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

AGL Resources Inc. (GAS)

Q1 2012 Earnings Call

May 1, 2012 4:00 PM ET

Executives

Sarah Stashak – Director, IR

Andrew Evans – EVP and CFO

John Somerhalder – Chairman, President and CEO

Peter Tumminello – President, Sequent Energy Management

Bryan Batson – SVP, Government, Regulatory Affairs

Hank Linginfelter – EVP-Utility, Government, Regulatory Affairs

Analysts

Carl Kirst – BMO Capital Markets

Ted Durbin – Goldman Sachs

Craig Shere – Tuohy Brothers

Mark Barnett – Morningstar

Christine Cho – Barclays

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 AGL Resources Earnings Conference Call. My name is Natoya and I will be your coordinator for today’s call. As a reminder this call is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.

I would now like to turn this presentation over to Miss Sarah Stashak, Director of Investor Relations. Please proceed.

Sarah Stashak

Thank you, and thanks to everyone for joining us this afternoon to review our first quarter 2012 results. With me on call today are John Somerhalder, our Chairman, President and CEO and Drew Evans, our Executive Vice President and CFO. We also have several members of our management team here to answer your questions following our prepared remarks. Our earnings release, earnings presentation, and our Form 10-Q for both AGL Resources and Nicor Gas are available on our website. To access these materials, please visit aglresources.com.

Let me remind you today that we will be making some forward-looking statements and projections and our actual results could differ materially from those forward-looking statements. The factors that could cause such material differences are included in our earnings release and in our 10-Q. We also describe our business using some non-GAAP measures, such as operating margin, EBIT, adjusted net income and adjusted EPS. A reconciliation of those measures to the GAAP financials is available in the Appendix of our presentation as well as on our website.

We’ll begin the call with some prepared remarks before taking your questions. Drew, I’ll turn it over to you to begin.

Andrew Evans

Thanks Sarah and good afternoon everyone. Starting on slide three of our presentation, we reported 2012 GAAP earnings per share of $1.11 per diluted share for the combined enterprises, which now includes a full quarter of contribution from the legacy Nicor businesses. On an adjusted basis which excludes $6 million of after tax costs incurred during the quarter related to the Nicor merger, earnings per share were $1.16 which compares to $1.63 for the first quarter of 2011.

The primary year-over-year driver of our first quarter earnings is the addition of the Nicor businesses, the results of which are not reflected in the first quarter of 2001 GAAP comparisons. As you update your models to include the addition of the Nicor business, you should keep in mind that historically more than 50% of the legacy AGL Resources EBIT came in the first quarter of the year. With the addition of Nicor, however, the first quarter percentage is likely to be lower as Illinois winters typically start earlier and end later resulting in two quarters of strong heating demand, the first and fourth quarters.

Further, our Illinois fixed price retail business – business results are not as heavily weighted toward first quarter as SouthStar’s preferred business in Georgia is. Finally, also keep in mind that cargo shipping has historically experienced its strongest results in the fourth quarter. It will take a full-year to get a better sense of actual quarterly contribution, but I did want to point out that out to you with Nicor now in the fold, our quarterly EBIT profile will be more evenly weighted than AGL’s on a stand-alone basis over the past few years.

On an operating basis, the key drivers of performance during the first quarter of 2012 was historically warm weather experienced across our service territories. Had we experienced normal 10-year average weather at our distribution and retail segments, we estimate our diluted EPS would have been higher by approximately $0.11.

There are also some temporal effects resulting from the warm weather that impact our business that will reverse themselves overtime, some in 2012 and some in 2013. Most of these effects can be seen in our lower of cost per market for LOCOM inventory adjustments, which are a function of declining natural gas prices during the period.

The LOCOM impacts were $3 million at the Retail segment, $18 million at the Wholesale segment and $1 million at the Midstream segment. I also want to remind you that year- over-year EPS dilution on a GAAP basis is affected by the increase in our weighted average shares outstanding due to the merger.

Our weighted average share count for the quarter was $117.3 million. Our interest expense was also higher, though in line with our expectations reflecting the additional debt we issued last year in connection with the merger.

From an operating segment contribution standpoint, our distribution segment continues to be the largest segment contributor to EBIT, representing approximately 70% of total operating EBIT in the first quarter of 2012. With the exception of 2011 when we had a much lower than normal contribution from our Wholesale segment, this percentage of regulated utility earnings contribution is consistent with prior years and consistent with our desire to derive approximately 70% EBIT from our regulated businesses.

Retail Operations accounted for 22% during the quarter, Wholesale Services 7% and Midstream Operations 1%. I will cover some of the major segment variances starting with our distribution business on slide four.

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