- Net income was $13.7 million, or $1.43 per share, for the quarter ended March 31, 2011, compared to $14.0 million, or $1.47 per share, for the quarter ended March 31, 2010.
- Growth in Chesapeake’s Delmarva natural gas distribution and transmission businesses generated $1.1 million of additional gross margin.
- Propane margins per gallon increased to normal levels, adding increased gross margin of $1.0 million.
- Warmer temperatures on the Delmarva Peninsula and in Florida during the quarter ended March 31, 2011, compared to last year, resulted in lower gross margin of $2.1 million.
Dover, Delaware — Chesapeake Utilities Corporation (NYSE: CPK) today announced financial results for the quarter ended March 31, 2011. The Company‟s net income for the quarter ended March 31, 2011 was $13.7 million, or $1.43 per share, a decrease of $227,000, or $0.04 per share, compared to $14.0 million, or $1.47 per share, for the quarter ended March 31, 2010. Continued growth and expansion of the natural gas distribution and transmission systems on the Delmarva Peninsula, improved margins per gallon in the propane distribution operations, a one-time gain related to proceeds from a propane supply litigation settlement and lower interest expense largely offset a decline in earnings due to warmer temperatures on the Delmarva Peninsula and significantly warmer temperatures in Florida. The warmer temperatures on the Delmarva Peninsula and in Florida during the quarter ended March 31, 2011 decreased gross margin of the natural gas, electric and propane distribution operations by approximately $2.1 million.
“We begin 2011 on a strong note, achieving solid growth that largely offset the significantly warmer weather we experienced on a year-over-year basis,” stated Michael P. McMasters, President and Chief Executive Officer of Chesapeake Utilities Corporation. “Our efforts to expand our service on the Delmarva Peninsula and in Florida by delivering clean-burning, environmentally friendly natural gas to customers enabled us to largely overcome the significant impact of warmer weather during the first quarter. As indicated in our recent announcements, we are continuing our effort to further expand natural gas service in Sussex County, Delaware to „Reach the Beach,‟ and we are currently pursuing a project to extend our system to deliver natural gas service in Worcester County, Maryland. We are continuing to develop the opportunities that we have already identified and explore new opportunities for growth while maintaining our financial discipline.”
The discussions of the results for the periods ended March 31, 2011 and 2010, 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 Supplemental Income Statement Data chart.
Unless otherwise noted, earnings per share information is presented on a diluted basis.
Highlights for the first quarter of 2011 included:
- Warmer temperatures on the Delmarva Peninsula and in Florida during the first quarter of 2011, compared to the same period in 2010, decreased gross margin of the natural gas, electric and propane distribution operations by approximately $2.1 million. The largest portion of this decline was attributable to significantly warmer weather in Florida. Heating degree-days decreased by four percent, or 98 heating degree-days, on the Delmarva Peninsula and by 44 percent, or 413 heating degree-days, in Florida during the first quarter of 2011, compared to the same quarter in 2010. Compared to the 10-year historical average of heating degree-days, which the Company uses as the measure of normal weather for this analysis, the weather on the Delmarva Peninsula in the first quarter of 2011 was three percent colder than normal (69 more heating degree-days) while the weather in Florida was eight percent warmer than normal (44 fewer heating degree-days). The Company estimates that approximately $369,000 in lower gross margin was recognized in the first quarter of 2011 due to the weather, which overall was warmer than normal.
- In January 2011, Eastern Shore Natural Gas Company (“Eastern Shore”), the Company‟s natural gas transmission subsidiary, commenced new transportation services on the eight-mile mainline extension to interconnect with the Texas Eastern Transmission pipeline system, which generated gross margin of $542,000 in the first quarter of 2011. These new services have a three-year phase-in from 19,324 Mcfs per day to 38,647 Mcfs per day, providing estimated gross margin of $2.4 million in 2011, $3.9 million in 2012 and $4.3 million thereafter.
- The addition of 12 large commercial and industrial customers on the Delmarva Peninsula since the second half of 2010 generated $249,000 in additional gross margin during the first quarter of 2011, compared to the same quarter in 2010. These new customers are expected to generate annual margin of $1.0 million in 2011, as compared to $196,000 of gross margin generated from these customers in 2010. Also generating additional gross margin of $166,000 for the first quarter of 2011 was growth in residential customers of two percent for the Delmarva natural gas distribution operation.
- In March 2011, the Company signed new agreements to serve Beebe Medical Center and SPI Pharma, both located in Lewes, Delaware. Gross margin from these customers is expected to equate to approximately 1,000 residential heating customers with service expected to begin in the fall of 2011. Providing natural gas distribution service in Lewes requires the Company to extend its natural gas distribution infrastructure by approximately 12 miles, which will provide the foundation to serve new customers in and around the Lewes area and to extend its service further to other nearby beach areas. The Company is also pursuing the extension of natural gas service to Worcester County, Maryland, in response to increasing community interest in clean-burning, environmentally friendly natural gas. Pending receipt of the necessary approvals, natural gas could be available in Worcester County as early as the end of this year. As a first step toward obtaining these approvals, on April 19, 2011, Worcester County approved a non-exclusive natural gas franchise for the Maryland division.
- Customer growth of two percent in the Florida natural gas distribution operation generated additional gross margin of $200,000 in the first quarter of 2011, compared to the same quarter in 2010.
- Operating income from the Delmarva propane distribution operation for the first quarter of 2011 increased by $823,000, compared to the same quarter in 2010, due primarily to increased margins per gallon and a one-time gain of $575,000 from proceeds received pursuant to an antitrust litigation settlement with a major propane supplier.
- Eastern Shore‟s base rate proceeding with the Federal Regulatory Energy Commission, which was filed on December 30, 2010, is still underway. Eastern Shore expects this proceeding to be completed in 2011.
- As part of its rate case settlement in Florida in 2010, the Florida Public Service Commission (“Florida PSC”) required the Company to submit a “Come-Back” filing, detailing known benefits, synergies, cost savings and cost increases resulting from the merger with Florida Public Utilities Company (“FPU”). The Company submitted this filing on April 29, 2011. The Company is requesting the recovery, through rates, of approximately $34.2 million in acquisition adjustment (the price paid in excess of the book value) and $2.2 million in merger-related costs. The Company did not request any change to the existing rates previously approved by the Florida PSC. The Company continues to maintain a $750,000 accrual. This accrual was recorded in 2010 based on management‟s assessment of FPU‟s current earnings and regulatory risk to its earnings associated with the possible Florida PSC action related to the Company‟s requested recovery and the matters set forth in this filing. More details about this filing are included at the end of this press release.
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