• Net income of $10.7 million, or $1.11 per share
  • Lower energy consumption, due to significantly warmer temperatures, resulted in a quarter-over-quarter reduction in net income of $2.4 million, or $0.25 per share
  • Additional margins generated from natural gas expansions on the Delmarva Peninsula and in Florida added $659,000 to net income, or $0.07 per share

Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced financial results for the first quarter of 2012. The Company’s net income for the quarter ended March 31, 2012 was $10.7 million, or $1.11 per share, a decrease of $3.0 million, or $0.32 per share, compared to the same quarter in 2011. This represents a 22 percent decrease in quarter-over-quarter net income and earnings per share. $2.4 million ($0.25 per share) of the decrease resulted from lower customer energy consumption directly attributable to a decrease in heating degree-days of 23 percent and 36 percent on the Delmarva Peninsula and in Florida, respectively. The first quarter of 2012 was the warmest first quarter in the past 10 years. Amortization expense associated with the recovery of the acquisition premium and merger-related costs in Florida also reduced net income by $361,000 ($0.04 per share), as further explained in the Financial Summary Highlights section.

“Earnings from all of our energy operations in the first quarter of 2012 reflected the impact of the warmest first quarter in the past 10 years. Despite this quarter’s weather challenge, our businesses made significant progress in pursuing their long-term strategic initiatives,‖ stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. ―Growth generated by expansion of natural gas service, thanks to the focused efforts of our employees, continues to create value for our shareholders and customers. Since the beginning of 2011, we have added 12 large commercial and industrial natural gas customers on the Delmarva Peninsula, requiring expansion of our natural gas distribution and transmission systems that increase our earnings and enable future growth. In the latter half of this year, we expect to begin natural gas service in Worcester and Cecil Counties in Maryland. Our Florida team has been identifying opportunities to bring natural gas to new territories and I am pleased to announce that in April, we began natural gas service in Nassau County. Our unregulated businesses are also pursuing opportunities to grow their businesses through new customers, products and services. I am confident that these initiatives, coupled with other opportunities we identify during the year, will generate additional growth in 2012 and beyond.”

The Company’s operating income for the first quarter of 2012 was $20.1 million, a decrease of $4.8 million, compared to the same quarter in 2011. Gross margin decreased by $3.7 million, or seven percent, in the first quarter of 2012, compared to the same quarter in 2011. Lower customer energy consumption directly attributable to warmer temperatures reduced gross margin by $4.0 million. Propane sales to bulk-delivery customers declined beyond the estimated weather impact due to the timing of deliveries, conservation and other factors, which reduced gross margin by $587,000. These decreases in gross margin were partially offset by growth in the natural gas distribution and transmission operations, which included $562,000 in additional gross margin generated from growth in residential, commercial and industrial customers served by the Delmarva and Florida natural gas distribution operations and $553,000 in additional gross margin generated from mainline expansions and new transportation services by the Company’s natural gas transmission subsidiary, Eastern Shore Natural Gas Company (“Eastern Shore”). The Florida propane distribution operation generated additional gross margin of $628,000 from higher retail propane margins per gallon. Other factors affecting the quarter-over-quarter gross margin variance were: (i) a $536,000 decrease in gross margin reported by the propane wholesale marketing subsidiary, Xeron, Inc. (“Xeron”) and (ii) the absence in 2012 of the one-time gain of $575,000 recorded in the first quarter of 2011 related to the proceeds received in an antitrust litigation settlement with a major propane supplier.

Other operating expenses for the first quarter of 2012 were $30.6 million, an increase of $1.1 million, compared to the same quarter in 2011. $588,000 of the increase represented amortization expense related to the recovery of acquisition adjustment and merger-related costs pursuant to the January 2012 order by the Florida Public Service Commission (“Florida PSC”).

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 most recent report on Form 10-K, as amended, and 10-Q 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 Performance Summary.

Unless otherwise noted, earnings per share information is presented on a diluted basis.

Conference Call

Chesapeake Utilities Corporation will host a conference call on May 4, 2012, at 10:30 a.m. Eastern Time to discuss the Company’s financial results for the first quarter ended March 31, 2012. To participate in this call, dial 866.821.5457 and reference Chesapeake Utilities Corporation’s 2012 First Quarter Financial Results Conference Call. To access the replay recording of this call, please visit the Company’s website at https://rrr.chpk.com/conferencecalls.

About Chesapeake Utilities Corporation

Chesapeake Utilities Corporation is a diversified utility company engaged in natural gas distribution, transmission and marketing, electric distribution, propane gas distribution and wholesale marketing, advanced information services and other related services. Information about Chesapeake’s businesses is available at www.chpk.com.

For more information, contact:

Beth W. Cooper
Senior Vice President & Chief Financial Officer
302.734.6799

Financial summary highlights for the first quarter ended March 31, 2012

The following information highlights certain key factors contributing to the Company’s results in the current quarter:

  • Lower customer energy consumption directly attributable to warmer weather reduced gross margin by $4.0 million. Propane sales to bulk-delivery customers declined beyond the estimated weather impact due to the timing of deliveries, conservation and other factors, which further reduced gross margin by $587,000.
  • Amortization related to the recovery of the acquisition adjustment and merger-related costs in Florida increased other operating expenses by $588,000.
  • Growth from new natural gas distribution customers generated $562,000 in additional gross margin.
  • New natural gas transportation services generated $553,000 in additional gross margin.
  • Other items affecting the Company’s quarter-over-quarter results included:
  • o $628,000 in additional gross margin generated from higher retail propane margins per gallon as a result of the retail pricing levels and market conditions in Florida;
  • o A decrease in Xeron’s gross margin of $536,000 as a result of a 34-percent decrease in trading activity;
  • o The absence in 2012 of two non-recurring items in the first quarter of 2011: a $575,000 gain for the proceeds received from an antitrust litigation settlement with a major propane supplier, partially offset by severance and pension settlement charges totaling $295,000; and
  • o Additional legal costs of $243,000 related to an electric franchise dispute.

Weather and Consumption

Lower customer energy consumption directly attributable to warmer temperatures in the first quarter of 2012, compared to temperatures in the same quarter in 2011, reduced gross margin by $4.0 million. Temperatures on the Delmarva Peninsula and in Florida in the first quarter of 2012 were 23 percent (565 heating degree-days) and 36 percent (185 heating degree-days), respectively, warmer than the same quarter in 2011. Comparing first quarter 2012 temperatures to normal, based on the 10-year historic average of heating degree-days, the weather on the Delmarva Peninsula and in Florida was 21 percent (496 heating degree-days) and 40 percent (224 heating degree-days), respectively, warmer than normal. The Company estimates that this variance reduced gross margin for the first quarter of 2012 by approximately $3.8 million, compared to gross margin under normal temperatures.

During the first quarter of 2012, propane sales to bulk-delivery customers declined beyond the estimated weather impact, which reduced gross margin by $587,000. The timing of bulk deliveries, conservation and other factors contributed to this decline.

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