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Chesapeake Utilities Corporation Reports Third Quarter 2019 Results
On
The Company's income from continuing operations for the quarter ended September 30, 2019 was
For the nine months ended September 30, 2019, the Company reported income from continuing operations of $44.0 million, or $2.67 per share. This represents an increase of $4.9 million or $0.29 per share compared to the same period in 2018. Year-to-date earnings were impacted by the factors noted above, along with strong contributions from incremental margin from the acquisition of certain assets of the
"For the first nine months of 2019, we have delivered strong financial performance largely driven by new pipeline expansions, organic growth, key regulatory initiatives and contributions from the Marlin Gas Transport and Ohl acquisitions," stated
Significant Items Impacting Earnings from Continuing Operations
There were no significant items impacting earnings from continuing operations during the third quarter of 2019 compared to the same period in 2018, however, results for the nine months ended September 30, 2019 and 2018 were impacted by the following significant items:
For the Nine Months Ended September 30, |
2019 |
2018 |
|||||||||
(in thousands, except per share data) |
Net Income |
EPS |
Net Income |
EPS |
|||||||
Reported (GAAP) Earnings from Continuing Operations |
$ |
43,977 |
$ |
2.67 |
$ |
39,118 |
$ |
2.38 |
|||
2018 portion of the retained tax savings for certain Florida natural gas distribution operations associated with the TCJA income tax rate reduction |
(990) |
(0.06) |
— |
— |
|||||||
Nonrecurring separation expenses associated with a former executive |
— |
— |
1,421 |
0.09 |
|||||||
Adjusted (Non-GAAP) Earnings from Continuing Operations |
$ |
42,987 |
$ |
2.61 |
$ |
40,539 |
$ |
2.47 |
For the nine months ended September 30, 2019, adjusted earnings from continuing operations were
*Unless otherwise noted, earnings per share information is presented for continuing operations on a diluted basis.
**This press release includes references to non-Generally Accepted Accounting Principles ("GAAP") financial measures, including gross margin, adjusted earnings and adjusted EPS from continuing operations. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.
The Company calculates "gross margin" by deducting the cost of sales from operating revenue. Cost of sales includes the purchased fuel cost for natural gas, electricity and propane, and the cost of labor spent on direct revenue-producing activities and excludes depreciation, amortization and accretion. Other companies may calculate gross margin in a different manner. Gross margin should not be considered an alternative to operating income or net income, both of which are determined in accordance with GAAP. The Company believes that gross margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates the profitability achieved by the Company under its allowed rates for regulated operations and under its competitive pricing structures for unregulated businesses. The Company's management uses gross margin in measuring its business units' performance. The Company calculates "adjusted earnings" by adjusting reported (GAAP) earnings from continuing operations to exclude the impact of certain significant non-cash items, including the impact of one-time charges, such as severance charges, and any prior year tax savings retained by our regulated businesses as a result of current year regulatory authorizations. The Company calculates "adjusted EPS" from continuing operations by dividing adjusted earnings from continuing operations by the weighted average common shares outstanding.
Operating Results for the Quarters Ended September 30, 2019 and 2018
Consolidated Results |
|||||||||||
Three Months Ended September 30, |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
67,298 |
$ |
62,387 |
$ |
4,911 |
7.9 |
% |
|||
Depreciation, amortization and property taxes |
16,010 |
14,548 |
1,462 |
10.0 |
% |
||||||
Other operating expenses |
36,930 |
34,960 |
1,970 |
5.6 |
% |
||||||
Operating income (1) |
$ |
14,358 |
$ |
12,879 |
$ |
1,479 |
11.5 |
% |
(1) |
These results exclude operating results from PESCO that are now reflected as discontinued operations. |
Operating income during the third quarter of 2019 increased by
Regulated Energy Segment |
|||||||||||
Three Months Ended September 30, |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
54,961 |
$ |
51,269 |
$ |
3,692 |
7.2 |
% |
|||
Depreciation, amortization and property taxes |
13,076 |
12,085 |
991 |
8.2 |
% |
||||||
Other operating expenses |
24,345 |
23,269 |
1,076 |
4.6 |
% |
||||||
Operating income |
$ |
17,540 |
$ |
15,915 |
$ |
1,625 |
10.2 |
% |
Operating income for the Regulated Energy segment for the three months ended
The key components of the increase in gross margin are shown below:
(in thousands) |
||
Eastern Shore Natural Gas Company ("Eastern Shore") and Peninsula Pipeline Company ("Peninsula Pipeline") service expansions (including related Florida natural gas distribution operation expansions) |
$ |
2,312 |
Natural gas distribution growth (excluding service expansions) |
791 |
|
Sandpiper Energy, Inc.'s ("Sandpiper") margin primarily from natural gas conversions |
224 |
|
Increased margin primarily from the storm recovery surcharge for Florida electric distribution operations |
169 |
|
TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations |
109 |
|
Florida GRIP (1) |
(144) |
|
Other variances |
231 |
|
Quarter-over-quarter increase in gross margin |
$ |
3,692 |
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019. |
The major components of the increase in other operating expenses are as follows:
(in thousands) |
||
Insurance expense - both insured and self-insured components |
$ |
718 |
Payroll, benefits and other employee-related expenses |
345 |
|
Other variances |
13 |
|
Quarter-over-quarter increase in other operating expenses |
$ |
1,076 |
Unregulated Energy Segment |
|||||||||||
Three Months Ended September 30, |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
12,418 |
$ |
11,202 |
$ |
1,216 |
10.9 |
% |
|||
Depreciation, amortization and property taxes |
2,901 |
2,425 |
476 |
19.6 |
% |
||||||
Other operating expenses |
12,685 |
11,867 |
818 |
6.9 |
% |
||||||
Operating loss (1) |
$ |
(3,168) |
$ |
(3,090) |
$ |
(78) |
2.5 |
% |
(1) |
These results exclude operating results from PESCO that are now reflected as discontinued operations. |
Operating loss for the Unregulated Energy segment remained largely unchanged for the three months ended September 30, 2019 compared to 2018, as higher gross margin was offset by higher expenses to support growth. Due to the seasonality of the Company's business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is highest due to colder temperatures. The third quarter has historically contributed the smallest amount of a full year's results.
The major components of the increase in gross margin are shown below:
(in thousands) |
|||
Marlin Gas Services (assets acquired in December 2018) |
$ |
993 |
|
Propane Operations |
|||
Increased retail propane margins per gallon driven by favorable market conditions and supply management |
470 |
||
Ohl acquisition (assets acquired in December 2018) |
95 |
||
Aspire Energy |
|||
Higher gas supply costs |
(233) |
||
Other variances |
(109) |
||
Quarter-over-quarter increase in gross margin |
$ |
1,216 |
The major components of the increase in other operating expenses are as follows:
(in thousands) |
||
Operating expenses for Marlin Gas Services and Ohl (Assets acquired in December 2018) including costs to expand the future growth prospects for the businesses |
$ |
746 |
Insurance expense - both insured and self-insured components |
179 |
|
Other variances |
(107) |
|
Quarter-over-quarter increase in other operating expenses |
$ |
818 |
Operating Results for the Nine Months Ended
Consolidated Results |
|||||||||||
Nine Months Ended |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
236,203 |
$ |
217,165 |
$ |
19,038 |
8.8 |
% |
|||
Depreciation, amortization and property taxes |
47,337 |
41,694 |
5,643 |
13.5 |
% |
||||||
Other operating expenses |
112,222 |
109,503 |
2,719 |
2.5 |
% |
||||||
Operating income (1) |
$ |
76,644 |
$ |
65,968 |
$ |
10,676 |
16.2 |
% |
(1) |
These results exclude operating results from PESCO that are now reflected as discontinued operations. |
Operating income for the nine months ended September 30, 2019 increased by
Regulated Energy Segment |
|||||||||||
Nine Months Ended |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
177,149 |
$ |
162,926 |
$ |
14,223 |
8.7 |
% |
|||
Depreciation, amortization and property taxes |
38,694 |
34,402 |
4,292 |
12.5 |
% |
||||||
Other operating expenses |
73,145 |
71,594 |
1,551 |
2.2 |
% |
||||||
Operating income |
$ |
65,310 |
$ |
56,930 |
$ |
8,380 |
14.7 |
% |
Operating income for the Regulated Energy segment for the nine months ended
The key components of the increase in gross margin are shown below:
(in thousands) |
|||
Eastern Shore and Peninsula Pipeline service expansions (including related Florida natural gas distribution operation expansions) |
$ |
10,452 |
|
Natural gas distribution - customer growth (excluding service expansions) |
3,446 |
||
2018 retained tax savings for certain Florida natural gas distribution operations |
1,321 |
||
TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations |
1,117 |
||
Sandpiper's margin primarily from natural gas conversions |
837 |
||
Florida GRIP (1) |
391 |
||
Decreased customer consumption - primarily due to warmer weather |
(3,248) |
||
Other variances |
(93) |
||
Period-over-period increase in gross margin |
$ |
14,223 |
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019. |
The major components of the increase in other operating expenses are as follows:
(in thousands) |
||
Payroll, benefits and other employee-related expenses |
$ |
2,299 |
Insurance expense - both insured and self-insured components |
975 |
|
Vehicle expenses due to additional fleet to support growth |
168 |
|
Facilities and maintenance costs due to the consolidation of facilities |
(1,194) |
|
Outside services and regulatory costs due to lower consulting fees and timing of expense |
(1,062) |
|
Other variances |
365 |
|
Period-over-period increase in other operating expenses |
$ |
1,551 |
Unregulated Energy Segment |
|||||||||||
Nine Months Ended |
|||||||||||
(in thousands) |
2019 |
2018 |
Change |
Percent |
|||||||
Gross margin |
$ |
59,340 |
$ |
54,636 |
$ |
4,704 |
8.6 |
% |
|||
Depreciation, amortization and property taxes |
8,543 |
7,182 |
1,361 |
19.0 |
% |
||||||
Other operating expenses |
39,481 |
36,935 |
2,546 |
6.9 |
% |
||||||
Operating income (1) |
$ |
11,316 |
$ |
10,519 |
$ |
797 |
7.6 |
% |
(1) |
These results exclude operating results from PESCO that are now reflected as discontinued operations. |
Operating income for the Unregulated Energy segment increased by
The major components of the
(in thousands) |
|||
Marlin Gas Services (acquired assets of Marlin Gas Transport in December 2018) |
$ |
4,353 |
|
Propane Operations |
|||
Increased retail propane margins per gallon driven by favorable market conditions and supply management |
1,689 |
||
Ohl acquisition (assets acquired in December 2018) |
683 |
||
Decrease in customer consumption due primarily to the absence of the 2018 Bomb Cyclone |
(1,559) |
||
Decrease in wholesale propane margins due primarily to the absence of the 2018 Bomb Cyclone |
(785) |
||
Aspire Energy |
|||
Rate increases |
858 |
||
Customer consumption growth |
296 |
||
Higher gas supply costs |
(429) |
||
Other variances |
(402) |
||
Period-over-period increase in gross margin |
$ |
4,704 |
The major components of the increase in other operating expenses are as follows:
(in thousands) |
||
Operating expenses for Marlin Gas Services and Ohl (Asset acquisitions in December 2018) including costs to expand the future growth prospects for the businesses |
$ |
2,435 |
Insurance expense - both insured and self-insured components |
244 |
|
Facilities and maintenance costs primarily due to lower level of tank refurbishments for propane operations |
(380) |
|
Other variances |
247 |
|
Period-over-period increase in other operating expenses |
$ |
2,546 |
Discontinued Operations - Natural Gas Marketing Business
On
- PESCO's
Florida retail operations were sold toGas South LLC . The initial closing for the transaction was completed inNovember 2019 with subsequent closings expected inDecember 2019 andJanuary 2020 . - PESCO's other non-
Florida retail operations and contracts were sold toUnited Energy Trading, LLC inOctober 2019 . - PESCO's Mid-Atlantic wholesale contracts and
Chesapeake Utilities' Delaware division,Maryland division and Sandpiper Energy Asset Management agreements were sold toNJR Energy Services Company inOctober 2019 .
In addition to these transactions, the Company is actively marketing PESCO's producer services portfolio and is targeting a sale by the end of 2019. The Company expects to recognize a pre-tax gain ranging from
As a result of the sales agreements, the Company began to report PESCO as discontinued operations during the third quarter and has excluded PESCO's performance from continuing operations and segment results for all periods presented. The assets and liabilities of PESCO presented have also been classified as assets and liabilities held for sale for all periods shown.
Forward-Looking Statements
Matters included 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 2018 Annual Report on Form 10-K for further information on the risks and uncertainties related to the Company's forward-looking statements.
Conference Call
About
Please note that
For more information, contact:
Executive Vice President, Chief Financial Officer and Assistant Corporate Secretary
302.734.6799
Financial Summary |
|||||||||||
(in thousands, except per share data) |
|||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||
September 30, |
September 30, |
||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||
Gross Margin |
|||||||||||
Regulated Energy segment |
$ |
54,961 |
$ |
51,269 |
$ |
177,149 |
$ |
162,926 |
|||
Unregulated Energy segment |
12,418 |
11,202 |
59,340 |
54,636 |
|||||||
Other businesses and eliminations |
(81) |
(84) |
(286) |
(397) |
|||||||
Total Gross Margin |
$ |
67,298 |
$ |
62,387 |
$ |
236,203 |
$ |
217,165 |
|||
Operating Income |
|||||||||||
Regulated Energy segment |
$ |
17,540 |
$ |
15,915 |
$ |
65,310 |
$ |
56,930 |
|||
Unregulated Energy segment |
(3,168) |
(3,090) |
11,316 |
10,519 |
|||||||
Other businesses and eliminations |
(14) |
54 |
18 |
(1,481) |
|||||||
Total Operating Income |
14,358 |
12,879 |
76,644 |
65,968 |
|||||||
Other expense, net |
(350) |
(4) |
(729) |
(168) |
|||||||
Interest Charges |
5,403 |
4,357 |
16,583 |
11,764 |
|||||||
Income from Continuing Operations Before Income Taxes |
8,605 |
8,518 |
59,332 |
54,036 |
|||||||
Income Taxes on Continuing Operations |
2,360 |
2,428 |
15,355 |
14,918 |
|||||||
Income from Continuing Operations |
6,245 |
6,090 |
43,977 |
39,118 |
|||||||
Loss from Discontinued Operations |
(624) |
(552) |
(1,388) |
(339) |
|||||||
Net Income |
$ |
5,621 |
$ |
5,538 |
$ |
42,589 |
$ |
38,779 |
|||
Basic Earnings Per Share of Common Stock |
|||||||||||
Earnings from Continuing Operations |
$ |
0.38 |
$ |
0.37 |
$ |
2.68 |
$ |
2.39 |
|||
Earnings from Discontinued Operations |
(0.04) |
(0.03) |
(0.08) |
(0.02) |
|||||||
Basic Earnings Per Share of Common Stock |
$ |
0.34 |
$ |
0.34 |
$ |
2.60 |
$ |
2.37 |
|||
Diluted Earnings Per Share of Common Stock |
|||||||||||
Earnings from Continuing Operations |
$ |
0.38 |
$ |
0.37 |
$ |
2.67 |
$ |
2.38 |
|||
Earnings from Discontinued Operations |
(0.04) |
(0.03) |
(0.08) |
(0.02) |
|||||||
Diluted Earnings Per Share of Common Stock |
$ |
0.34 |
$ |
0.34 |
$ |
2.59 |
$ |
2.36 |
Financial Summary Highlights
Key variances in continuing operations, between the three months ended
(in thousands, except per share data) |
Pre-tax Income |
Net Income |
Earnings Per Share |
||||||
Third Quarter of 2018 Reported Results from Continuing Operations |
$ |
8,518 |
$ |
6,090 |
$ |
0.37 |
|||
Increased (Decreased) Gross Margins: |
|||||||||
Eastern Shore and Peninsula Pipeline service expansions (including related Florida natural gas distribution operation expansions)* |
2,312 |
1,678 |
0.10 |
||||||
Margin contribution from Marlin Gas Services and Ohl* |
1,088 |
790 |
0.05 |
||||||
Natural gas distribution growth (excluding service expansions) |
791 |
574 |
0.04 |
||||||
Increased retail propane margins per gallon |
470 |
341 |
0.02 |
||||||
Sandpiper's margin from natural gas conversions |
224 |
162 |
0.01 |
||||||
Increased margin primarily from the storm recovery surcharge for Florida electric distribution operations |
169 |
122 |
0.01 |
||||||
TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations* |
109 |
79 |
0.01 |
||||||
Aspire Energy higher gas supply costs |
(233) |
(169) |
(0.01) |
||||||
Florida GRIP* (1) |
(144) |
(104) |
(0.01) |
||||||
4,786 |
3,473 |
0.22 |
|||||||
(Increased) Decreased Operating Expenses (Excluding Cost of Sales): |
|||||||||
Depreciation, amortization and property tax costs due to growth investments |
(1,152) |
(836) |
(0.05) |
||||||
Operating expenses for Marlin Gas Services and Ohl including costs to expand the future growth prospects for the businesses |
(1,055) |
(766) |
(0.05) |
||||||
Insurance - both insured and self-insured components |
(790) |
(573) |
(0.03) |
||||||
Payroll, benefits and other employee-related expenses |
(392) |
(285) |
(0.02) |
||||||
(3,389) |
(2,460) |
(0.15) |
|||||||
Change in effective tax rate |
— |
23 |
— |
||||||
Interest charges |
(1,046) |
(759) |
(0.05) |
||||||
Net other changes |
(264) |
(122) |
(0.01) |
||||||
(1,310) |
(858) |
(0.06) |
|||||||
Third Quarter of 2019 Reported Results from Continuing Operations |
$ |
8,605 |
$ |
6,245 |
$ |
0.38 |
*See the Major Projects and Initiatives table later in this press release. |
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019. |
Key variances in continuing operations, between the nine months ended
(in thousands, except per share data) |
Pre-tax Income |
Net Income |
Earnings Per Share |
||||||
Nine Months Ended September 30, 2018 Reported Results from Continuing Operations |
$ |
54,036 |
$ |
39,118 |
$ |
2.38 |
|||
Adjusting for Unusual Items: |
|||||||||
Decreased customer consumption - primarily due to warmer weather |
(4,511) |
(3,344) |
(0.20) |
||||||
Nonrecurring separation expenses associated with a former executive |
1,548 |
1,421 |
0.09 |
||||||
2018 retained tax savings for certain Florida natural gas operations* |
1,321 |
990 |
0.06 |
||||||
(1,642) |
(933) |
(0.05) |
|||||||
Increased (Decreased) Gross Margins: |
|||||||||
Eastern Shore and Peninsula Pipeline service expansions (including new service in Northwest Florida for related Florida natural gas distribution operations)* |
10,452 |
7,747 |
0.47 |
||||||
Margin contribution from Marlin Gas Services and Ohl* |
5,036 |
3,733 |
0.23 |
||||||
Natural gas distribution growth (excluding service expansions) |
3,446 |
2,554 |
0.16 |
||||||
Increased retail propane margins per gallon |
1,689 |
1,252 |
0.08 |
||||||
TCJA impact from the 2019 retained tax savings for certain Florida natural gas operations* |
1,117 |
828 |
0.05 |
||||||
Aspire Energy rate increases |
858 |
636 |
0.04 |
||||||
Sandpiper's margin from natural gas conversions |
837 |
621 |
0.04 |
||||||
Florida GRIP* (1) |
391 |
290 |
0.02 |
||||||
Absence of Bomb Cyclone impact on wholesale propane margins |
(785) |
(582) |
(0.04) |
||||||
Aspire Energy higher gas supply costs |
(429) |
(318) |
(0.02) |
||||||
22,612 |
16,761 |
1.03 |
|||||||
(Increased) Decreased Other Operating Expenses (Excluding Cost of Sales): |
|||||||||
Depreciation, amortization and property tax costs due to new capital investments |
(4,711) |
(3,492) |
(0.21) |
||||||
Operating expenses for Marlin Gas Services and Ohl including costs to expand the future growth prospects for the businesses |
(3,367) |
(2,496) |
(0.15) |
||||||
Payroll, benefits and other employee-related expenses |
(2,471) |
(1,832) |
(0.11) |
||||||
Insurance - both insured and self-insured components |
(1,223) |
(907) |
(0.06) |
||||||
Vehicle expenses due to additional fleet to support growth |
(331) |
(246) |
(0.01) |
||||||
Facilities and maintenance costs due to consolidation of facilities and lower levels of tank refurbishments |
1,425 |
1,056 |
0.06 |
||||||
Outside services and regulatory costs due to lower consulting costs, absence of Eastern Shore rate case and the timing of expenses |
865 |
641 |
0.04 |
||||||
(9,813) |
(7,276) |
(0.44) |
|||||||
Change in effective tax rate |
— |
556 |
0.03 |
||||||
Interest Charges |
(4,819) |
(3,572) |
(0.22) |
||||||
Net other changes |
(1,042) |
(677) |
(0.06) |
||||||
(5,861) |
(3,693) |
(0.25) |
|||||||
Nine Months Ended September 30, 2019 Reported Results from Continuing Operations |
$ |
59,332 |
$ |
43,977 |
$ |
2.67 |
*See the Major Projects and Initiatives table later in this press release. |
(1) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019. |
Recently Completed and Ongoing Major Projects and Initiatives
The Company constantly pursues and develops additional projects and initiatives to serve existing and new customers, and to further grow its businesses and earnings, with the intention to increase shareholder value. The following represent the major projects/initiatives recently completed and currently underway. In the future, the Company will add new projects and initiatives to this table once negotiations are substantially final and the associated earnings can be estimated.
Gross Margin for the Period |
|||||||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
Year Ended |
Estimate for |
||||||||||||||||||||||||
Project/Initiative |
September 30, |
September 30, |
December 31, |
Fiscal |
|||||||||||||||||||||||
in thousands |
2019 |
2018 |
2019 |
2018 |
2018 |
2019 |
2020 |
||||||||||||||||||||
Expansions: |
|||||||||||||||||||||||||||
2017 Eastern Shore System Expansion - including interim services |
$ |
3,671 |
$ |
2,409 |
$ |
12,116 |
$ |
5,527 |
$ |
9,103 |
$ |
16,209 |
$ |
15,799 |
|||||||||||||
Northwest Florida Expansion (including related natural gas distribution services) |
1,592 |
1,589 |
4,881 |
2,741 |
4,350 |
6,500 |
6,500 |
||||||||||||||||||||
Western Palm Beach County, Florida Expansion |
745 |
— |
1,068 |
— |
54 |
2,254 |
5,047 |
||||||||||||||||||||
Del-Mar Energy Pathway - including interim services |
189 |
— |
542 |
— |
— |
725 |
3,039 |
||||||||||||||||||||
Auburndale |
113 |
— |
113 |
— |
— |
283 |
679 |
||||||||||||||||||||
Callahan Intrastate Pipeline |
— |
— |
— |
— |
— |
— |
3,219 |
||||||||||||||||||||
Total Expansions |
6,310 |
3,998 |
18,720 |
8,268 |
13,507 |
25,971 |
34,283 |
||||||||||||||||||||
Acquisitions: |
|||||||||||||||||||||||||||
Marlin Gas Services |
993 |
— |
4,353 |
— |
110 |
5,500 |
6,400 |
||||||||||||||||||||
Ohl Propane Acquisition |
95 |
— |
683 |
— |
— |
1,200 |
1,236 |
||||||||||||||||||||
Total Acquisitions |
1,088 |
— |
5,036 |
— |
110 |
6,700 |
7,636 |
||||||||||||||||||||
Regulatory Initiatives |
|||||||||||||||||||||||||||
Florida GRIP (1) (2) |
3,145 |
3,289 |
10,050 |
9,659 |
13,323 |
13,587 |
14,854 |
||||||||||||||||||||
Tax benefit retained by certain Florida entities(3) |
109 |
— |
2,438 |
— |
— |
2,980 |
1,879 |
||||||||||||||||||||
Total Regulatory Initiatives |
3,254 |
3,289 |
12,488 |
9,659 |
13,323 |
16,567 |
16,733 |
||||||||||||||||||||
Total |
$ |
10,652 |
$ |
7,287 |
$ |
36,244 |
$ |
17,927 |
$ |
26,940 |
$ |
49,238 |
$ |
58,652 |
(1) All periods shown have been adjusted to reflect the lower customer rates as a result of the TCJA. Lower customer rates are offset by the corresponding decrease in federal income tax expense and have no negative impact on net income. |
(2) In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling $0.8 million retroactive to January 1, 2019, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. The Company also recorded $0.4 million in lower GRIP margin due to a concurrent reduction in surcharge collected from customers as a result of the reduced depreciation rates during the third quarter of 2019. |
(3) The amount disclosed for the nine months ended September 30, 2019 includes tax savings of $1.3 million for the year ended December 31, 2018. The tax savings were recorded in the first quarter of 2019 due to an order by the Florida PSC allowing reversal of a TCJA refund reserve, recorded in 2018, which increased gross margin for the nine months ended by that amount. |
Detailed Discussion of Major Projects and Initiatives
Expansions
2017 Eastern Shore System Expansion
Northwest Florida Expansion
In
Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to the Company's distribution system in
Del-Mar Energy Pathway
In
In
Callahan Intrastate Pipeline
In
In
Acquisitions
Marlin Gas Services
In
Ohl Propane Acquisition
In
Regulatory Initiatives
Florida GRIP
Florida GRIP is a natural gas pipe replacement program approved by the Florida PSC that allows automatic recovery, through rates, of costs associated with the replacement of mains and services. Since the program's inception in
In the third quarter of 2019, the Company recorded a reduction in depreciation expense totaling
Florida Tax Savings Related to TCJA
In
Hurricane Michael
In
In
Other major factors influencing gross margin
Weather and Consumption
Weather was not a factor during the third quarter of 2019, compared to the same period in 2018. For the nine months ended September 30, 2019, compared to the same period in 2018, weather conditions accounted for a
The following table summarizes HDD and cooling degree day ("CDD") variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended
Three Months Ended |
Nine Months Ended |
|||||||||||
September 30, |
September 30, |
|||||||||||
2019 |
2018 |
Variance |
2019 |
2018 |
Variance |
|||||||
Delmarva |
||||||||||||
Actual HDD |
7 |
10 |
(3) |
2,576 |
2,729 |
(153) |
||||||
10-Year Average HDD ("Normal") |
55 |
61 |
(6) |
2,803 |
2,846 |
(43) |
||||||
Variance from Normal |
(48) |
(51) |
(227) |
(117) |
||||||||
Florida |
||||||||||||
Actual HDD |
— |
— |
— |
379 |
507 |
(128) |
||||||
10-Year Average HDD ("Normal") |
— |
— |
— |
532 |
533 |
(1) |
||||||
Variance from Normal |
— |
— |
(153) |
(26) |
||||||||
Ohio |
||||||||||||
Actual HDD |
2 |
55 |
(53) |
3,533 |
3,707 |
(174) |
||||||
10-Year Average HDD ("Normal") |
90 |
91 |
(1) |
3,742 |
3,774 |
(32) |
||||||
Variance from Normal |
(88) |
(36) |
(209) |
(67) |
||||||||
Florida |
||||||||||||
Actual CDD |
1,620 |
1,613 |
7 |
2,840 |
2,704 |
136 |
||||||
10-Year Average CDD ("Normal") |
1,553 |
1,535 |
18 |
2,625 |
2,593 |
32 |
||||||
Variance from Normal |
67 |
78 |
215 |
111 |
Natural Gas Distribution Margin Growth
New customer growth in the Company's natural gas distribution operations generated
Three Months Ended |
Nine Months Ended |
|||||
(in thousands) |
September 30, 2019 |
September 30, 2019 |
||||
Customer Growth: |
||||||
Residential |
$ |
358 |
$ |
1,450 |
||
Commercial and industrial |
433 |
1,996 |
||||
Total Customer Growth |
$ |
791 |
$ |
3,446 |
The additional margin from new customers reflects an increase of approximately 3.8 percent in the average number of residential customers served on the
Capital Investment Growth and Associated Financing Plans
The Company's capital expenditures were
2019 |
||||||
(dollars in thousands) |
Low |
High |
||||
Regulated Energy: |
||||||
Natural gas distribution |
$ |
63,000 |
$ |
65,000 |
||
Natural gas transmission |
62,000 |
64,000 |
||||
Electric distribution |
4,000 |
6,000 |
||||
Total Regulated Energy |
129,000 |
135,000 |
||||
Unregulated Energy: |
||||||
Propane distribution |
12,000 |
13,000 |
||||
Energy transmission |
11,000 |
12,000 |
||||
Other unregulated energy |
8,000 |
14,000 |
||||
Total Unregulated Energy |
31,000 |
39,000 |
||||
Other: |
||||||
Corporate and other businesses |
10,000 |
11,000 |
||||
Total Other |
10,000 |
11,000 |
||||
Total 2019 Expected Capital Expenditures |
$ |
170,000 |
$ |
185,000 |
Beginning in this press release, the Company is providing a range of capital expenditures for 2019 rather than a definitive number to reflect the impact in timing of the approval of several projects. The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts.
The Company's target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. The Company's equity to total capitalization ratio, including short term borrowings, was 45 percent as of September 30, 2019. Excluding the funds expended for Hurricane Michael restoration activities, the Company's equity to total capitalization ratio, including short-term borrowings, would have been approximately 47 percent.
The Company seeks to align permanent financing with the in-service dates of its capital projects. The Company may utilize more temporary short-term debt, when the financing cost is attractive, as a bridge to the permanent long-term financing. In
Chesapeake Utilities Corporation and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (in thousands, except shares and per share data) |
||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||
September 30, |
September 30, |
|||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||
Operating Revenues |
||||||||||||||
Regulated Energy |
$ |
74,580 |
$ |
72,770 |
$ |
251,601 |
$ |
252,667 |
||||||
Unregulated Energy and other |
18,046 |
20,630 |
96,029 |
103,435 |
||||||||||
Total Operating Revenues |
92,626 |
93,400 |
347,630 |
356,102 |
||||||||||
Operating Expenses |
||||||||||||||
Regulated Energy cost of sales |
19,619 |
21,501 |
74,452 |
89,741 |
||||||||||
Unregulated Energy and other cost of sales |
5,709 |
9,512 |
36,975 |
49,196 |
||||||||||
Operations |
32,623 |
31,449 |
99,596 |
97,723 |
||||||||||
Maintenance |
3,920 |
3,208 |
11,199 |
10,419 |
||||||||||
Gain from a settlement |
— |
— |
(130) |
(130) |
||||||||||
Depreciation and amortization |
11,219 |
10,487 |
33,612 |
29,739 |
||||||||||
Other taxes |
5,178 |
4,364 |
15,282 |
13,446 |
||||||||||
Total operating expenses |
78,268 |
80,521 |
270,986 |
290,134 |
||||||||||
Operating Income |
14,358 |
12,879 |
76,644 |
65,968 |
||||||||||
Other expense, net |
(350) |
(4) |
(729) |
(168) |
||||||||||
Interest charges |
5,403 |
4,357 |
16,583 |
11,764 |
||||||||||
Income from Continuing Operations Before Income Taxes |
8,605 |
8,518 |
59,332 |
54,036 |
||||||||||
Income Taxes on Continuing Operations |
2,360 |
2,428 |
15,355 |
14,918 |
||||||||||
Income from Continuing Operations |
6,245 |
6,090 |
43,977 |
39,118 |
||||||||||
Loss from Discontinued Operations, Net of Tax |
(624) |
(552) |
(1,388) |
(339) |
||||||||||
Net Income |
$ |
5,621 |
$ |
5,538 |
$ |
42,589 |
$ |
38,779 |
||||||
Weighted Average Common Shares Outstanding: |
||||||||||||||
Basic |
16,403,776 |
16,378,545 |
16,396,646 |
16,366,608 |
||||||||||
Diluted |
16,453,867 |
16,428,439 |
16,444,231 |
16,416,255 |
||||||||||
Basic Earnings Per Share of Common Stock: |
||||||||||||||
Earnings from Continuing Operations |
$ |
0.38 |
$ |
0.37 |
$ |
2.68 |
$ |
2.39 |
||||||
Earnings from Discontinued Operations |
(0.04) |
(0.03) |
(0.08) |
(0.02) |
||||||||||
Basic Earnings Per Share of Common Stock |
$ |
0.34 |
$ |
0.34 |
$ |
2.60 |
$ |
2.37 |
||||||
Diluted Earnings Per Share of Common Stock: |
||||||||||||||
Earnings from Continuing Operations |
$ |
0.38 |
$ |
0.37 |
$ |
2.67 |
$ |
2.38 |
||||||
Earnings from Discontinued Operations |
(0.04) |
(0.03) |
(0.08) |
(0.02) |
||||||||||
Diluted Earnings Per Share of Common Stock |
$ |
0.34 |
$ |
0.34 |
$ |
2.59 |
$ |
2.36 |
Chesapeake Utilities Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) |
|||||||
Assets |
September 30, 2019 |
December 31, 2018 |
|||||
(in thousands, except shares and per share data) |
|||||||
Property, Plant and Equipment |
|||||||
Regulated Energy |
$ |
1,407,371 |
$ |
1,297,416 |
|||
Unregulated Energy |
250,826 |
236,440 |
|||||
Other businesses and eliminations |
30,596 |
34,585 |
|||||
Total property, plant and equipment |
1,688,793 |
1,568,441 |
|||||
Less: Accumulated depreciation and amortization |
(330,479) |
(294,089) |
|||||
Plus: Construction work in progress |
102,640 |
108,584 |
|||||
Net property, plant and equipment |
1,460,954 |
1,382,936 |
|||||
Current Assets |
|||||||
Cash and cash equivalents |
4,320 |
6,089 |
|||||
Trade and other receivables (less allowance for uncollectible accounts of $1,350 and $1,058, respectively) |
34,504 |
53,837 |
|||||
Accrued revenue |
11,538 |
22,640 |
|||||
Propane inventory, at average cost |
4,370 |
9,791 |
|||||
Other inventory, at average cost |
6,037 |
7,127 |
|||||
Regulatory assets |
6,633 |
4,796 |
|||||
Storage gas prepayments |
2,158 |
3,433 |
|||||
Income taxes receivable |
11,100 |
15,300 |
|||||
Prepaid expenses |
10,571 |
10,079 |
|||||
Derivative assets, at fair value |
— |
82 |
|||||
Other current assets |
2,489 |
5,682 |
|||||
Current assets held for sale |
21,155 |
52,681 |
|||||
Total current assets |
114,875 |
191,537 |
|||||
Deferred Charges and Other Assets |
|||||||
Goodwill |
21,516 |
21,568 |
|||||
Other intangible assets, net |
3,272 |
3,850 |
|||||
Investments, at fair value |
8,536 |
6,711 |
|||||
Operating lease right-of-use assets (1) |
12,004 |
— |
|||||
Regulatory assets |
77,030 |
72,422 |
|||||
Other assets |
8,874 |
6,985 |
|||||
Noncurrent assets held for sale |
7,179 |
7,662 |
|||||
Total deferred charges and other assets |
138,411 |
119,198 |
|||||
Total Assets |
$ |
1,714,240 |
$ |
1,693,671 |
(1) During the first quarter of 2019, the Company adopted a new lease accounting standard, resulting in additional assets and liabilities (both current and non-current portions) which total $12.0 million at September 30, 2019. |
Chesapeake Utilities Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) |
|||||||
Capitalization and Liabilities |
September 30, 2019 |
December 31, 2018 |
|||||
(in thousands, except shares and per share data) |
|||||||
Capitalization |
|||||||
Stockholders' equity |
|||||||
Preferred stock, par value $0.01 per share (authorized 2,000,000 shares), no shares issued and outstanding |
$ |
— |
$ |
— |
|||
Common stock, par value $0.4867 per share (authorized 50,000,000 shares) |
7,984 |
7,971 |
|||||
Additional paid-in capital |
257,436 |
255,651 |
|||||
Retained earnings |
284,694 |
261,530 |
|||||
Accumulated other comprehensive loss |
(5,403) |
(6,713) |
|||||
Deferred compensation obligation |
4,505 |
3,854 |
|||||
Treasury stock |
(4,505) |
(3,854) |
|||||
Total stockholders' equity |
544,711 |
518,439 |
|||||
Long-term debt, net of current maturities |
375,810 |
316,020 |
|||||
Total capitalization |
920,521 |
834,459 |
|||||
Current Liabilities |
|||||||
Current portion of long-term debt |
75,600 |
11,935 |
|||||
Short-term borrowing |
224,744 |
294,458 |
|||||
Accounts payable |
53,150 |
98,681 |
|||||
Customer deposits and refunds |
29,629 |
32,620 |
|||||
Accrued interest |
4,891 |
2,317 |
|||||
Dividends payable |
6,644 |
6,060 |
|||||
Accrued compensation |
10,362 |
13,923 |
|||||
Regulatory liabilities |
5,691 |
7,883 |
|||||
Derivative liabilities, at fair value |
2,216 |
1,604 |
|||||
Other accrued liabilities (1) |
15,210 |
10,081 |
|||||
Current liabilities held for sale |
18,110 |
48,672 |
|||||
Total current liabilities |
446,247 |
528,234 |
|||||
Deferred Credits and Other Liabilities |
|||||||
Deferred income taxes |
165,492 |
156,820 |
|||||
Regulatory liabilities |
133,966 |
135,039 |
|||||
Environmental liabilities |
6,713 |
7,638 |
|||||
Other pension and benefit costs |
27,890 |
28,513 |
|||||
Operating lease - liabilities (1) |
10,392 |
— |
|||||
Deferred investment tax credits and other liabilities |
3,019 |
2,968 |
|||||
Total deferred credits and other liabilities |
347,472 |
330,978 |
|||||
Total Capitalization and Liabilities |
$ |
1,714,240 |
$ |
1,693,671 |
(1) During the first quarter of 2019, the Company adopted a new lease accounting standard, resulting in additional assets and liabilities (both current and non-current portions) which total $12.0 million at September 30, 2019. |
Chesapeake Utilities Corporation and Subsidiaries Distribution Utility Statistical Data (Unaudited) |
|||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2019 |
For the Three Months Ended September 30, 2018 |
||||||||||||||||||||||||||||||
Delmarva |
Chesapeake |
FPU NG |
FPU Electric |
Delmarva NG |
Chesapeake |
FPU NG |
FPU Electric |
||||||||||||||||||||||||
Operating Revenues (in thousands) |
|||||||||||||||||||||||||||||||
Residential |
$ |
7,314 |
$ |
1,349 |
$ |
5,671 |
$ |
14,460 |
$ |
5,497 |
$ |
1,290 |
$ |
5,601 |
$ |
13,991 |
|||||||||||||||
Commercial |
3,812 |
1,471 |
5,588 |
11,216 |
4,961 |
1,424 |
5,354 |
11,245 |
|||||||||||||||||||||||
Industrial |
1,678 |
3,063 |
5,707 |
591 |
1,722 |
3,068 |
4,723 |
361 |
|||||||||||||||||||||||
Other (1) |
456 |
827 |
942 |
(2,093) |
854 |
500 |
1,712 |
(1,767) |
|||||||||||||||||||||||
Total Operating Revenues |
$ |
13,260 |
$ |
6,710 |
$ |
17,908 |
$ |
24,174 |
$ |
13,034 |
$ |
6,282 |
$ |
17,390 |
$ |
23,830 |
|||||||||||||||
Volume (in Dts for natural gas and KWHs for electric) |
|||||||||||||||||||||||||||||||
Residential |
183,998 |
52,805 |
214,521 |
97,537 |
180,396 |
53,051 |
214,213 |
96,218 |
|||||||||||||||||||||||
Commercial |
483,382 |
1,045,666 |
344,727 |
92,571 |
427,173 |
1,158,545 |
337,091 |
92,416 |
|||||||||||||||||||||||
Industrial |
1,233,019 |
7,019,573 |
1,114,359 |
7,460 |
1,213,527 |
6,511,997 |
1,130,299 |
3,180 |
|||||||||||||||||||||||
Other |
59,635 |
— |
583,267 |
— |
26,648 |
— |
434,976 |
1,913 |
|||||||||||||||||||||||
Total |
1,960,034 |
8,118,044 |
2,256,874 |
197,568 |
1,847,744 |
7,723,593 |
2,116,579 |
193,727 |
|||||||||||||||||||||||
Average Customers |
|||||||||||||||||||||||||||||||
Residential |
73,454 |
17,342 |
57,999 |
24,624 |
70,795 |
16,484 |
55,763 |
24,811 |
|||||||||||||||||||||||
Commercial(2) |
7,040 |
1,555 |
3,934 |
7,240 |
6,907 |
1,509 |
3,912 |
7,507 |
|||||||||||||||||||||||
Industrial(2) |
168 |
17 |
2,440 |
2 |
161 |
17 |
2,329 |
2 |
|||||||||||||||||||||||
Other |
18 |
— |
12 |
— |
5 |
— |
12 |
— |
|||||||||||||||||||||||
Total |
80,680 |
18,914 |
64,385 |
31,866 |
77,868 |
18,010 |
62,016 |
32,320 |
|||||||||||||||||||||||
For the Nine Months Ended September 30, 2019 |
For the Nine Months Ended September 30, 2018 |
||||||||||||||||||||||||||||||
Delmarva NG |
Chesapeake |
FPU NG |
FPU Electric |
Delmarva NG |
Chesapeake |
FPU NG |
FPU Electric |
||||||||||||||||||||||||
Operating Revenues (in thousands) |
|||||||||||||||||||||||||||||||
Residential |
$ |
47,729 |
$ |
4,645 |
$ |
23,848 |
$ |
35,121 |
$ |
54,819 |
$ |
4,510 |
$ |
24,488 |
$ |
35,338 |
|||||||||||||||
Commercial |
23,307 |
4,796 |
19,924 |
28,838 |
28,655 |
4,669 |
20,489 |
28,879 |
|||||||||||||||||||||||
Industrial |
5,839 |
9,450 |
17,767 |
1,617 |
6,015 |
7,794 |
16,314 |
1,131 |
|||||||||||||||||||||||
Other (1) |
(4,013) |
2,734 |
(1,182) |
(6,560) |
(4,498) |
1,489 |
(2,406) |
(4,415) |
|||||||||||||||||||||||
Total Operating Revenues |
$ |
72,862 |
$ |
21,625 |
$ |
60,357 |
$ |
59,016 |
$ |
84,991 |
$ |
18,462 |
$ |
58,885 |
$ |
60,933 |
|||||||||||||||
Volume (in Dts for natural gas and KWHs for electric) |
|||||||||||||||||||||||||||||||
Residential |
2,962,532 |
268,993 |
1,036,872 |
235,406 |
3,180,160 |
278,976 |
1,066,559 |
241,428 |
|||||||||||||||||||||||
Commercial |
2,810,391 |
3,348,307 |
1,275,328 |
233,940 |
2,844,296 |
3,526,943 |
1,304,827 |
233,223 |
|||||||||||||||||||||||
Industrial |
3,960,447 |
21,419,122 |
3,688,370 |
18,383 |
4,030,716 |
13,278,643 |
3,680,779 |
11,810 |
|||||||||||||||||||||||
Other |
138,009 |
— |
1,771,243 |
— |
56,941 |
— |
1,419,623 |
5,716 |
|||||||||||||||||||||||
Total |
9,871,379 |
25,036,422 |
7,771,813 |
487,729 |
10,112,113 |
17,084,562 |
7,471,788 |
492,177 |
|||||||||||||||||||||||
Average Customers |
|||||||||||||||||||||||||||||||
Residential |
73,698 |
17,178 |
57,444 |
24,511 |
71,022 |
16,366 |
55,541 |
24,723 |
|||||||||||||||||||||||
Commercial(2) |
7,090 |
1,543 |
3,923 |
7,233 |
6,975 |
1,509 |
3,923 |
7,494 |
|||||||||||||||||||||||
Industrial(2) |
168 |
17 |
2,430 |
2 |
155 |
16 |
2,289 |
2 |
|||||||||||||||||||||||
Other |
14 |
— |
12 |
— |
5 |
— |
11 |
— |
|||||||||||||||||||||||
Total |
80,970 |
18,738 |
63,809 |
31,746 |
78,157 |
17,891 |
61,764 |
32,219 |
|||||||||||||||||||||||
(1) |
Operating Revenues from "Other" sources include unbilled revenue, under (over) recoveries of fuel cost, conservation revenue, other miscellaneous charges, fees for billing services provided to third parties, and adjustments or changes in taxes, such as the TCJA, which are passed through to customers. This amount also includes the reserve for estimated customer refunds associated with the TCJA. |
(2) |
Certain volumes and customers have been reclassified when compared to the prior year for consistency with current year presentation. |
View original content:http://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-third-quarter-2019-results-300953337.html
SOURCE