AGL Resources, Inc. (GAS)

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AGL Resources (GAS)

Q3 2012 Earnings Call

November 1, 2012 09:00 a.m. ET


John Somerhalder – Chairman, President and Chief Executive Officer

Andrew Evans – Executive Vice President and Chief Financial Officer

Hank Linginfelter – Executive Vice President, Distribution Operations

Scott Carter – Senior Vice President, Commercial Operations and Chief Regulatory Officer


Mark Barnett – Morningstar

Daniel Fidell – U.S Capital Advisors



Good day ladies and gentlemen and welcome to the Q3 2012 AGL Resources, Inc. earnings conference call. My name is Ursula, and I will 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] I would now like to turn the conference over to Ms. Sarah Stashak. Please proceed.

Sarah Stashak

Thank you Ursula. Thanks everyone for joining us this morning to review our third quarter 2012 results. Joining me on the call today are John Somerhalder, our Chairman, President and CEO, and Drew Evans, our Executive Vice President and CFO.

We also have several members of our management team available to answer your questions following our prepared remarks. Our earnings release, earnings presentation and our Form 10-Q for AGL Resources and Nicor Gas are available on our website. To access these materials please visit

Let me remind you today that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve matters that are not historical facts and our forward-looking statements and projections could differ materially from our actual results. The factors that could cause such material differences are included in our earnings release and our 10-Q, and more fully described in our most recent 10-K filings.

We also describe our business using some non-GAAP measures such as operating margin, EBIT, adjusted net income and adjusted EPS. Reconciliation of those measures to the GAAP financials is available in the appendix of our presentation as well as on our website.

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

Andrew Evans

Welcome back Sarah and good morning everyone.

Starting on slide three of our presentation, we reported GAAP earnings per diluted share for the third quarter of $0.08. On an adjusted basis, excluding $2 million of merger related cost diluted earnings per share were $0.09, which compares to $0.02 in the third quarter of 2011.

The primary year-over-year driver of our third quarter earnings is the addition of the Nicor businesses, the results of which are not reflected in the third quarter of 2011 GAAP comparisons. Our quarterly results reflect an $0.08 per share negative impact due to $16 million of pre-tax mark-to-market hedge losses in our Wholesale Services segment consistent with the press release we issued on October 11th. Excluding that impact which is temporal, our business performed well during the quarter.

Turning briefly to slide four, you can see that our year-to-date financial results through the first three quarters. Diluted EPS adjusted for Nicor expenses was $1.56, down from $1.99 for the same period last year. The primary reason for the decline is the impact of the unprecedented warmer than normal weather in the first half of the year as well as mark-to-market storage hedge losses.

On slide five, you can see that more than 80% of our consolidated positive operating EBIT for the first nine months of 2012 was generated by our distribution operations segment. Retail operations accounted for 17% year-to-date and mid stream operations, 1%. Wholesale Services and cargo shipping are not represented here at the reported EBIT losses through the first nine months.

I will cover some of the major segment variances starting with our distribution business on slide six. EBIT was up $10 million, compared to the third quarter of 2011. This includes an EBIT contribution of $15 million from Nicor Gas. As I mentioned last quarter we are starting to see the benefits of our shared service model accrued across our entire business and one of the key metrics that we use to gauge this is O&M expense per utility customer. O&M per customer was a $102, down from $109 per customer for the same period in 2011.

For the first nine months of 2012 EBIT at the legacy AGL Resources Utilities was up $7 million year-over-year primarily due to our continued focus on effective expense management and higher contribution for regulatory infrastructure programs. In addition we have largely achieved expected cost savings related to integrating our non-utility business.

Turning to the retail segment on slide seven, we recorded EBIT for the third quarter of $5 million, a $10 million increase compared to the third quarter last year. The increase mainly reflects the addition of Nicor's retail businesses to our portfolio as well as a reduction in transportation and gas cost and lower bad debt expense of Southstar relative to last year.

You will find third quarter 2012 results for our wholesale services segment on slide eight. There are few moving pieces affecting our year-over-year results, so let me take you through them now. In total EBIT improved by $14 million year-over-year for the third quarter. You will recall that in the last year’s third quarter we recorded margin losses of $17 million due to transportation constraints in the Marcellus region as well as the impact of a credit default due to a customer bankruptcy.

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