Atmos Energy CEO Discusses F42011 Results - Earnings Call Transcript

Atmos Energy (ATO)

F42011 Earnings Call

November 10, 2011 10:00 AM ET


Susan Giles - VP, IR

Kim Cocklin - President and CEO

Fred Meisenheimer - SVP and CFO


Ted Durbin - Goldman Sachs

Mark Barnett - Morningstar

Amit Marwaha - Citi

Peter Hark - Talon Capital


Susan Giles

Good morning everyone. Thank you all for joining us. This call is open for the general public and media but confined for financial analysts. It is being webcast live over the internet. We have placed additional slides in an appendix for those that on our website. We will not speak to them directly but are happy to take questions after our prepared remarks. If you would like to access the webcast and slides, please go to our website at and click on the conference call link.

Our speakers today are Kim Cocklin, President and CEO and Fred Meisenheimer, Senior Vice President and CFO. There are other members of the leadership team here to discuss your questions as needed. As we review this financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements and are intended to follow them with Safe Harbor rules and the Private Securities Litigation Reform 1995. With that, I’ll like to turn the call over to Kim Cocklin.

Kim Cocklin

Thank you Susan and good morning everyone and thank you very much for taking time out of your busy schedule to join us. Certainly appreciate that and we appreciate your interest in Atmos Energy. Yesterday as you are aware, we recorded earnings of $2.27 for diluted share for fiscal '11 which represents very importantly the ninth consecutive year of earnings per share growth for Atmos Energy. Additionally, our Board of Directors declared the 112 consecutive quarterly dividends and weighed the annual dividend by $0.02. Making the indicated annual dividend for fiscal '12, $1.38. We had a very good year at Atmos Energy in 2011. The excellent financial performance in the regulated operations was primarily from the execution of the regulatory strategy again and in fiscal 2011 we did achieve over $7 million from authorized rate outcomes.

Throughout the year, we also focused on enhancing our financial profile and did a very good job of reducing the number of credit facilities from three to two. We extended the length of the terms, lowered interest costs and also lowered our weighted average cost of debt. (Inaudible) our performance and our strength in credit profile efforts and raised our corporate credit rates in 2011. And additionally in fiscal '11, we concluded an accelerated share repurchase of 3.3 million shares and at an exactly repurchased price of $29.99 for diluted share. And in September, we announced a new share repurchase program of 5 million shares over 5 years.

Operationally we announced the sale of distribution assets in Missouri, Illinois and Iowa and we impaired the non-regulated Fort Necessity storage project as well as the portion of our Kentucky gathering assets.

Turning to slide four, let me mark there the reported results for fiscal '11. GAAP net income grew to 207.6 million from 205.8 million one year ago. Again the results of the Missouri, Illinois and Iowa properties will remain part of our total consolidated results and contribute to an overall earnings until we close those contract transactions. Combined weight really for distribution and Atmos pipeline Texas generated about 67 million of incremental margin in fiscal '11. On a business unit and share service operations have done an amazing and stellar job of managing O&M expense again this year and they will continue that focus going forward. We have been to absorb varying government mandated costs again and the uncollectible experience was that a remarkably low weight of 16/100th of 1% residential and commercial revenue.

Increased operating expenses were experienced this year due to the non-cash and impairment charges at our non-regulated business, but offsetting these impairment charges was a $27.8 million pre-tax gain that was associated with the unwinding of two treasury lock agreements.

Now if you turn to slide five, we can look at the diluted earnings per share and there you see reported GAAP earnings of $2.27 in fiscal '11 versus 220 in '10. Both years were impacted by unrealized mark-to-market net losses, some positive impacts from some onetime items and the effect of the accelerated share buyback program.

Slide six you can see that we stripped out the effects of the mark and the one-time items, given that adjusted EPS in fiscal '11 of $2.31 versus $2.20 in fiscal '10. You can also see the effect of the accelerated share buyback program with the year-over-year decrease in weighted average shares outstandings which resolved in an $0.08 of additional earnings in fiscal '11 compared with a penny increase in fiscal '10.

Slide seven shows a record of consistent earnings growth in 2008 on a GAAP basis and we have achieved a compounded annual growth rate of over 4% over the last three years and we will make it four years assuming we reach the middle of our fiscal '12 guidance range which is $2.30 to $2.40 for diluted share and which is going to be addressed by Fred. The annual growth rate does need our commitment to achieve earnings growth in the range of 4 to 6% every year. We've also identified the relative earning contributions from the regulated, non-regulated operations on this slide seven and a key takeaway on this slide is obviously the steady growth from necessary stable and predictable regulatory operations.

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