2008-07-25 05:30:00
NWN Reports Results for the Quarter & Six Months Ended June 30, 2008
Financial & Operating Highlights
Second quarter net income up 26 percent over 2007, and earnings per
share up 20 percent over the same period, due to the gain from a
non-core asset sale and solid operating results from utility and gas
storage
Year-to-date net income down 8 percent and earnings per share down 6
percent due mainly to record gains from commodity cost savings in 2007
compared to higher gas costs in 2008
Operations & maintenance costs were 9 percent lower in the quarter and
5 percent lower in the year-to-date period compared to 2007
PORTLAND, Ore.–(EMWNews)–Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported net
income for the second quarter ended June 30, 2008, of $3.3 million, or
12 cents per share, up from $2.6 million, or 10 cents per share in the
same quarter of 2007.
“Our improved financial performance in the
quarter was primarily due to the gain on the sale of a non-core asset in
the period and relatively strong results from our utility and gas
storage operations,” said NW Natural Chief
Executive Officer Mark Dodson. “These factors
helped offset commodity cost losses under our regulatory sharing
mechanism,” Dodson added.
For the six month period, net income was $46.5 million, or $1.75 per
share, compared to $50.7 million, or $1.86 per share for the first six
months of 2007, representing a 6 percent decrease in earnings per share
and an 8 percent decrease in net income. Year-to-date earnings were
lower due mainly to record commodity cost benefits in 2007 compared to
higher gas costs in 2008.
NW Natural has an annual Purchased Gas Adjustment (PGA) tariff in Oregon
and Washington to reflect current and projected gas costs in utility
customer rates. In Oregon, the company currently absorbs 33 percent of
any excess cost of gas, or retains 33 percent of any gas cost savings,
both as compared to the projected gas commodity prices built into rates.
The company also retains 33 percent of the margin when it sells surplus
gas commodity off-system, and credits 67 percent to customers. In
Washington, 100 percent of actual gas purchase costs are passed through
to customers.
According to NW Natural Chief Financial Officer David Anderson, “The
second quarter of 2008 saw prolonged colder-than-average weather and gas
prices paid that were consistently above levels set in rates for the
current PGA year, which ends October 31, 2008. Increased gas purchases
at higher prices resulted in the company absorbing gas costs under the
PGA sharing mechanism that reduced margin by about $5.5 million in the
quarter compared to a contribution to margin of $0.8 million in last year’s
second quarter.”
Oregon’s natural gas distribution companies
are currently working with the Oregon Public Utility Commission (OPUC)
to modify the gas cost sharing mechanism to better align customer and
shareholder risk from commodity price fluctuations. Changes to the PGA
mechanism, which must be approved by the OPUC, are targeted by the
company to be implemented with the next heating season, which begins
November 1, 2008.
Second Quarter Financial and Operating Highlights
-
Higher income and earnings per share
Net income in the second quarter of 2008 was $3.3 million or 12 cents
per share, compared to net income of $2.6 million or 10 cents per share
in 2007. Results from utility operations are typically low during the
second quarter due to reduced use of natural gas in spring and early
summer. The utility recorded a net loss of $0.7 million (3 cents per
share) in the quarter, compared to a net loss of $0.1 million (less than
1 cent per share) in the second quarter of 2007. Gas storage contributed
net income of $2.5 million in the quarter (9 cents per share), compared
to $2.7 million in the second quarter of 2007 (10 cents per share).
Other non-utility activities resulted in net income for the 2008 quarter
of $1.5 million (6 cents per share), compared to a small gain in 2007,
due mainly to the sale of a non-core investment in the 2008 period.
-
Customer growth remains above national average
NW Natural’s utility customer growth
continues at a rate higher than the national average. This growth is
driven by new construction activity and conversions from other fuel
sources. At June 30, 2008, the company had 656,784 customers, for a
growth rate of 2.5 percent over the past 12 months.
-
Operational results
NW Natural’s total gas sales and
transportation deliveries in the second quarter of 2008, excluding
deliveries of gas stored for others, were 263 million therms or 12
percent higher than the 234 million therms delivered in 2007, due mainly
to higher residential and commercial volumes from customer growth and
colder weather. Industrial volumes were roughly the same as last year.
Margin from utility operations in the quarter was $57.2 million,
benefiting from customer growth and colder weather, but was 3 percent
lower than 2007 margin of $59.1 million primarily due to changes in the
commodity cost sharing discussed above.
Sales to residential and commercial customers in the second quarter of
2008 were 131 million therms, 27 percent higher than 2007 consumption of
103 million therms, due primarily to higher usage in the period
resulting from weather that was 23 percent colder than in 2007 and 26
percent colder than average. Residential and commercial sales
contributed $63.0 million to margin, up 23 percent from $51.2 million in
2007. The company’s weather normalization and
decoupling rate mechanisms in Oregon reduced margin by $8.3 million in
the second quarter of 2008, compared to a net $0.8 million contribution
to margin in the second quarter of 2007.
Gas deliveries to industrial customers in the second quarter of 2008
were essentially unchanged from 2007 levels at 132 million therms for
both periods. Margin in this sector was $7.1 million, down 6 percent
compared to last year’s margin contribution of
$7.5 million, due to some temporary shut-downs and cutbacks by a few
large customers in the period and movements to lower margin rate
schedules.
NW Natural continues to provide gas storage and optimization services to
customers in the interstate and intrastate gas markets. Earnings from
gas storage in the second quarter of 2008 were $2.5 million, or 9 cents
per share, compared to $2.7 million or 10 cents per share in last year’s
second quarter. These results include income from gas storage services
as well as income from a contract with an unaffiliated energy marketing
company that optimizes the company’s unused
storage and pipeline transportation capacity.
-
Operations and maintenance costs
Operations and maintenance expenses in the second quarter of 2008 were 9
percent lower than last year. The decrease was primarily due to lower
employee-related expenses, including reduced incentive accruals.
-
Company sells last major non-core asset
In late April, the company sold a Boeing 737 airplane that NW Natural
had purchased and leased to Continental Airlines since the 1980s. This
marks the sale of the last significant non-core asset owned by the
company. The company sold solar electric generating systems and wind
power electric generation projects between 2005 and 2007. The company
recorded an after-tax gain of $1.1 million on the sale of the plane,
which was recorded in the second quarter of 2008. “We
have been able to convert these non-core assets into cash, as planned,”
said Anderson, “which allows us to
concentrate on our core utility, gas storage and gas transmission
pipeline activities.”
-
Second phase of Automated Meter Reading (AMR) launched
In July 2008, NW Natural signed an agreement to complete the second
phase of an automated meter reading project. The first phase was
successfully implemented in 2006 with the installation of 260,000
electronic metering devices in the company’s
service territory. According to NW Natural President and Chief Operating
Officer Gregg Kantor, “The second phase of
the project, which will now equip 375,000 meters primarily in the
Portland and Salem metropolitan areas, will be completed over the next
two years and follows the success of the first phase of the project in
areas outside of Portland and Salem. The new metering system has proven
to be more efficient for our customers.” It
is expected that NW Natural will seek regulatory recovery of the
estimated $30 million project cost at a later date.
Year-to-Date (Six Month) Financial and Operating Highlights
-
Lower net income and earnings per share
For the six month period, net income decreased 8 percent to $46.5
million or $1.75 per share, compared to $50.7 million or $1.86 per share
in the same period in 2007. NW Natural’s
utility operations contributed $39.8 million or $1.50 per share in the
first six months of 2008, compared to $46.0 million or $1.69 per share
in the first six months of 2007. Gas storage contributed $4.9 million in
the period or 18 cents per share, compared to $4.5 million or 16 cents
per share in the 2007 period. Other non-utility activities resulted in
net income of $1.8 million, or 7 cents per share, compared to $0.2
million or 1 cent per share in 2007.
-
Operating results
NW Natural’s total gas sales and
transportation deliveries in the first six months of 2008, excluding
deliveries of gas stored for others, were 712 million therms, up 10
percent from 2007 due to higher residential and commercial volumes from
customer growth and higher consumption due to colder weather in the
six-month period. Margin from utility operations was $184.6 million in
2008, compared to $194.7 million in 2007, or 5 percent lower than last
year’s first six months due mainly to higher
customer use combined with higher prices for natural gas.
Gas sales to residential and commercial customers in the first six
months of 2008 were 420 million therms, up 16 percent from 363 million
therms in 2007 due to customer growth and weather that was 11 percent
colder than last year and 11 percent colder than normal for the period.
Residential and commercial sales contributed $185.3 million to margin,
up 13 percent from $164.6 million in 2007, due mainly to customer growth
and colder weather than last year. The company’s
weather normalization and decoupling mechanisms reduced margin in the
first six months of 2008 by $14.2 million. This compared to a net
contribution to margin of $0.4 million for the first six months of 2007
on weather that was about average for the 2007 period.
Gas deliveries to industrial customers in the first six months of 2008
were 292 million therms, up 3 percent from 284 million therms in the
same period last year. Contribution to margin from sales and
transportation in these markets was $15.4 million, compared to $15.9
million last year.
As noted earlier, for the first six months of the year higher gas
purchases at unusually high prices contributed to a $5.8 million
reduction to margin, equivalent to 13 cents per share, due to the company’s
commodity cost sharing mechanism. This compares to a contribution to
margin of $10.6 million, equivalent to 24 cents per share, for the first
six months of the year in 2007 under the company’s
PGA. All gas costs are passed through to customers in Washington.
YTD O&M Costs on Track
Operations and maintenance costs for the six-month period were 5 percent
lower than the 2007 period, primarily related to lower payroll and
employee-related expenses in the current period, including reduced
incentive accruals. Bad debt expense as a percent of revenues billed
remained well below 1 percent at 0.31 percent for the 12 months ended
June 30, 2008.
Cash Flows and Capital Structure
Cash provided by operations in the first six months of 2008 was $138.1
million, compared to $180.3 million in the same period in 2007. Cash
flows reflect lower operating results but mostly higher gas costs versus
record gas commodity savings last year. Cash used in investing
activities totaled $46.7 million compared to $52.5 million in 2007,
mainly reflecting investments in the company’s
Palomar pipeline and Gill Ranch storage projects, offset by proceeds
from the sale of the non-utility airplane investment.
NW Natural’s capitalization at June 30, 2008,
reflected 51.6 percent common equity, 42.4 percent long-term debt, and
6.0 short-term debt. This compared to 52.2 percent common equity, 44.2
percent long-term debt, and 3.6 percent short-term debt at June 30, 2007.
Outlook for 2008
NW Natural reaffirmed its prior estimate that full-year earnings per
share in 2008 will be in the range of $2.48 to $2.63. Our estimate
assumes normal weather for the remainder of the year, continued customer
growth, benefits from cost reduction initiatives, no significant changes
in current regulatory policies and no estimate of future gains or losses
from our gas commodity sharing mechanism, since we are unable
to predict future gas cost increases or decreases with reasonable
certainty. To the extent that gas costs remain above levels set in our
purchase gas adjustment mechanism, the company could recognize
additional gas expense. The company continues to target long-term
earnings per share growth of 5 percent or more and to maintain a
dividend payout ratio of 60 to 70 percent of earnings.
Dividend Declaration
The Board of Directors of NW Natural on July 1, 2008 declared a
quarterly dividend of 37.5 cents per share on the company’s
common stock. The dividends will be paid August 15, 2008, to
shareholders of record on July 31, 2008. The current indicated annual
dividend is $1.50 per share.
Presentation of Results
In addition to presenting results of operations and earnings amounts in
total, NW Natural has expressed certain measures in this press release
on an equivalent cents per share basis, including the earnings impact
from our commodity cost sharing mechanism. These amounts reflect factors
that directly impact the company’s earnings.
In calculating these financial measures, we allocate income tax expense
based on the effective tax rate. NW Natural believes this per share
information is useful because it enables readers to better understand
the impact of these factors on its earnings.
Conference Call Arrangements
As previously reported, NW Natural will conduct a conference call and
webcast starting at 7:00 a.m. Pacific Time (10 a.m. Eastern Time) on
July 25 to review the company’s financial
results of operations for the three and six months ended June 30, 2008.
To hear the conference call live, dial 1-800-860-2442 from anywhere in
the United States and 1-412-858-4600 from international points,
including Canada. To access the recording, please call 1-877-344-7529
and enter the identification pass code (420734#). To hear the replay
from international locations, please dial 1-412-317-0088.
To hear the conference by webcast, log on to NW Natural’s
corporate website at www.nwnatural.com
or through www.InvestorCalendar.com.
Forward-Looking Statements
This report and other presentations made by NW Natural from time to time
may contain forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events or performance, and other statements that are
other than statements of historical facts. The company’s
expectations, beliefs and projections are expressed in good faith and
are believed to have a reasonable basis. However, each such
forward-looking statement involves uncertainties and is qualified in its
entirety by reference to the factors described in Part I, Item 1A, “Risk
Factors,” and “Forward-Looking
Statements” following Part II, Item 7A, in
the company’s 2007 Annual Report on Form
10-K, and in “Forward-Looking Statements”
following Part I, Item 2, of the company’s
quarterly financial statements, that could cause the actual results of
the company to differ materially from those projected in such
forward-looking statements.
All subsequent forward-looking statements, whether written or oral and
whether made by or on behalf of the company, also are expressly
qualified by these cautionary statements. Any forward-looking statement
speaks only as of the date on which such statement is made, and the
company undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
New factors emerge from time to time and it is not possible for the
company to predict all such factors, nor can it assess the impact of
each such factor or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in
any forward-looking statement.
About NW Natural
NW Natural is headquartered in Portland, Ore., and serves nearly 657,000
residential and business customers in Oregon and southwest Washington.
It is the largest independent natural gas utility in the Pacific
Northwest. The company has approximately $2.0 billion in total assets,
which includes approximately 16 Bcf of underground gas storage capacity
within its service territory at Mist, Ore. The company has rate
mechanisms in place that help to protect revenues from warmer than
average weather and declining consumption. NW Natural has increased its
dividends paid on common stock for 52 consecutive years.
NORTHWEST NATURAL GAS COMPANY |
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Comparative Income Statement |
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(Consolidated – Unaudited) |
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Three Months Ended |
||||||||||||
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||||||||||||
(Thousands, except per share amounts) |
06/30/08 |
06/30/07 |
Increase |
% Change |
||||||||
Gross Operating Revenues |
$ |
191,254 |
$ |
183,249 |
$ |
8,005 |
4% |
|||||
Net Income |
$ |
3,297 |
$ |
2,617 |
$ |
680 |
26% |
|||||
|
||||||||||||
Average Shares of Common Stock Outstanding |
26,421 |
26,999 |
(578 |
) |
(2%) |
|||||||
Basic Earnings Per Share of Common Stock |
$ |
0.12 |
$ |
0.10 |
$ |
0.02 |
20% |
|||||
Diluted Earnings Per Share of Common Stock |
$ |
0.12 |
$ |
0.10 |
$ |
0.02 |
20% |
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|
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|
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Six Months Ended |
||||||||||||
|
||||||||||||
(Thousands, except per share amounts) |
06/30/08 |
06/30/07 |
Increase |
% Change |
||||||||
Gross Operating Revenues |
$ |
578,948 |
$ |
577,340 |
$ |
1,608 |
(0)% |
|||||
Net Income |
$ |
46,465 |
$ |
50,692 |
$ |
(4,227 |
) |
(8%) |
||||
|
||||||||||||
Average Shares of Common Stock Outstanding |
26,415 |
27,114 |
(699 |
) |
(3%) |
|||||||
Basic Earnings Per Share of Common Stock |
$ |
1.76 |
$ |
1.87 |
$ |
(0.11 |
) |
(6%) |
||||
Diluted Earnings Per Share of Common Stock |
$ |
1.75 |
$ |
1.86 |
$ |
(0.11 |
) |
(6%) |
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|
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|
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Twelve Months Ended |
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|
||||||||||||
(Thousands, except per share amounts) |
06/30/08 |
06/30/07 |
Increase |
% Change |
||||||||
Gross Operating Revenues |
$ |
1,034,801 |
$ |
1,029,142 |
$ |
5,659 |
1% |
|||||
Net Income |
$ |
70,270 |
$ |
71,080 |
$ |
(810 |
) |
(1%) |
||||
|
||||||||||||
Average Shares of Common Stock Outstanding |
26,471 |
27,310 |
(839 |
) |
(3%) |
|||||||
Basic Earnings Per Share of Common Stock |
$ |
2.65 |
$ |
2.60 |
$ |
0.05 |
2% |
|||||
Diluted Earnings Per Share of Common Stock |
$ |
2.64 |
$ |
2.59 |
$ |
0.05 |
2% |
NORTHWEST NATURAL GAS COMPANY |
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Consolidated Balance Sheets (unaudited) |
|
June 30, |
|
June 30, |
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Thousands |
|
2008 |
|
2007 |
|||||||
Assets: |
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Plant and property: |
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|
Utility plant |
$ |
2,091,092 |
$ |
2,002,460 |
||||||
Less accumulated depreciation |
|
637,680 |
|
|
595,195 |
|
|||||
|
Utility plant – net |
|
1,453,412 |
|
|
1,407,265 |
|
||||
Non-utility property |
72,242 |
57,061 |
|||||||||
Less accumulated depreciation and amortization |
|
8,537 |
|
|
7,392 |
|
|||||
Non-utility property – net |
|
63,705 |
|
|
49,669 |
|
|||||
Total plant and property |
|
1,517,117 |
|
|
1,456,934 |
|
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Current assets: |
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Cash and cash equivalents |
5,242 |
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