Sempra Energy (SRE)

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Sempra Energy (SRE)

Q4 2010 Earnings Call

February 24, 2011 1:00 pm ET

Executives

Joseph Householder - Chief Accounting Officer, Senior Vice President and Controller

Steven Davis - Vice President of Investor Relations

Neal Schmale - President, Chief Operating Officer and Director

Donald Felsinger - Chairman, Chief Executive Officer and Chairman of Executive Committee

Mark Snell - Chief Financial Officer and Executive Vice President

Analysts

Craig Shere - Tuohy Brothers Investment Research Inc.

Michael Lapides - Goldman Sachs Group Inc.

Michael Goldenberg - Luminus Management

Paul Patterson - Glenrock Associates

Ashar Khan - SAC Capital

Mark Barnett - Morningstar

Faisel Khan - Citigroup Inc

Leslie Rich - Columbia Management

Presentation

Operator

Good day, and welcome to the Sempra Energy Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Steve Davis. Please go ahead, sir.

Steven Davis

Good morning, and thank you for joining us. I’m Steve Davis, Vice President of Investor Relations. This morning, we’ll be discussing Sempra Energy’s fourth quarter and full year 2010 financial results. A live webcast of this teleconference and slide presentation is available on our website under the Investors section.

With us today in San Diego are several members of our management team, including Don Felsinger, Chairman and Chief Executive Officer; Neal Schmale, President and Chief Operating Officer; Mark Snell, Executive Vice President and Chief Financial Officer; Joe Householder, Senior Vice President and Controller; and participating via telephone is Debbie Reed, Executive Vice President.

You’ll note that Slide 2 contains our Safe Harbor statement. Please remember that this call contains forward-looking statements that are not historical fact, and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. As you know, they involve risks, uncertainties, and assumptions, so future results may differ materially from those expressed on our call. These risks, uncertainties, and assumptions are described at the bottom of today’s press release, and are further discussed in the company’s reports filed with the Securities and Exchange Commission. It’s important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis. With that, I'll turn it over to Don, who will begin with Slide 3.

Donald Felsinger

Thanks, Steve. And again, thank you, all, for joining us. On today's call, I'd like to accomplish several things. First, start with the review of our fourth quarter and year-end financial results, and then talk about our dividend increase and how this aligns with our increasingly predictable earnings. And then finally, I'll give you an operational update on our Utilities and our Infrastructure businesses.

To the financial results. Earlier this morning, we reported fourth quarter earnings of $280 million or $1.15 per share compared with $288 million or $1.16 per share in the same period last year. If you exclude the results of commodities, who's assets have now been sold, earnings per share for the fourth quarter rose 34% or $1.18 per share from $0.88 per share in the fourth quarter of last year. And for the full year of 2010, we recorded earnings of $739 million or $2.98 per share compared with 2009 earnings of $1.12 billion or $4.52 per share. When you exclude the results of Sempra Commodities from both years, earnings per share for the full year rose 14% to $3.61 per share in 2010 from $3.16 per share in 2009.

Our core businesses performed well in 2010, and our earnings from those businesses exceeded our guidance for the year. With regard to the dividend, I'd like to mention that Tuesday morning, after our board meeting had approved such, we announced a 23% increase on our quarterly dividend, which brings the annualized dividend to $1.92 per share.

Exiting the Commodities Trading business marks a new chapter for Sempra. We have narrowed our strategic focus, reducing both our risk profile and earnings volatility, while leveraging our core streams. This has allowed us to significantly increase our dividend, and be able to grow the dividend while still reinvesting capital for future growth.

Now let me hand it over to Mark, so he can take you through some of the details of the financial results beginning with Slide 4.

Mark Snell

Thanks, Don. At San Diego Gas & Electric, earnings for the fourth quarter were $105 million. That's up from $67 million in the year-ago quarter. The increase was primarily due to $16 million higher margin, a $16 million benefit from the partial recovery of increased wildfire insurance premiums and a $9 million from the favorable resolution of prior year's tax matters. Full year 2010 earnings increased to $369 million from $344 million last year. The increase of $25 million was due primarily to higher margins, partially offset by higher litigation reserves.

Now moving to Southern California Gas. Fourth quarter 2010 earnings were $74 million compared to $75 million in the fourth quarter of '09. For the full year 2010, earnings for this business were $286 million, up from $273 million in 2009. The increase was primarily due to improved operating margins.

Now let's go to Slide 5. Our Generation business recorded earnings of $43 million in the fourth quarter of 2010 compared with earnings of $45 million in the same quarter 2009. The fourth quarter of 2010 included lower earnings from operations, and a $6 million loss on the sale of our 50% interest in the Elk Hills Power Plant, offset by higher renewable energy tax credits, primarily from the Copper Mountain Solar project. For the full year 2010, Generation recorded earnings of $103 million compared with earnings of $169 million in 2009. Results for 2010 reflect an $87 million charge related to the settlement of energy crisis litigations, $31 million of lower earnings from operations, primarily due to increased scheduled maintenance in 2010, offset by $48 million higher renewable energy credits, primarily from the Copper Mountain Solar project.

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