Vectren Quarterly Profit Notches Higher

Posted: Updated:

Evansville-based Vectren Corp. (NYSE: VVC) is reporting first quarter net income of $51.2 million, compared to $49.8 million for the same period a year earlier. The utility has also affirmed its full-year guidance. May 12, 2014

News Release

EVANSVILLE, Ind. - Vectren Corporation (NYSE: VVC) today reported first quarter 2014 net income of $51.2 million, or $0.62 per share, compared to net income of $49.8 million, or $0.61 per share, in the first quarter of 2013. Excluding the impact of operating losses attributable to the company's investment in ProLiance Holdings, LLC (ProLiance), consolidated net income for the first quarter of 2013 was $54.4 million, or $0.66 per share. ProLiance exited the gas marketing business in June 2013.

Summary and highlights of results

Utility Group earnings were $61.3 million, or $0.74 per share, in the first quarter of 2014, compared to $55.1 million, or $0.67 per share, in 2013.

Nonutility Group losses were ($9.7) million in the first quarter of 2014, compared to a loss of ($5.4) million in 2013. Excluding the results of ProLiance, the first quarter loss in 2013 was ($0.8) million.

"The Utility Group continues to perform very well and results were also favorably impacted by the colder than normal first quarter weather. The Nonutility Group first quarter loss was largely due to lower earnings in our infrastructure services business as compared to last year. We expected lower results since in the first quarter of 2013, infrastructure services had revenue from a large project that did not recur in 2014. However, the severe weather throughout the quarter also hampered the ability of construction crews to complete much work," said Carl Chapman, Vectren's chairman, president and CEO. "We fully expect that the infrastructure services work that was delayed in the first quarter as a result of the weather, along with other work, will be largely completed over the remainder of the year as there continues to be very high demand for those services. Also in the quarter, we experienced much improved results from our coal mining operation compared to last year given that the second Oaktown mine is now fully operational and the cost improvement initiatives implemented at the Prosperity mine are working," said Chapman.

2014 earnings guidance

The company affirms its 2014 guidance range of consolidated earnings of $2.15 to $2.35 per share. The company continues to expect 2014 Utility Group earnings to be within a range of $1.70 to $1.80 per share and the Nonutility Group earnings to be in a range of $0.45 to $0.55 per share.

Guidance ranges are based on assumptions and information currently available, but changes in these assumptions or other circumstances could materially impact earnings and result in earnings for 2014 significantly above or below this guidance. These targeted ranges are subject to such factors discussed below under "Forward-Looking Statements."

Utility Group discussion

The Utility Group consists of the company's regulated utility operations and other operations that provide information technology and other support services to those regulated operations. The company segregates its regulated utility operations between a Gas Utility Services operating segment and an Electric Utility Services operating segment. The Gas Utility Services segment provides natural gas distribution and transportation services to nearly two-thirds of Indiana and to west-central Ohio. The Electric Utility Services segment provides electric distribution and transmission services to southwestern Indiana and includes its power generating and wholesale power operations. The Utility Group also earns a return on shared assets, such as customer billing systems and the customer contact center, used by the company's utility operations.

For the three months ended Mar. 31, 2014, the Utility Group earnings were $61.3 million, compared to $55.1 million in 2013. The increase in 2014 earnings is driven by customer growth, large customer usage, margin from Ohio infrastructure replacement programs, favorable interest and the impact of the colder than normal weather, offset somewhat by weather driven operating cost increases.

Gas Utility Services

The Gas Utility Services operating segment, which is comprised of Vectren's Indiana North and South gas operations and Vectren Ohio, earned $38.3 million during the first quarter of 2014, compared to earnings of $38.1 million in 2013. Customer margin increased compared to the first quarter of 2013 from small customer growth and large customer usage. Additionally, margin was favorably impacted by returns from infrastructure replacement programs, particularly in Ohio. With rate designs that substantially limit the impact of weather on margin, heating degree days that were 122 percent of normal in Ohio and 115 percent of normal in Indiana during first quarter 2014, compared to 107 percent of normal in Ohio and 101 percent of normal in Indiana during 2013, had only a slight favorable impact on small customer margin. Though customer margin increased in 2014, this increase was offset by increased operating expenses that were driven by weather-related maintenance of the gas system, including employee overtime.

Electric Utility Services

The Electric Utility Services operating segment is comprised of Vectren South's electric distribution and transmission business and includes the company's power generating and wholesale power operations. Electric operations earned $19.3 million in the three months ended Mar. 31, 2014, compared to $14.6 million in the prior year quarter. Earnings in 2014 were favorably impacted by lower operating costs and interest expense. Electric results are not protected by weather normalizing mechanisms. Increased small customer margin resulted from heating degree days in the first quarter of 2014 which were 115 percent of normal compared to 101 percent of normal in 2013. The unusually cold winter also favorably impacted margin from wholesale operations, primarily due to higher prices.

Other operations

The Utility Group also earns a return on shared assets through currently approved rates as if portions of the assets were in the rate base of each utility. Such shared assets include customer billing systems and the customer contact center, as examples. In the first quarter of 2014, earnings from these operations were $3.7 million, compared to $2.4 million in 2013. The increase in earnings is primarily a result of lower interest expense.

Nonutility Group discussion

All amounts included in this section are after tax. Results reported by business group are net of Nonutility Group corporate expense.

In the first quarter of 2014, the Nonutility Group results were a loss of ($9.7) million, compared to a loss of ($5.4) million in 2013. Excluding the results from ProLiance in 2013, the Nonutility Group's losses were ($0.8) million for the first quarter of 2013.

Infrastructure Services

Infrastructure Services provides underground pipeline construction and repair services through wholly owned subsidiaries Miller Pipeline and Minnesota Limited.

Results from Infrastructure Services' operations for the quarter ended March 31, 2014, were a loss of ($5.3) million, compared to earnings of $6.9 million in the prior year quarter. Revenues during the first quarter of 2014 were $123 million, compared to revenues in the first quarter of 2013 of $172 million. In addition to the favorable impacts of an eighty mile pipeline project on 2013 revenues and earnings, the adverse winter weather, and even road restrictions, significantly lowered 2014 results due to the inability of work crews to complete their work as planned. However, it is expected that work that was delayed as a result of the adverse weather will be largely completed over the remainder of the year, along with other planned work, assuming the return of more typical weather and the current e