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

Westar Energy, Inc. (WR)

Q1 2012 Earnings Conference Call

May 10, 2012 10:00 ET


Bruce Burns – Director, Investor Relations

Tony Somma - Chief Financial Officer

Mark Ruelle - Chief Executive Officer


Shahriar Pourezza - Citigroup

Sarah Acres - Wells Fargo

Travis Miller - Morningstar

Michael Lapides - Goldman Sachs



Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Westar Energy Earnings Conference Call. My name is Stacey, and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, to Mr. Bruce Burns, Director of Investor Relations. Please proceed.

Bruce Burns – Director, Investor Relations

Good morning. I am Bruce Burns, Director of Investor Relations for Westar Energy. Welcome to our first quarter conference call. Last night, we filed our 10-Q and posted it along with the earnings release and supplemental materials on our website at westarenergy.com. They could be found under supplemental materials within the Investors section.

Some of our remarks will be forward-looking, so I will remind you of uncertainties inherent in our comments during this call or that we may have included in materials that supplement our release.

Commenting this morning will be Tony Somma, CFO; and Mark Ruelle, CEO. Other members of our senior management team are also available to respond to questions.

Tony will offer highlights on the quarter, comment on earnings guidance and provide an updated on major projects. Mark will then comment on regulatory activities, EPA regulations and a few other thoughts on our business.

With that I'll turn the call over to Tony.

Tony Somma – Chief Financial Officer

Thanks, Bruce. Good morning. The drivers for the quarter were pretty straight forward extremely mild winter weather, unplanned outage expenses and proceeds from COLI.

Earnings and earnings per share for the quarter were $27 million and $0.21 respectively compared with $31 million and $0.27 in 2011. Earnings for Q1 2011 included about $1 million or $0.01 per share one-time expenses related to settling a legal dispute last year.

EPS for the quarter also reflect additional shares issued to fund investment in utility infrastructure. Gross margin was down $7 million or 2%, signal such a lower retail sales largely from very mild weather as measured by heating degree days, weather for the quarter was the warmest in over 50 years.

On the expense side, O&M was about $11 million or 11% higher, excluding a $7 million increase in SPP transmission costs, most of which has a revenue offset. Principal reasons for the higher O&M were $9 million for increased maintenance at Wolf Creek from both the unplanned outage and higher amortization expenses for last spring’s refill and maintenance outage and a $2 million increase in property taxes, which has a revenue offset.

The combined O&M and SG&A, excluding SPP transmission costs and the one-time legal costs, were 8% higher for the quarter, but in line with full year plans and guidance. Depreciation expense increased $3 million in line with guidance and largely reflecting plant additions.

Other income increased by $11 million due primarily to the benefit of $9 million of COLI proceeds. As we've shared with you for some time, we've planned to satisfy external capital needs for the next year or so with debt.

In March, we issued $250 million of 30-year First Mortgage Bonds at 4-1/8%, the lowest rate for us in more than 50 years. The low cost of this issue allowed us to retire $70 million of higher cost loan term debt. We have also announced the plan call of $150 million, 6.1% series First Mortgage Bonds.

We plan to utilize our low cost commercial paper to initially fund the call, which is scheduled for next week. In addition to funding CapEx we will continue to evaluate refinancing where make sense consistent with our target long-term capitalization.

Speaking of CapEx, here is an update on some of our larger projects. Plant mostly completed the upgrade of air quality equivalent for the largest unit at Lawrence Energy Center. This portion of the project represents about two-thirds of the total $300 million project cost.

The upgrade for small unit remains on schedule for competition by year end. The installation of an SCR Jeffrey remains on schedule and on budget at $240 million. Our most significant single project underway LaCygne station, while still early in the project if remains on schedule and on budget.

Turning to transmission, we placed our Wichita to Oklahoma 345 kV line into service last month ahead of schedule and more than $20 million below budget. The balance of our transmission investment is progressing according to plan.

We will not include in our CapEx estimate, our Prairie Wind joint venture project is progressing nicely. We require almost half of the rights away and we will start clearly get this month. Line construction is scheduled to begin later this year with the planned completion on late 2014.

In a release last night, we affirmed 2012 earnings guidance of $1.85 to $2 per share. Guidance is conditioned on the typical factors including such things as weather, the economy, COLI proceeds and so far this year, we have received about two-thirds of the full-year estimate and other factors we can’t control all of which we detailed in our supplemental materials.

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