AGL Resources, Inc. (GAS)

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AGL Resources Inc. (GAS)

Q4 2011 Earnings Call

February 22, 2012 09:00 am ET

Executives

John Somerhalder – Chairman, President and CEO

Andrew Evans – EVP and Chief Financial Officer

Peter Tumminello – EVP Wholesale Services & President Sequent Energy Management

Bryan Batson – Senior Vice President, Commercial Operations

Hank Linginfelter – EVP Distribution Operations

Michael Braswell – President of Retail Energy and President and CEO, SouthStar Energy Services

Sarah Stashak – Director, IR

Analysts

Craig Shere - Tuohy Brothers Investment Research, Inc

Ted Durbin - Goldman Sachs & Co

Carl Kirst - BMO Capital Markets

Mark Barnett – Morningstar, Inc

Josh Golden – JPMorgan

Daniel Fidell - U.S. Capital Advisors, LLC

Presentation

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter and Year-End 2011 AGL Resources Incorporated Earnings Conference Call. My name is [Shanell] and I’ll 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 is being recorded for replay purposes.

I’d now like to turn the conference over to the host for today, to Ms. Sarah Stashak, Director of Investor Relations.

Sarah Stashak

Thank you, Shanell. Thanks to everyone for joining us this morning to review our fourth quarter and year-end 2011 results. With me on the call today 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 to answer your questions following our prepared remarks. Our earnings release, earnings presentation and our Form 10-K for both AGL Resources and Nicor Gas are available on our website. To access these materials, please visit aglresources.com.

Let me remind you today that we will be making some forward-looking statements and projections and our actual results could differ materially from those forward-looking statements. The factors that could cause such material differences are included in our earnings release and our 10-K.

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 on the appendix of our presentation, as well as on our website.

Also you will note that we have modified our reporting segments to better reflect our operation post merger. We now have five operating segments. Distribution operations include the legacy AGL Resources utilities plus Nicor Gas. Retail operations include SouthStar plus Nicor’s Retail Energy and Services businesses. Wholesale operations include Sequent and Nicor Interchange. Midstream operations, includes our non-utility storage assets with the addition of Nicor Central Valley Gas Storage project and Cargo Shipping reflects the addition of Nicor’s Tropical Shipping units. Finally, for the segment called other, which including our non-operating business units and corporate expenses.

We will begin the call with some prepared remarks before taking your questions. Drew, I’ll turn it over to you to begin.

Andrew Evans

Thanks, Sarah and good morning, everyone. Starting on slide 3 of our presentation, we reported 2011 GAAP earning per share of $2.12 per diluted share. On an adjusted basis, which exclude $64 million of after-tax costs incurred during fee related to the Nicor merger, earnings per share were $2.92 which compares to $3.05 in 2010. The decline in year-over-year earnings is largely driven by several factors impacting our Wholesale Services business, including lower natural gas price spreads, lower volatility and takeaway capacity constraints that affected us, particularly, in the third quarter.

However, we saw strong performance in our utility business in 2011 resulting from new rate and infrastructure programs. Our results in total also reflect lower year-over-year incentive compensation due to not meeting our corporate earnings thresholds under our plans.

Our 2011 GAAP results included 22 days of operations from Nicor as a result of our merger closing on December 9. We’ve detailed our results here, so you can see the standalone legacy AGL Resource businesses as well as the contribution from Nicor for those 22 days. Note that the Nicor EBIT loss of $90 million includes $34 million of change in control payments that were triggered when the merger closed. Also our weighted average share count increased to 80.9 million diluted shares for the year due to the merger. For 2012, our diluted EPS guidance range is $2.80 to $2.95 and we will discuss the assumptions underlying our guidance in a few minutes.

Now let’s go to slide 4. In the fourth quarter of 2011, our diluted GAAP EPS was $0.37. On an adjusted basis excluding Nicor related expenses, it was $0.87 per share or $0.01 higher than the fourth quarter of 2010. Again, you can see the break out of our legacy businesses separate from the Nicor contribution.

On slide 5, you’ll find a reconciliation of annual 2011 EBIT, the initial segment guidance we’ve provided at our Analyst Meeting in May of last year. We included this slide to emphasize that the primary degradation earnings came from the Wholesale segment as we’ve discussed over the last several – couple of quarters.

Our performance at distribution operations was $38 million favorable to our guidance, but Wholesale was $48 million unfavorable to guidance. We did better than expected in the Midstream segment, but saw slight weakness at the retail segment relative to our expectations.

I’d also note here that the higher interest expense we incurred relative to our expectations really reflects our pre-funding of the Nicor merger to various debt issuances throughout the year and the fees associated with the bridge facility.

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