AGL Resources, Inc. (GAS)

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Nicor Inc. (GAS)

Q1 2010 Earnings Call Transcript

May 3, 2010 9:30 am ET

Executives

Russ Strobel – Chairman, President and CEO

Kary Brunner – Director, IR

Rick Hawley – EVP and CFO

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Nicor Inc 2010 first quarter earnings conference call. My name is Mag, and I will be your operator for today.

(Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr Russ Strobel, Chairman, President and CEO. Please proceed sir.

Russ Strobel

Mag, thanks, and good morning, and thank you all for joining us. I am Russ Strobel, the Chairman, President and CEO of Nicor. With me this morning are Rick Hawley, our CFO; and Kary Brunner, our Director of Investor Relations.

This morning we will discuss our 2010 first quarter financial results and our annual outlook for 2010 earnings. When we have completed our remarks, we will be happy to take your questions.

Let's now turn things over to Kary.

Kary Brunner

Thanks, Russ, and good morning everyone. First, I would like to remind you that this call will include certain forward-looking statements about the operations and expectations of our company's subsidiaries and affiliates.

Although we believe our representations are based on reasonable assumptions, actual results may vary materially from stated expectations. Information concerning the factors that could cause materially different results can be found in our periodic filings with the Securities and Exchange Commission, and in this morning's press release.

As we reported in our press release this morning, preliminary first quarter 2010 diluted earnings per share were $1.33 compared to $0.96 per share for the same period in 2009.

Let me now turn things over to Rick, for the discussion of our first quarter results, and our annual outlook for the 2010 earnings.

Rick Hawley

Thanks, Kary, good morning everyone. Compared to 2009, first quarter 2010 diluted earnings per share reflect higher operating income at our gas distribution and other energy-related businesses, as well as improved corporate results, partially offset by lower operating results at our shipping business. The first quarter comparisons also reflect lower pre-tax equity investment income, and a higher effective income tax rate in 2010.

As expected, our first quarter 2010 gas distribution operating income was up compared to 2009. First quarter comparisons reflect the benefit of the rate release approved [ph] in 2009, partially offset by the decreased natural gas deliveries, due to 5% warmer weather in 2010 compared to 2009. Regarding the weather variance, while both years were colder than normal, 2009 was just more so.

Gas distribution operating results were also impacted by lower operating and maintenance cost, including lower bad debt expense, and lower company use in storage-related gas costs. As a result of the Illinois Commerce Commission’s approval of the bad debt tracker in February 2010, Nicor Gas recognized a $31.7 million pre-tax benefit attributable to 2008 and 2009’s net under-recovery of bad debt expense. As we mentioned in last quarter’s call, the benchmark against which 2010 actual bad debt expense will be compared is approximately $63 million.

The key takeaways from an economic perspective versus the bookkeeping that you will see with respect to bad debt is that in 2010, we received $32 million pre-tax in the benefit for 2008 and 2009, I just mentioned, and that our 2010 annual cost, net of rider billings and excluding the $32 million, will be $63 million. Finally, first quarter 2010 gas distribution operating income compared to 2009 reflected higher depreciation expense.

Nicor Gas’ annual outlook for 2010 operating results remains in line with our earlier expectations, which as we indicated in our February call, we expect to be higher than last year’s levels.

Moving to our shipping segment, Tropical’s first quarter 2010 operating results were lower than 2009, due to the effects of continued challenging market economics on shipping revenues. While Tropical’s 2010 first quarter shipping volumes were essentially unchanged year over year, rates in the first quarter were soft.

In February’s call, we indicated Tropical’s 2010 results were expected to be comparable to 2009. Tropical’s quarterly results did come in less than anticipated. Management is working to offset the negative impact of these lower revenues in a number of ways. We have stepped up our revenue enhancement efforts including selective rate increases, and specific customer targeting. In addition, Tropical is implementing additional cost containment initiatives such as headcount reductions, elimination of an additional charter vessel, alteration of shipping schedules, and completion of the consolidation of certain warehousing operations. These efforts are in addition to the aggressive steps Tropical took last year to respond to lower shipping volumes we saw in 2009.

Since economic challenges began impacting its business in mid 2008, Tropical has significantly reduced its overall headcount and made operational adjustments focused on asset utilization that have reduced operating cost to reposition this business for the current economy. We believe these efforts will reduce but may not totally offset the negative effect of lower than expected revenues in 2010.

Our other energy ventures first quarter 2010 operating income was up compared to last year, due primarily to higher income at our retail products and services business, partially offset by lower results at our wholesale natural gas marketing business. We currently estimate that both businesses will perform in line with earlier expectations. First quarter 2010 corporate operating results compared to 2009 were up primarily due to the weather related impact associated with certain of our retail utility bill management products.

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