NiSource Management Discusses Q2 2012 Results - Earnings Call Transcript

NiSource (NI)

Q2 2012 Earnings Call

July 31, 2012 9:00 am ET

Executives

Glen L. Kettering - Senior Vice President of Corporate Affairs

Robert C. Skaggs - Chief Executive Officer, President, Director and Interim Chief Executive Officer for Gas Distribution Segment

Analysts

Stephen J. Maresca - Morgan Stanley, Research Division

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

Faisel Khan - Citigroup Inc, Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Charles J. Fishman - Morningstar Inc., Research Division

James L. Dobson - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to your Q2 2012 NiSource Earnings Conference Call. My name is Deluj, and I will be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Glen Kettering, Senior Vice President, Corporate Affairs. Please proceed, sir.

Glen L. Kettering

Thank you, and good morning. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and CEO; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Managing Director of Investor Relations.

The focus of today's call is to review our financial performance for the second quarter of this year and to provide a business update. We'll then open the call to your questions. At times during the call, we'll refer to the supplemental slides available on our website at nisource.com. I'd like to remind all of you that some of the statements made on this conference call will be forward-looking and these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning those risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.

And now, I'd like to turn the call over to Bob Skaggs.

Robert C. Skaggs

Thanks, Glen. Good morning, and thanks for joining us. Today's agenda is focused and brief with plenty of time for questions. We'll first review our second quarter earnings which at mid-year continue to be solid, sustainable and on track with our 2012 outlook. We'll then touch on key achievements across each of our business units. We'll next provide additional color on our Gas Transmission system modernization effort, as well as our significant midstream projects in the Utica and Marcellus. Shale regions, and then we'll open the line to your questions.

Let's start with a few key second quarter takeaways, which you'll find on Slide 3 of the supplemental deck posted online this morning. As you can see, each of our 3 business units continues to deliver on a robust combination of infrastructure modernization, growth and regulatory initiatives that together, deliver significant benefits for our customers and solid value for our shareholders.

Here are a few highlights. First and foremost, we advanced several key Gas Transmission and midstream initiative. We also saw steady earnings growth from our ongoing, industry-leading system modernization and regulatory initiative. To date, those efforts have focused primarily on our Gas Distribution business, but we're now expanding that scope to include our Gas Transmission system. During the quarter, we also took steps to reduce our financing costs and strengthen our financial foundation. This disciplined financial strategy provides us with flexibility to support our deep and growing inventory of earnings accretive capital investment opportunities.

For 2012, those investment opportunities totaled over $1.4 billion. We also continued to build shareholder value when our board announced a 4%-plus annualized increased in NiSource's dividend. Great news for shareholders, particularly when coupled with our ongoing earnings growth.

And finally, as I noted earlier, our team's continued strong performance enables us to confirm that halfway through the year, we're on pace to achieve our 2012 non-GAAP earnings guidance of $1.40 to $1.50 per share. So with that backdrop, let's take a closer look at our second quarter results starting with our financial highlights on Slide 4.

As you can see, NiSource delivered net operating earnings non-GAAP of almost $67 million or $0.23 per share for the 3 months ended June 30. That compares with about $47 million or $0.17 per share for the second quarter of 2011. Our operating earnings for the quarter increased from about $164 million to over $202 million. On a GAAP basis, our income from continuing operations for the quarter was about $71 million compared to about $41 million in 2011. Schedules 1 and 2 to our earnings release shows the gap to non-GAAP reconciliation.

Let's turn now to our individual business unit results starting with our NiSource Gas Transmission & Storage operations, highlighted on Slide 5. Needless to say, it was an extremely busy, productive quarter for CEO, Jimmy Staton and the entire NGT&S team, and that progress has continued into the third quarter. From a number's perspective, NGT&S had a solid quarter, generating operating earnings of nearly $92 million compared to about $85 million for the same period last year. The primary revenue drivers were growth projects placed into service, as well as increased equity earnings for Millennium Pipeline. The team also continued to develop and execute infrastructure investment opportunities in existing and new markets including midstream projects to serve the Utica and Marcellus Shale regions. Most notably, we recently announced 2 expansive venturers with affiliates of Hilcorp Energy in the heart of the liquids-rich Eastern portion of the Utica. One arrangement is focused on developing midstream infrastructure and the other is focused on hydrocarbon development.

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