. The contract to replace those tons was signed in the middle of 2011 in a more favorable pricing environment.

The all-in cost of production was almost $87 per ton, which is at the high end of our cost guidance range. The reason Q1 is at the high end is that January included costs associated with idling a facility and other actions we took to reduce production early this year. Compared to last year, production costs are higher because of: higher royalty and severance fees, which are a function of selling prices; the effective spreading fixed costs over fewer tons; and higher cost to move coal and overburden further to work around the lack of new service mining permits.

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