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Chesapeake Utilities Corporation Reports First Quarter Results
Margin growth continued to be strong throughout the Company's businesses, driven primarily by: income generated from the
The increased gross margin generated by the Company's successful growth initiatives was offset by the effects of warmer than normal weather and higher operating expenses. The first quarter of 2017 was the third warmest first quarter on the
"First quarter results reflect both the continuing benefits of our growth strategy and the importance of investing in our systems and expanding our staff to deliver excellent service and maximize our future growth opportunities. Margin growth from both our regulated and unregulated businesses largely offset the first quarter impacts of warmer weather and higher costs from expanding our capacity to serve recent and future growth," stated
A more detailed discussion and analysis of the Company's results for each segment is provided in the following pages.
Comparative Results for the Quarters Ended
Operating income for the first quarter decreased by
Regulated Energy Segment
Operating income for the Regulated Energy segment decreased by
The significant components of the gross margin increase included:
$831,000 from customer growth in natural gas distribution and transmission services over and above the growth attributable to recent service expansions;$759,000 generated from natural gas transmission expansions completed recently, as well as interim services provided pending completion of new facilities, which are more fully discussed in the "Major Projects and Initiatives" section later in this press release;$680,000 generated by additional GRIP investments in theFlorida natural gas distribution operations;$546,000 generated from the implementation of new rates for the Company'sDelaware natural gas distribution division; and$491,000 from new natural gas transmission and distribution services provided to Eight Flags' CHP plant.
The foregoing increases were offset by
The significant components of the increase in other operating expenses included:
$2.1 million in higher staffing and associated costs for additional personnel to support growth;$1.2 million in higher outside services and facility maintenance costs to support growth; and$901,000 in higher depreciation, asset removal and property tax costs associated with recent capital investments to support growth and system integrity.
Unregulated Energy Segment
Operating income for the Unregulated Energy segment for the three months ended
The significant components of the gross margin increase were as follows:
$2.2 million from PESCO, due to an increase in the number of contracts and customers served as well as additional revenue from providing natural gas to a customer inOhio under a supplier agreement;$1.8 million of additional gross margin from Eight Flags' CHP plant, which commenced operations inJune 2016 ; and$526,000 fromAspire Energy of Ohio, LLC ("Aspire Energy") as a result of pricing amendments to long-term gas sales agreements and a rate increase, offset by the absence of a one-time additional management fee received in 2016.
The above gross margin increases were offset by the following:
$581,000 of lower gross margin from the Company's propane distribution operations as propane retail margins per gallon continued to return to more normal levels; and$414,000 of lower gross margin due to warmer than normal temperatures inOhio and on theDelmarva Peninsula , resulting in lower customer consumption of propane and lower deliveries of natural gas by Aspire Energy.
The significant components of the increase in other operating expenses included:
$1.3 million incurred by Eight Flags' CHP plant, which commenced operations inJune 2016 ;$1.1 million in higher staffing and associated costs for additional personnel to support growth;$581,000 in higher outside services costs associated primarily with growth and ongoing compliance activities;$458,000 in higher depreciation expense due to increased capital investments primarily for Aspire Energy; and$438,000 in higher operating expenses associated with the winding down of operations byXeron .
Matters discussed in this release may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Safe Harbor for Forward-Looking Statements in the Company's 2016 Annual Report on Form 10-K for further information on the risks and uncertainties related to the Company's forward-looking statements.
The discussions of the results use the term "gross margin," a non-Generally Accepted Accounting Principles ("GAAP") financial measure, which management uses to evaluate the performance of the Company's business segments. For an explanation of the calculation of "gross margin," see the footnote to the Financial Summary.
Unless otherwise noted, earnings per share are presented on a diluted basis.
Conference Call
About
Please note that
For more information, contact:
Senior Vice President & Chief Financial Officer
302.734.6799
Financial Summary | |||||||
Three Months Ended | |||||||
| |||||||
2017 |
2016 | ||||||
Gross Margin (1) |
|||||||
Regulated Energy segment |
$ |
57,410 |
$ |
54,311 |
|||
Unregulated Energy segment |
26,819 |
23,101 |
|||||
Other businesses and eliminations |
(67) |
(45) |
|||||
Total Gross Margin |
$ |
84,162 |
$ |
77,367 |
|||
Operating Income |
|||||||
Regulated Energy segment |
$ |
23,017 |
$ |
24,319 |
|||
Unregulated Energy segment |
11,530 |
11,936 |
|||||
Other businesses and eliminations |
129 |
125 |
|||||
Total Operating Income |
34,676 |
36,380 |
|||||
Other Expense, net |
(277) |
(34) |
|||||
Interest Charges |
2,739 |
2,650 |
|||||
Pre-tax Income |
31,660 |
33,696 |
|||||
Income Taxes |
12,516 |
13,329 |
|||||
Net Income |
$ |
19,144 |
$ |
20,367 |
|||
Earnings Per Share of Common Stock |
|||||||
Basic |
$ |
1.17 |
$ |
1.33 |
|||
Diluted |
$ |
1.17 |
$ |
1.33 |
(1)"Gross margin" is determined by deducting the cost of sales from operating revenue. Cost of sales includes the purchased fuel cost for natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities and excludes depreciation, amortization and accretion. Gross margin should not be considered an alternative to operating income or net income, which are determined in accordance with GAAP. |
Financial Summary Highlights | ||||||||||||
Key variances between the three months ended | ||||||||||||
(in thousands, except per share data) |
Pre-tax |
Net |
Earnings | |||||||||
First Quarter of 2016 Reported Results |
$ |
33,696 |
$ |
20,367 |
$ |
1.33 |
||||||
Adjusting for unusual items: |
||||||||||||
Weather impact |
(1,074) |
(650) |
(0.04) |
|||||||||
Impact of winding down of |
(514) |
(311) |
(0.02) |
|||||||||
(1,588) |
(961) |
(0.06) |
||||||||||
Increased (Decreased) Gross Margins: |
||||||||||||
Eight Flags' CHP* |
2,295 |
1,388 |
0.09 |
|||||||||
Natural gas marketing |
2,154 |
1,302 |
0.08 |
|||||||||
Natural gas growth (excluding service expansions) |
831 |
503 |
0.03 |
|||||||||
Service expansions* |
759 |
459 |
0.03 |
|||||||||
GRIP* |
680 |
411 |
0.03 |
|||||||||
Lower retail propane margins |
(581) |
(351) |
(0.02) |
|||||||||
Implementation of Delaware Division new rates* |
546 |
330 |
0.02 |
|||||||||
Aspire Energy rates and management fees |
526 |
318 |
0.02 |
|||||||||
Customer consumption - other |
133 |
81 |
0.01 |
|||||||||
7,343 |
4,441 |
0.29 |
||||||||||
Increased Other Operating Expenses: |
||||||||||||
Higher staffing and associated costs |
(3,220) |
(1,947) |
(0.13) |
|||||||||
Higher outside services costs and facility maintenance |
(1,719) |
(1,040) |
(0.07) |
|||||||||
Higher depreciation, asset removal and property tax costs due to new capital investments |
(1,359) |
(822) |
(0.05) |
|||||||||
Eight Flags' operating expenses |
(1,268) |
(767) |
(0.05) |
|||||||||
(7,566) |
(4,576) |
(0.30) |
||||||||||
Interest charges |
(88) |
(53) |
— |
|||||||||
Change in other expense |
(243) |
(147) |
(0.01) |
|||||||||
Net other changes |
106 |
73 |
(0.01) |
|||||||||
(225) |
(127) |
(0.02) |
||||||||||
EPS impact of increase in outstanding shares due to |
— |
— |
(0.07) |
|||||||||
First Quarter of 2017 Reported Results |
$ |
31,660 |
$ |
19,144 |
$ |
1.17 |
||||||
*See the Major Projects and Initiatives table later in this press release. |
Major Projects and Initiatives | |||||||||||||||||||||||||||
The following table summarizes gross margin for the Company's major projects and initiatives recently completed and initiatives currently underway, but which will be completed in the future. Gross margin reflects operating revenue less cost of sales, excluding depreciation, amortization and accretion (dollars in thousands): | |||||||||||||||||||||||||||
Gross Margin for the Period | |||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
|
|
Estimate for | |||||||||||||||||||||||||
2017 |
2016 |
Variance |
2016 |
2017 |
2018 |
2019 | |||||||||||||||||||||
Existing Major Projects and Initiatives |
|||||||||||||||||||||||||||
Capital Investment Projects |
$ |
9,319 |
$ |
5,585 |
$ |
3,734 |
$ |
29,819 |
$ |
34,969 |
$ |
32,125 |
$ |
33,035 |
|||||||||||||
Regulatory Proceedings |
546 |
546 |
1,487 |
2,250 |
2,250 |
2,250 |
|||||||||||||||||||||
Total Existing Major Projects and Initiatives |
9,865 |
5,585 |
4,280 |
31,306 |
37,219 |
34,375 |
35,285 |
||||||||||||||||||||
Future Major Projects and Initiatives |
|||||||||||||||||||||||||||
Capital Investment Projects (1) |
— |
— |
— |
— |
386 |
15,551 |
20,899 |
||||||||||||||||||||
Regulatory Proceedings (2) |
— |
— |
— |
— |
1,875 |
4,500 |
4,500 |
||||||||||||||||||||
Total Future Major Projects and Initiatives |
— |
— |
— |
— |
2,261 |
20,051 |
25,399 |
||||||||||||||||||||
Total |
$ |
9,865 |
$ |
5,585 |
$ |
4,280 |
$ |
31,306 |
$ |
39,480 |
$ |
54,426 |
$ |
60,684 |
|||||||||||||
(1) This represents gross margin for the 2017 | |||||||||||||||||||||||||||
(2) In |
Major Projects and Initiatives Recently Completed | |||||||||||||||||||||||||||
The following table summarizes gross margin generated from the Company's major projects and initiatives recently completed (dollars in thousands): | |||||||||||||||||||||||||||
Gross Margin for the Period (1) | |||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
|
|
Estimate for | |||||||||||||||||||||||||
2017 |
2016 |
Variance |
2016 |
2017 |
2018 |
2019 | |||||||||||||||||||||
Capital Investment Projects: |
|||||||||||||||||||||||||||
Service Expansions: |
|||||||||||||||||||||||||||
Short-term contracts ( |
$ |
2,663 |
$ |
2,543 |
$ |
120 |
$ |
11,454 |
$ |
5,265 |
$ |
1,407 |
$ |
1,407 |
|||||||||||||
Long-term contracts ( |
1,094 |
455 |
639 |
1,815 |
7,611 |
7,605 |
7,583 |
||||||||||||||||||||
Total Service Expansions |
3,757 |
2,998 |
759 |
13,269 |
12,876 |
9,012 |
8,990 |
||||||||||||||||||||
Florida GRIP |
3,267 |
2,587 |
680 |
11,552 |
13,727 |
14,407 |
15,085 |
||||||||||||||||||||
Eight Flags' CHP Plant |
2,295 |
— |
2,295 |
4,998 |
8,366 |
8,706 |
8,960 |
||||||||||||||||||||
Total Capital Investment Projects |
9,319 |
5,585 |
3,734 |
29,819 |
34,969 |
32,125 |
33,035 |
||||||||||||||||||||
Regulatory Proceedings: |
|||||||||||||||||||||||||||
Delaware Division Rate Case |
546 |
— |
546 |
1,487 |
2,250 |
2,250 |
2,250 |
||||||||||||||||||||
Total Existing Regulatory Proceedings |
546 |
— |
546 |
1,487 |
2,250 |
2,250 |
2,250 |
||||||||||||||||||||
Total Existing Major Projects and Initiatives |
$ |
9,865 |
$ |
5,585 |
$ |
4,280 |
$ |
31,306 |
$ |
37,219 |
$ |
34,375 |
$ |
35,285 |
|||||||||||||
(1) Does not include gross margin of |
Service Expansions
In
In
GRIP
GRIP is a natural gas pipe replacement program approved by the
Eight Flags' CHP plant
In
The CHP plant is powered by natural gas transported by FPU through its distribution system and by
Major Projects and Initiatives Underway
2017
In
Other major factors influencing gross margin
Weather and Consumption
Warmer weather during the three months ended
HDD and CDD Information | ||||||||
Three Months Ended |
||||||||
|
||||||||
2017 |
2016 |
Variance | ||||||
Delmarva |
||||||||
Actual HDD |
1,958 |
2,094 |
(136) |
|||||
10-Year Average HDD ("Delmarva Normal") |
2,403 |
2,400 |
3 |
|||||
Variance from Delmarva Normal |
(445) |
(306) |
||||||
|
||||||||
Actual HDD |
285 |
505 |
(220) |
|||||
10-Year Average HDD ("Florida Normal") |
583 |
534 |
49 |
|||||
Variance from Florida Normal |
(298) |
(29) |
||||||
|
||||||||
Actual HDD |
2,484 |
2,791 |
(307) |
|||||
10-Year Average HDD ("Ohio Normal") |
3,137 |
3,131 |
6 |
|||||
Variance from Ohio Normal |
(653) |
(340) |
||||||
|
||||||||
Actual CDD |
145 |
127 |
18 |
|||||
10-Year Average CDD ("Florida CDD Normal") |
82 |
77 |
5 |
|||||
Variance from Florida CDD Normal |
63 |
50 |
Propane prices
Lower retail propane margins per gallon for our Delmarva and
PESCO
PESCO provides natural gas supply and supply management services to residential, commercial, industrial and wholesale customers. PESCO operates primarily in
In 2017, the Company's
Operating revenues for PESCO were
PESCO generated additional gross margin of
Operating income for PESCO was
After a thorough review of
Other Natural Gas Growth - Distribution Operations
In addition to service expansions, the Company's Delmarva natural gas distribution operations generated
Regulatory Proceedings
In
Eastern
In
Investing for Future Growth
To support and continue its growth, the Company has expanded, and will continue to expand, its resources and capabilities.
The Company pursued several strategic growth opportunities during the quarter which ultimately did not materialize. In connection with such efforts, the Company incurred costs of approximately
Condensed Consolidated Statements of Income (Unaudited) (in thousands, except shares and per share data) | |||||||
Three Months Ended | |||||||
| |||||||
2017 |
2016 | ||||||
Operating Revenues |
|||||||
Regulated Energy |
$ |
97,654 |
$ |
89,216 |
|||
Unregulated Energy and other |
87,506 |
57,080 |
|||||
Total Operating Revenues |
185,160 |
146,296 |
|||||
Operating Expenses |
|||||||
Regulated Energy cost of sales |
40,244 |
34,905 |
|||||
Unregulated Energy and other cost of sales |
60,754 |
34,024 |
|||||
Operations |
32,913 |
27,159 |
|||||
Maintenance |
3,231 |
2,479 |
|||||
Depreciation and amortization |
8,812 |
7,503 |
|||||
Other taxes |
4,530 |
3,846 |
|||||
Total operating expenses |
150,484 |
109,916 |
|||||
Operating Income |
34,676 |
36,380 |
|||||
Other expense, net |
(277) |
(34) |
|||||
Interest charges |
2,739 |
2,650 |
|||||
Income Before Income Taxes |
31,660 |
33,696 |
|||||
Income taxes |
12,516 |
13,329 |
|||||
Net Income |
$ |
19,144 |
$ |
20,367 |
|||
Weighted Average Common Shares Outstanding: |
|||||||
Basic |
16,317,224 |
15,286,842 |
|||||
Diluted |
16,363,796 |
15,331,912 |
|||||
Earnings Per Share of Common Stock: |
|||||||
Basic |
$ |
1.17 |
$ |
1.33 |
|||
Diluted |
$ |
1.17 |
$ |
1.33 |
Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
Assets |
|
| ||||||
(in thousands, except shares and per share data) |
||||||||
Property, Plant and Equipment |
||||||||
Regulated Energy |
$ |
985,832 |
$ |
957,681 |
||||
Unregulated Energy |
199,211 |
196,800 |
||||||
Other businesses and eliminations |
21,486 |
21,114 |
||||||
Total property, plant and equipment |
1,206,529 |
1,175,595 |
||||||
Less: Accumulated depreciation and amortization |
(250,574) |
(245,207) |
||||||
Plus: Construction work in progress |
62,362 |
56,276 |
||||||
Net property, plant and equipment |
1,018,317 |
986,664 |
||||||
Current Assets |
||||||||
Cash and cash equivalents |
5,700 |
4,178 |
||||||
Accounts receivable (less allowance for uncollectible accounts of |
58,375 |
62,803 |
||||||
Accrued revenue |
16,317 |
16,986 |
||||||
Propane inventory, at average cost |
5,437 |
6,457 |
||||||
Other inventory, at average cost |
3,657 |
4,576 |
||||||
Regulatory assets |
7,527 |
7,694 |
||||||
Storage gas prepayments |
735 |
5,484 |
||||||
Income taxes receivable |
13,388 |
22,888 |
||||||
Prepaid expenses |
4,534 |
6,792 |
||||||
Mark-to-market energy assets |
1,339 |
823 |
||||||
Other current assets |
1,804 |
2,470 |
||||||
Total current assets |
118,813 |
141,151 |
||||||
Deferred Charges and Other Assets |
||||||||
|
15,070 |
15,070 |
||||||
Other intangible assets, net |
1,752 |
1,843 |
||||||
Investments, at fair value |
5,212 |
4,902 |
||||||
Regulatory assets |
76,218 |
76,803 |
||||||
Receivables and other deferred charges |
2,929 |
2,786 |
||||||
Total deferred charges and other assets |
101,181 |
101,404 |
||||||
Total Assets |
$ |
1,238,311 |
$ |
1,229,219 |
Condensed Consolidated Balance Sheets (Unaudited) | ||||||||
Capitalization and Liabilities |
|
| ||||||
(in thousands, except shares and per share data) |
||||||||
Capitalization |
||||||||
Stockholders' equity |
||||||||
Preferred stock, par value |
$ |
— |
$ |
— |
||||
Common stock, par value |
7,949 |
7,935 |
||||||
Additional paid-in capital |
251,144 |
250,967 |
||||||
Retained earnings |
206,194 |
192,062 |
||||||
Accumulated other comprehensive loss |
(4,458) |
(4,878) |
||||||
Deferred compensation obligation |
3,100 |
2,416 |
||||||
Treasury stock |
(3,100) |
(2,416) |
||||||
Total stockholders' equity |
460,829 |
446,086 |
||||||
Long-term debt, net of current maturities |
136,537 |
136,954 |
||||||
Total capitalization |
597,366 |
583,040 |
||||||
Current Liabilities |
||||||||
Current portion of long-term debt |
12,111 |
12,099 |
||||||
Short-term borrowing |
199,333 |
209,871 |
||||||
Accounts payable |
49,500 |
56,935 |
||||||
Customer deposits and refunds |
29,638 |
29,238 |
||||||
Accrued interest |
2,868 |
1,312 |
||||||
Dividends payable |
4,981 |
4,973 |
||||||
Accrued compensation |
5,560 |
10,496 |
||||||
Regulatory liabilities |
7,275 |
1,291 |
||||||
Mark-to-market energy liabilities |
189 |
773 |
||||||
Other accrued liabilities |
9,278 |
7,063 |
||||||
Total current liabilities |
320,733 |
334,051 |
||||||
Deferred Credits and Other Liabilities |
||||||||
Deferred income taxes |
231,004 |
222,894 |
||||||
Regulatory liabilities |
42,861 |
43,064 |
||||||
Environmental liabilities |
8,535 |
8,592 |
||||||
Other pension and benefit costs |
33,082 |
32,828 |
||||||
Deferred investment tax credits and other liabilities |
4,730 |
4,750 |
||||||
Total deferred credits and other liabilities |
320,212 |
312,128 |
||||||
Total Capitalization and Liabilities |
$ |
1,238,311 |
$ |
1,229,219 |
Distribution Utility Statistical Data (Unaudited) | ||||||||||||||||||||||||||||||||
For the Three Months Ended |
For the Three Months Ended | |||||||||||||||||||||||||||||||
Delmarva NG Distribution |
Chesapeake Utilities NG Division |
FPU NG Distribution |
Distribution |
Delmarva NG Distribution |
Chesapeake Utilities NG Division |
FPU NG Distribution |
Distribution | |||||||||||||||||||||||||
Operating Revenues (in thousands) |
||||||||||||||||||||||||||||||||
Residential |
$ |
25,710 |
$ |
1,552 |
$ |
10,768 |
$ |
9,327 |
$ |
21,267 |
$ |
1,571 |
$ |
9,287 |
$ |
11,307 |
||||||||||||||||
Commercial |
11,412 |
1,523 |
9,594 |
9,414 |
9,661 |
1,416 |
8,234 |
9,542 |
||||||||||||||||||||||||
Industrial |
1,834 |
1,759 |
5,927 |
471 |
1,920 |
1,637 |
5,533 |
817 |
||||||||||||||||||||||||
Other (1) |
1,458 |
900 |
(2,785) |
(1,589) |
653 |
917 |
(1,833) |
(2,133) |
||||||||||||||||||||||||
Total Operating Revenues |
$ |
40,414 |
$ |
5,734 |
$ |
23,504 |
$ |
17,623 |
$ |
33,501 |
$ |
5,541 |
$ |
21,221 |
$ |
19,533 |
||||||||||||||||
Volume (in Dts/MWHs) |
||||||||||||||||||||||||||||||||
Residential |
1,807,900 |
123,275 |
470,811 |
61,326 |
1,705,597 |
138,472 |
506,912 |
73,923 |
||||||||||||||||||||||||
Commercial |
1,381,408 |
2,957,716 |
707,349 |
65,862 |
1,398,890 |
1,447,747 |
692,331 |
68,115 |
||||||||||||||||||||||||
Industrial |
1,373,798 |
1,767,430 |
1,189,325 |
3,160 |
1,369,641 |
3,293,812 |
1,125,755 |
6,680 |
||||||||||||||||||||||||
Other |
10,538 |
— |
7,148 |
1,873 |
13,504 |
— |
40,382 |
2,637 |
||||||||||||||||||||||||
Total |
4,573,644 |
4,848,421 |
2,374,633 |
132,221 |
4,487,632 |
4,880,031 |
2,365,380 |
151,355 |
||||||||||||||||||||||||
Average Customers |
||||||||||||||||||||||||||||||||
Residential |
68,701 |
15,664 |
54,041 |
24,437 |
66,083 |
15,242 |
53,044 |
24,167 |
||||||||||||||||||||||||
Commercial |
6,910 |
1,409 |
4,892 |
7,446 |
6,795 |
1,378 |
4,261 |
7,386 |
||||||||||||||||||||||||
Industrial |
142 |
75 |
1,109 |
2 |
122 |
72 |
1,716 |
2 |
||||||||||||||||||||||||
Other |
5 |
— |
— |
— |
4 |
— |
— |
— |
||||||||||||||||||||||||
Total |
75,758 |
17,148 |
60,042 |
31,885 |
73,004 |
16,692 |
59,021 |
31,555 |
||||||||||||||||||||||||
(1) Operating Revenues from "Other" sources include unbilled revenue, under (over) recoveries of fuel cost, conservation revenue, other miscellaneous charges, fees for billing services provided to third parties and adjustments for pass-through taxes. |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-first-quarter-results-300450066.html
SOURCE
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