AGL Resources CEO Discusses Q2 2012 Results - Earnings Call Transcript

AGL Resources Inc. (GAS)

Q22012 Earnings Call

August 1, 2012 9:00 am ET

Executives

Steve Cave - Treasurer and Vice President, Finance

John Somerhalder - Chairman, President and Chief Executive Officer

Andrew Evans - Executive Vice President and Chief Financial Officer

Peter Tumminello - Executive Vice President, Wholesale Services, and President, Sequent Energy Management

Hank Linginfelter - Executive Vice President, Distribution Operations

Bryan Batson - Executive Vice President, Commercial Operations

Analysts

Craig Shere - Tuohy Brothers

Carl Kirst - BMC

Mark Barnett - Morningstar

Presentation

Operator

Good day, ladies and gentlemen and welcome to the second quarter 2012 AGL Resources, Inc earnings conference call. My name is Pam, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Steve Cave, Treasurer. Please proceed.

Steve Cave

Okay. Thank you and good morning everyone. Thanks for joining us this morning to review our second quarter 2012 earnings results.

Normally, you would expect that Sarah Stashak would be moderating this call, but we are happy to share that Sarah is the proud mother of a new baby boy born this past weekend. We are all very excited for her and we look forward to having her back a little bit later this year.

Joining me on the call today from our distribution operations headquarters here in Naperville, Illinois are John Somerhalder, our Chairman, President and CEO, Andrew Evans, our Executive Vice President and CFO. We also have several members of our management team here and available to answer your questions following our prepared remarks.

Our earnings release, earnings presentation and our Form 10-Qs for both, AGL Resources and Nicor Gas are available on our website. You can access these materials by visiting aglresources.com.

Let me remind you today that we will be making some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve matters that are not historical facts and are forward-looking statements and projections could differ materially from the actual results. The factors that could cause such material differences are included in our earnings release and our 10-Qs, and they are more fully described in our most recent 10-K filings.

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.

So we will begin the call today with some prepared remarks before taking your questions and I will turn it over to Drew to begin.

Andrew Evans

Thanks, Steve. Congratulations, Sarah. Good morning, everyone.

Starting on slide three of our presentation, we reported GAAP earnings per diluted share for the second quarter of $0.28 for the combined enterprise, including the legacy Nicor Gas businesses.

On an adjusted basis, which excludes $2 million of after-tax costs incurred during the quarter related to the Nicor merger, diluted earnings per share were $0.30 which compares to $0.33 in the second quarter of 2011.

The primary year-over-year driver of our second quarter earnings is the addition of the Nicor businesses, the results of which are not reflected in the second quarter of 2011 GAAP comparisons. Our business performed well during the quarter, but did reflect a $0.02 per share negative impact during the quarter due to continued warmer than normal weather.

Turning briefly to slide four, you can see that our year-to-date financial results for the first two quarters. Diluted EPS adjusted for Nicor expenses was $1.47, down from $1.96 for the same period last year. The primary reason for the declines are again, the unprecedented warmer than normal weather which had a $0.13 impact on our earnings results year-to-date.

Weaker results at the wholesale business and increases in the number of shares outstanding following the completion of merger, these were partially offset by the addition of the Nicor businesses.

On slide five, you can see that approximately 77% of the total consolidated operating EBIT for the first six-month of 2012 was generated by our distribution operations segment. Retail operations account for 19% year-to-date, wholesale services 3% and mid stream moderations, 1%.

I will cover some of the major segment variances starting with out distribution business on slide six. EBIT was $26 million, compared to the second quarter of 2011. This includes an EBIT contribution of $20 million from Nicor Gas. The warm weather had a negative EBIT effect of approximately $4 million during the quarter built across our distribution business.

We are starting to see benefits from our shared service model accrue across our entire business and one of the key metrics that we used to gauge this is O&M expense per customer. For the first six months of 2012, O&M per customer was $69, down from $75 per customer for the same period in 2011.

These numbers are adjusted to exclude rider investment programs where there is a corresponding revenue offset to associated expense. We are also seeing additional improvement for our non-regulated businesses.

Turning to the retail segment on slide seven, we reported EBIT for the second quarter of $14 million, a $13 million increase compared to the second quarter of last year. This large increase mainly reflects the addition of Nicor's retail business to our portfolio. Those businesses are less seasonal than the SouthStar business that historically was the company's entire retail operating segment.

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