Westar Energy, Inc. (WR)

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Westar Energy, Inc. (WR)

Q3 2011 Earnings Call

November 04, 2011 08:00 pm ET

Executives

Bruce Burns - Director, IR

Tony Somma - SVP, CFO/Treasurer

Mark Ruelle - President & CEO

Analysts

Travis Miller - Morningstar

Michael Bates - D.A. Davidson

Andy Levi - Caris

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2011 Westar Energy earnings conference call. My name is Kim and I will be your coordinator for today. At this time all participants are in a listen-only mode. (Operator Instructions)

I would now like to turn the call over to your host for today, Mr. Bruce Burns, Director, Investor Relations. Please proceed.

Bruce Burns

Good morning. I am Bruce Burns, Director of Investor Relations for Westar Energy. Welcome to our third quarter conference call.

Last night, we filed our 10-Q and posted it along with the earnings release and supplemental materials on our website at westarenergy.com. They can be found under Supplemental Materials within in the Investors Section.

Some of our remarks will be forward looking. So I remind you of uncertainties inherent in our comments during this call or that we may have included in materials that supplement release.

Making remarks this morning are Tony Somma, CFO; and Mark Ruelle, CEO. We also have a number of our senior management team with us to answer questions. We appreciate that today’s calendar is full and we’ll have the opportunity to visit with many of you next week. So we’ll keep our comments brief.

Tony will offer highlights on the quarter, comment on guidance and update you on major projects. Mark will then comment on regulatory activities, EPA regulations that have been so much in the news recently and offer a few thoughts on the Kansas economy.

With that, I'll turn the call to Tony.

Tony Somma

Thanks, Bruce. Good morning, everyone. Earnings per share for the quarter were $1.15 compared with $1.2 last year. After adjusting for $0.17 of one-time items ongoing earnings per share for the quarter were $0.98, down a bit from last year. We reversed an accrual for legal claims for a $0.11 benefit, plus we picked up $0.06 from the sale of a non-utility investment that have been written off.

Our earnings release reconciles GAAP EPS to ongoing EPS. Earnings of a $100 million for the quarter after adjusting for those benefits were essentially flat compared to last year. EPS for the quarter reflects additional share issued to fund capital investments. For the quarter, gross margin increased $19 million or 4% due mostly to higher prices.

As measured by cooling degree days, weather in the quarter was warmer than last year. We estimate weather added about $0.07 a share. On the expense side, O&M for the quarter increased about $8 million or 8% excluding a $3 million increase in SPP transmission cost, most of which is covered by a revenue offset.

Major drivers for the O&N increases include $3 million at Wolf Creek due primarily to the increased amortization of this year’s refueling and maintenance outage cost, $3 million for higher maintenance at our other power plants, $2 million on our distribution system for tree trimming and other reliability activities and $2 million in property taxes which like transmission has a revenue offset.

Partially offsetting the increases was $2 million, a reduction in storm amortization expense, an item that will continue through the remainder of the year. SG&A expenses increased $23 million, due primarily to a reverse in a legal accrual. In combination O&N and SG&A excluding SPP transmission cost and the legal settlements are 4% and 8% higher than last year for the quarter and year-to-date respectively.

We haven’t changed our view that full-year guidance for these expenses should increase in the 2% range. This just reflects a change in the spending pattern between the two years, for this year has been fairly consistent across the quarters compared to last year when a significant amount of expense came in the fourth quarter.

Depreciation expense increased $4 million inline with our guidance and also reflecting plant additions completed last year. During the quarter, we issued an additional 1.2 million shares receiving about $26 million from shares reprised last year under a forward contract. We have 8.5 million forward shares remaining which we plan to sell later this month for about $200 million. This will raise our equity ratio to 52% consistent with our rate filing.

On the debt side, we renegotiated our $730 million credit facility in September, replacing it with another five-year facility that expires in 2016. In combination with our smaller facility, we have access to $1 billion of liquidity before including internally generated cash.

In our release last night, we affirmed ongoing earnings guidance for this year of a $1.75 to $1.90 per share which excludes the one-time benefits I mentioned. Guidance is condition on the typical factors including such things as weather, economy, COLI proceeds of which we received none so far this year and other factors we can’t control all of which we detailed on our supplemental materials.

Now let’s turn our attention to our major construction projects. All our projects are progressing well, so only I’ll comment on those larger projects for something notable has changed. Our 345 KV line from Wichita to Oklahoma is trending favorable with respect to both budget and schedule. We now estimate the cost to be only about $80 million and also expecting completing it a couple of months early in April 2012.

Read the rest of this transcript for free on seekingalpha.com