Chesapeake Utilities Corp (CPK) Q1 2021 Earnings Call Transcript


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Chesapeake Utilities Corp (NYSE:CPK)
Q1 2021 Earnings Call
May 5, 2021, 4:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Chesapeake Utilities Corporation’s First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, May 5, 2021.

I would now like to turn the conference over to Beth Cooper, Executive Vice President and Chief Financial Officer. Please go ahead.

Beth W. CooperExecutive Vice President, Chief Financial Officer and Assistant Corporate Secretary

Thank you, and good afternoon, everyone. We appreciate you joining us today to review our first quarter 2021 results.

We announced our financial results for the quarter yesterday. As you saw, our strong financial results indicate we continued growing and operating effectively, serving our customers, identifying and finalizing new investment projects and keeping our employees as safe as possible.

As shown on Slide 2, participating with me on the call today are Jeff Householder, President and Chief Executive Officer; and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer. We also have other members of our management team joining us virtually. Today’s presentation can be accessed on our website under the Investors section and Events and Webcast sub-section. After our prepared remarks, we will open the call up for question.

Moving to Slide 3, I would like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of the Company’s 2020 annual report on Form 10-K provides further information on the factors that could cause such statements to differ from our actual results.

Now, I’ll turn the call over to Jeff to provide opening remarks on the Company’s first quarter 2021 performance and the key contributing drivers to our results. Jeff?

Jeff M. HouseholderPresident and Chief Executive Officer

Thank you, Beth. Good afternoon, and thank you all for joining our call today.

We’ve had a very strong start to 2021 with continued profitable growth initiatives across our business units. As shown on Slide 4, earnings per share from continuing operations was $1.96, an increase of $0.19 or 10.7% compared to our first quarter 2020 earnings per share of $1.77. Gross margin increased more than $17 million over the first quarter of 2020.

Our results were driven by growth across the Company. We also experienced increased consumer consumption resulting from weather that more closely resembled normal temperatures. Some of the key margin drivers included: pipeline expansion projects; the Hurricane Michael regulatory settlement; organic natural gas distribution customer growth; contributions from Elkton Gas and Western Natural Gas; increased retail propane margins per gallon; and increased business in Marlin Gas Services.

As our General Counsel, Jim Moriarty, is fond of saying, we are the beneficiaries of geography. We’re fortunate to provide energy delivery services to communities that are experiencing significant growth.

[Technical Issues] initiatives that signal support for continued expansion of our systems in Florida. In all of our service areas, the demand for natural gas, propane and electricity has never been higher. We continued to see customer additions at a rate that’s more than twice the national average. In the past year, our utility distribution and customer count increased by 7.4%.

Growth opportunities to serve new customers was the primary driver of our capital investment in the first quarter. We projected capital investments for 2021 at approximately $200 million, and we’re on track to achieve that target. Our first quarter capital investment totaled just under $49 million.

Earlier today, our Board of Directors have approved an annualized dividend payment of $1.92 per share, a $0.16 per share or 9.1% dividend increase. The $0.16 per share increase in the annualized dividend closely aligns our five-year earnings growth rate of 9.4% through December 31, 2020, with our five-year dividend growth rate of 9.5%, as shown on Slide 5, including this most recent increase. The Board’s decision to raise the dividend reflects the Company’s ongoing commitment to dividend growth that is supported by earnings growth, while maintaining a payout ratio that enables our healthy reinvestment of earnings for growth and ensures liquidity to fund operations. Chesapeake Utilities has paid dividends to its shareholders without interruption for 60 years and has increased its annualized dividend every year since 2004.

I will add more about our continued growth initiatives and capital investment projects across our business units in just a few minutes. But let me turn the call back over to Beth for further discussion of our first quarter results.

Beth W. CooperExecutive Vice President, Chief Financial Officer and Assistant Corporate Secretary

Thanks, Jeff.

Turning to Slide 6, net income from continuing operations for the quarter was $34.5 million compared to $29 million for the same quarter of last year. This represents a growth in net income of $5.5 million or approximately 19%.

As I’m sure you all recall, during the fourth quarter of 2019, we exited the natural gas marketing business and recognized gains on the sales associated with that exit. There were some minor lingering impact associated with the sales of this business both in 2020 and also the first quarter of 2021. As a result, I will focus our discussion today largely on continuing operation.

EPS from continuing operations for the first quarter compared to the first quarter last year grew by $0.19 to $1.96 per share from $1.77, representing growth of just under 11%. Growth initiatives and customer consumption drove the growth rate in net income by 19%, while the EPS growth rate of 11% is a result of the significant amount of equity we successfully issued in the third and fourth quarters of 2020 via the ATM program and our various stock plans. Higher income was the result of increased performance across the enterprise, as Jeff mentioned earlier, coupled with continued expense management, business efficiencies, and standardization and collaboration across the Company.

Gross margin increased 17.1% compared to the first quarter last year, while operating income grew, because of these impacts, by 22.5%. As Slide 7 also highlights, the growth in operating income was fairly split between the two segments, Regulated Energy and Unregulated Energy, for the quarter.

The key drivers of gross margin and expenses for quarter one compared to quarter one of last year are highlighted on Slide 8. Gross margin net of specific expense attributes grew $0.65 per share after tax.

Higher earnings for the quarter reflect increased earnings across the business from: first, customer consumption, as Jeff mentioned primarily weather focused, was $0.26 per share; pipeline expansion projects another $0.11 per share; higher retail propane margins per gallon increased margin by $0.06 per share; organic growth in our natural gas distribution operations added $0.04 per share; contributions from recent acquisitions, including Elkton Gas and Western Natural Gas added $0.04 per share; the Hurricane Michael regulatory settlement also added $0.04 per share after associated depreciation and amortization of associated regulatory assets; and margin from Marlin increased by $0.03 per share; lastly, from our Florida GRIP Reliability and Infrastructure Program, we added $0.02 per share.

These increases were offset by the absence of property sales that occurred in the first quarter of last year, which represented $0.14 per share and the…



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