TECO Energy Management Discusses Q2 2012 Results - Earnings Call Transcript

TECO Energy (TE)

Q2 2012 Earnings Call

August 02, 2012 9:00 am ET

Executives

Mark M. Kane - Director of Investor Relations

Sandra W. Callahan - Chief Financial Officer, Senior Vice President of Finance & Accounting and Chief Accounting Officer

John B. Ramil - Chief Executive Officer, President, Director and Member of Finance Committee

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

John Kiani - Deutsche Bank AG, Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Andrew Bischof - Morningstar Inc., Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Presentation

Operator

Good morning, my name is Wendy, and I will be your conference operator today. At this time, I would like to welcome, everyone to the TECO Energy's Second Quarter Results and 2012 Outlook Conference Call. [Operator Instructions] Thank you. Mr. Kane, you may begin your conference.

Mark M. Kane

Thank you, Wendy, and good morning, everyone, and thank you for joining us for TECO Energy's Second Quarter Results Conference Call and Webcast. Our earnings, along with unaudited financial statements were released and filed with the SEC earlier this morning.

This presentation is being webcast and our earnings release, financial statements and the slides for this presentation are available on our website at tecoenergy.com and on the Investors page. The presentation will be available for replay through the website approximately 2 hours after the end of the presentation and will be available for 30 days.

In the course of our remarks today, we'll be making forward-looking statements regarding our financial outlook for the remainder of 2012. There are a number of factors that could cause our actual results to differ materially from those that we'll discuss as our outlook and expectations today. For a more complete discussion of these factors, we refer you to the discussion of the risk factors in our Annual Report on Form 10-K for the period ended December 31, 2011.

There is additional helpful information related to the state and local economies contained in the appendix to today's presentation.

Today, Sandy Callahan, TECO Energy's Chief Financial Officer, will cover our results and our outlook. Also with us today to participate in answering your questions is John Ramil, our Chief Executive Officer. Now I'll turn it over to Sandy.

Sandra W. Callahan

Thank you, Mark. Good morning, everyone, and thank you for joining us and another busy day for utility earnings reports. I understand that there are at least 10 companies releasing today, so I'll keep my remarks brief. I'll cover second quarter results, local and state economic indicators and our advised guidance for this year.

In the second quarter, net income was $73.1 million or $0.34 a share, compared with $77.5 million or $0.36 in 2011. On a year-to-date basis, net income in 2012 was $123.6 million or $0.58 a share compared with $129.2 million or $0.60 last year. The most significant factor impacting the year-over-year comparisons, in both the quarter and 6 months, were the effect of milder weather on electric sales.

Tampa Electric reported lower net income in the 2012 quarter, despite having had the strongest customer growth we've seen since late 2007. Since it began to turn at the end of 2009, customer growth has been on a solid trend up. And for the second quarter this year, reached 1.3%.

Retail net energy for load in the second quarter was 2.3% lower than last year. Total degree days were 6% below last year, primarily due to a wet and mild month of June, including the effects of Tropical Storm Debby the last week of the month. This negatively impacted sales to residential customers, although commercial and industrial sales were up. Tampa Electric also had higher depreciation expense due to normal additions to facilities and higher operations and maintenance expense.

Peoples Gas reported higher results than last year and customer growth had reached 1.2% in the second quarter. Weather isn't a factor in the second quarter gas consumption. And we saw a firm sales increase in every retail segment, residential, commercial and industrial, as the Florida economy continues to improve. Peoples also benefited from lower O&M expense in the quarter compared with last year.

For the unregulated companies, TECO Coal's results for the quarter reflected higher margin, but lower sales volume from last year. The average selling price for the quarter rose to $94 per ton due to met coal prices locked in when the market was strong and higher average steam coal prices following the expiration of a below-market contract at the end of last year. The second quarter price was below the $96 average price expected for the full year, as the sales mix this quarter was more heavily weighted to steam coal due to the timing of metallurgical coal shipments which will occur in the second half of the year.

The all-in cost of production was $84 per ton, just below the middle of the cost guidance range, after experiencing higher first quarter cost associated with idling some facilities in that quarter. TECO Coal has been successful with its cost control action to offset the effects of spreading fixed costs over fewer tons.

Second quarter net income at TECO Guatemala was higher than 2011, reflecting higher contract and spot sales volume and lower operating expenses. Other positive impacts, although smaller, include higher earnings from the TECO's gas pipeline that serves Jacksonville Electric and lower parent interest.

We are revising our earnings per share guidance for the year to a range between $1.20 and $1.30, excluding any non-GAAP charges or gains that might occur. This revision is due to the effects of the mild year-to-date weather on Tampa Electric, and the expectation that the unsold tons included in our original projections at TECO Coal will not be sold this year. This range allows for some variation in weather and customer usage of the utility and per cost and the timing of contracted shipments at TECO Coal.

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