Folsom,
NJ - South Jersey Industries (NYSE: SJI) today announced
income from continuing operations for the first nine months
of 2007 of $46.5 million, or $1.58 per share, compared with
$51.9 million, or $1.78 per share, for the comparable 2006
period. For the third quarter of 2007, SJI produced $8.6
million of income from continuing operations, or $0.29 per
share, compared with income from continuing operations of
$15.1 million, or $0.51 per share, for the same quarter of
2006.
“Reflecting the strength of our performance to date
and our expectations for the remainder of the year, I am
now raising SJI’s Economic Earnings per share target
range to $2.04 - $2.11, or 10% to 14% above the 2006 level
of $1.85,” said SJI Chairman & CEO Edward J. Graham.
SJI previously targeted at least a 7% to 12% increase above
the 2006 level. SJI’s ability to deliver economic earnings
at the targeted level is being aided by the strong 2007 performance
of its wholesale commodity marketing business. “The
recent action by our board to announce a 10% dividend increase
also reflected the many opportunities ahead of us to continue
growing SJI’s performance for the remainder of 2007
and beyond,” continued Graham.
Economic Earnings from continuing operations, which eliminates
all unrealized gains or losses on commodity derivative transactions
and adjusts for realized gains and losses attributed to hedges
on inventory transactions, were up 27% to $43.0 million for
the first nine months of 2007, from $33.9 million for the
same period in 2006. Economic Earnings per share from continuing
operations were $1.46 and $1.16 for the first nine months
of 2007 and 2006, respectively. For the third quarter of
2007 Economic Earnings from continuing operations reflected
a loss of $1.5 million, or $0.05 per share, compared with
income of $2.8 million, or $0.10 per share, for the third
quarter of 2006. (Please refer to the Explanation and Reconciliation
of Non-GAAP Measures at the end of this release.)
SJI’s Third Quarter 2007 Highlights:
• Raised 2007 Economic EPS growth guidance
to 10%-14% above 2006 Economic EPS.
• Announced a 10% dividend increase.
• Maintained a strong balance sheet: equity-to-capitalization
ratio, including short-term debt, was 48.4% at September
30, 2007.
• Moody’s Investor Service raised the ratings
outlook for South Jersey Gas to positive.
• KLD Research & Analytics announced the inclusion
of SJI in its Global Climate 100 Index, a specialty index
of companies whose activities demonstrate the greatest potential
for mitigating immediate and long-term causes of climate
change.
• Announced an agreement to develop and operate a
landfill gas-to-electricity project located in Salem County,
N.J.
Utility Business Posts
Record 9-Month Performance: For the
first nine months of 2007, SJG reported net income of $26.4
million, a 12% increase from the $23.5 million earned during
the same period in 2006. Performance drivers for the nine
months were customer margin growth, the fourth quarter 2006
implementation of the Conservation Incentive Program Tariff,
and lower interest expense. These positives offset higher
depreciation, increased operating and maintenance expenses,
and lower income from off-system sales experienced in the
2007 period compared with the same prior-year period. SJG
recorded a $1.7 million net loss for the third quarter of
2007 compared with a $1.5 million net loss for the third
quarter of 2006. The third quarter is traditionally a loss
quarter for the utility due to lack of heating demand.
• Conservation Incentive
Program Delivers Results – The
CIP has protected $4.4 million of net income year-to-date
for SJG by offsetting the impacts of reduced customer utilization
levels. There was no CIP benefit for the third quarter due
to low demand in the summer months. The CIP has enabled SJG
to actively promote energy conservation in our service territory,
helping our customers lower their energy bills. In addition,
our customers are also benefiting under the CIP from reduced
costs achieved within our gas supply and storage portfolio.
• Customer Margin
Growth Remains Strong - South Jersey Gas added 6,201 customers, a 1.9% increase,
during the 12-month period ended September 30, 2007, for
a total of 331,790. Despite the housing slowdown, total utility
margin grew significantly in 2007 as the contribution from
our commercial customer segment was particularly strong.
Customers added in the past 12 months are anticipated to
contribute approximately $2.0 million to net income annually.
Natural gas remains the fuel of choice within our service
territory, with over 95% of all new homes constructed using
natural gas as their primary heating source. The clean burning
characteristics of natural gas and the significant price
advantage currently enjoyed by natural gas over alternative
heating fuels in our market should support our efforts to
acquire new customers in both the new housing and conversion
markets.
Non-Utility
Posts Strong Year-to-Date Results: Non-utility operations
produced income from continuing operations on a GAAP basis
of $20.1 million and $10.3 million for the nine months and
three months ended September 30, 2007, respectively, compared
with $28.3 million and $16.6 million for the same periods
in 2006. On an Economic Earnings basis, non-utility income
from continuing operations for the first nine months of 2007
was $16.6 million, compared with $10.3 million earned for
the same period in 2006. Economic Earnings for the year-to-date
benefited primarily from the extremely strong performance
posted by our commodity marketing business during the first
quarter of 2007. As expected, those portfolio management
decisions that benefited the first quarter negatively impacted
third quarter 2007 results. Economic Earnings were $0.2 million
for the third quarter of 2007 compared with $4.4 million
for the same period in 2006. Performance at our key non-utility
business lines was as follows:
• Commodity Marketing – This business line produced
$12.9 million of Economic Earnings for the first nine months
of 2007, compared with $6.3 million for the same period in
2006. For the third quarter of 2007 commodity marketing reduced
SJI’s Economic Earnings by $1.6 million, compared with
a $2.9 million benefit posted in the third quarter of 2006.
We hedge an initial profit margin on each commodity transaction
we enter into and then seek to build upon those margins by
taking advantage of favorable market conditions. Losses on
hedge transactions recognized during the third quarter were
directly related to transactions that produced significantly
greater income in the first quarter. Commodity marketing
maintains 10Bcf of gas storage capacity under management.
Storage capacity creates opportunities for our wholesale
commodity business to lock in attractive margins resulting
from volatility in gas market pricing. As of September 30,
2007 our commodity marketing business had fully hedged $22.5
million of pre-tax income for the 2007-2008 winter, and had
already hedged $10.7 million of pre-tax income for the 2008-2009
winter season. A winter season encompasses the fourth quarter
of one fiscal year and the first quarter of the next fiscal
year. The timing of the recognition of this income could
vary due to a number of factors.
• On-Site Energy
Production – For the first nine
months of 2007 our on-site energy production business contributed
$2.9 million to SJI’s net earnings, compared with $2.6
million earned during the same period in 2006. This business
added $1.3 million to SJI’s bottom line in the third
quarter of 2007, compared with $1.1 million for the prior-year
period. Marina’s 2007 performance reflects additional
projects brought online since mid-2006. Of the projects that
are under development, Burlington County Landfill Energy
began commercial operations on October 1, 2007; our third
unit at the Atlantic County landfill is scheduled to go online
in November; and we expect to complete the financing for
the thermal plant serving the Echelon resort in Las Vegas
during the fourth quarter. In addition, we are actively pursuing
energy project opportunities at a substantial number of proposed
gaming projects in Atlantic City, Las Vegas and tribal areas.
Marina develops, owns and operates on-site energy plants.
We expect these projects to provide annuity-like income streams
under long-term contracts.
• Retail Services – Retail services,
which include appliance warranty and repair, HVAC installation,
and meter reading, contributed $0.8 million to net income
during the first nine months of 2007 compared with $1.4 million
of net income for the prior-year period. For the third quarter,
retail services contributed $0.5 million to net income, up
$0.1 million from the same 2006 quarter.
SJI’s Balance Sheet Remains Strong: Our equity-to-capitalization
ratio, inclusive of short-term debt, was 48.4% at September
30, 2007, compared with 44.6% at the same point in 2006.
Strong earnings growth produced the improvement. Our goal
remains for this ratio to average close to 50% annually.
At our utility the equity to capitalization ratio was 50.0%
and 46.8% at September 30, 2007 and 2006, respectively. The
strength of SJG’s balance sheet was one of the factors
that led Moody’s Investor Services to move SJG’s
ratings outlook to “positive”. Other factors
noted by Moody’s include SJG’s CIP tariff and
the income streams generated by our non-utility businesses.
Explanation and Reconciliation of Non-GAAP
Financial Measures:
This press release includes the non-GAAP
financial measures of Economic Earnings and Economic Earnings
per share. The accompanying schedule provides a reconciliation
of these non-GAAP financial measures to the most directly
comparable financial measures calculated and presented in
accordance with United States generally accepted accounting
principles ("GAAP"). The non-GAAP financial measures
should not be considered as an alternative to GAAP measures,
such as net income, operating income, earnings per share
from continuing operations or any other GAAP measure of liquidity
or financial performance.
We define Economic Earnings as: Income from continuing operations,
(1) less the change in unrealized gains and plus the change
in unrealized losses, as applicable and in each case after
tax, on all commodity derivative transactions that we are
marking to market, and (2) adjusting for realized gains and
losses, as applicable and in each case after tax, on all
hedges attributed to inventory transactions to align them
with the related cost of inventory in the period of withdrawal.
Economic Earnings is a significant performance metric used
by our management to indicate the amount and timing of income
from continuing operations that we expect to earn related
to commodity transactions. Specifically, we believe that
this financial measure indicates to investors the profitability
of all portions of these transactions and not just the portion
that is subject to mark-to-market valuation measurement.
Considering only one side of the transaction can produce
a false sense as to the profitability of our commodity marketing
activities, as no change in value is reflected for the non-derivative
portion of the transaction.
The following table presents a reconciliation of our income
from continuing operations and earnings per share from continuing
operations to Economic Earnings and Economic Earnings per share:
| |
3
Months Ended
September 30,
|
|
| |
2007
|
2006
|
|
| |
(in thousands) |
|
Income
From Continuing Operations |
$ 8,564 |
$ 15,065 |
|
Minus/Plus:
Unrealized mark-to-market Gains/(Losses)
|
(10,508) |
(13,523) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
406
|
1,296
|
|
| Economic Earnings |
$ (1,538)
|
$ 2,838
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ 0.29 |
$ 0.51 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(0.35) |
(0.46) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
0.01
|
0.05
|
|
| Economic Earnings per share |
$ (0.05)
|
$ 0.10
|
|
| |
|
|
|
Non-Utility Income
From Continuing Operations |
$ 10,291 |
$ 16,581 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(10,508) |
(13,523) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
406
|
1,295
|
|
| Economic Earnings |
$ 191
|
$ 4,353
|
|
| |
|
|
|
Commodity Marketing Income From Continuing
Operations |
$ 8,479 |
$ 15,143 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(10,508) |
(13,523) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
406
|
1,295
|
|
| Economic Earnings |
$ (1,623)
|
$ 2,915
|
|
| |
|
|
|
| |
9
Months Ended
September 30,
|
|
| |
2007
|
2006
|
|
| |
(in thousands) |
|
Income
From Continuing Operations |
$ 46,547 |
$ 51,910 |
|
Minus/Plus:
Unrealized mark-to-market Gains/(Losses)
|
(5,196) |
(21,491) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
1,662
|
3,453
|
|
| Economic Earnings |
$ 43,013
|
$ 33,872
|
|
| |
|
|
|
Earnings per share
From Continuing Operations |
$ 1.58 |
$ 1.78 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(0.18) |
(0.74) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
0.06
|
0.12
|
|
| Economic Earnings per share |
$ 1.46
|
$ 1.16
|
|
| |
|
|
|
Non-Utility Income
From Continuing Operations |
$ 20,104 |
$ 28,328 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(5,196) |
(21,491) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
1,662
|
3,452
|
|
| Economic Earnings |
$ 16,570
|
$ 10,289
|
|
| |
|
|
|
Commodity Marketing Income From Continuing
Operations |
$ 16,423 |
$ 24,338 |
|
Minus/Plus:
Unrealized mark-to-market (Gains)/Losses
|
(5,196) |
(21,491) |
|
Realized
(Gains)/Losses on Inventory
Injection Hedges |
1,662
|
3,452
|
|
| Economic Earnings |
$ 12,889
|
$ 6,299
|
|
| |
|
|
|
Webcast and Conference Call Details
South Jersey
Industries’ President and CEO, Edward
J. Graham, will be hosting an open conference call and webcast
on Thursday, November 8, 2007 at 2:00pm EST to discuss the
company’s 2007 third quarter results and future prospects.
To participate in the conference call, dial 1-866-713-8562
approximately 10 minutes ahead of the scheduled time and
enter the participant passcode 59984714. To access the webcast
simply visit the South Jersey Industries website at http://www.sjindustries.com,
click on Investors and then click on the webcast icon. A
recorded version of the webcast will be available at SJI’s
website. A rebroadcast of the conference call will also be
available by calling 1-888-286-8010 and entering the code:
20776393. SJI encourages shareholders, media and members
of the financial community to listen to the conference call
or webcast.
Forward-Looking Statement
This news release
contains forward-looking statements. All statements other
than statements of historical fact included in this press
release should be considered forward-looking statements made
in good faith by the company and are intended to qualify
for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. When used in this
press release words such as “anticipate”, “believe”, “expect”, “estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy”
and similar expressions are intended to identify forward-looking
statements. Such forward-looking statements are subject to
risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the
statements. These risks and uncertainties include, but are
not limited to, the following: general economic conditions
on an international, national, state and local level; weather
conditions in our marketing areas; changes in commodity costs;
the timing of new projects coming online; changes in the
availability of natural gas; “non-routine” or “extraordinary” disruptions
in our distribution system; regulatory, legislative and court
decisions; competition; the availability and cost of capital;
costs and effects of legal proceedings and environmental
liabilities; the failure of customers, suppliers or business
partners to fulfill their contractual obligations; and changes
in business strategies. SJI assumes no duty to update these
statements should actual events differ from expectations.
South Jersey Industries (NYSE: SJI) is an energy services
holding company for South Jersey Gas, South Jersey Energy
Solutions, South Jersey Energy, South Jersey Resources Group,
South Jersey Energy Service Plus and Marina Energy. Visit
http://www.sjindustries.com for more information about SJI
and its subsidiaries.
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