AGL Resources Inc. today reported second quarter 2015 income from continuing operations excluding wholesale services of $47 million, or $0.39 per diluted share, compared to $42 million, or $0.36 per diluted share in the second quarter of 2014. On a consolidated basis, income from continuing operations attributable to AGL Resources Inc. was $42 million, or $0.35 per share, compared to $57 million, or $0.48 per share, in the second quarter of 2014. 

"Our second quarter performance was seasonally quiet, with results from all segments performing in line with, or better than, management's projections. Even with warmer-than-normal temperatures during the quarter, we reported solid operating income for our distribution and retail segments, while continuing to maintain a strong focus on expense management. While EBIT for our wholesale services segment was lower than last year's second quarter, performance exceeded our expectations based on economic results," said John W. Somerhalder II, AGL Resources' Chairman and Chief Executive Officer. "Building on a strong first half of the year, we remain on track to achieve consolidated EPS in 2015 of $2.85 - $3.10, and $2.70 - $2.80 excluding wholesale services. With our continued focus on investment in utility projects that drive rate base growth, as well as our investments in interstate pipeline projects, we expect to generate long-term average annual EPS growth of 6% to 9% through 2019."   

Second Quarter and Year-to-Date EPS and Adjusted EPS through June 30

(1)     Excludes discontinued operations, primarily Tropical Shipping, the sale of which resulted in diluted EPS of $0.01 in the second quarter of 2014 and $(0.42) for the six months ended June 30, 2014.
(2)     The wholesale services segment produced record results in 2014, driving the year-over-year variance for both the quarter and year-to-date.

Second Quarter and Year-to-Date Segment EBIT through June 30

(1)     Average annual economic earnings expectation for the wholesale services segment is approximately $50 million. 6-mos 2015 and 2014 results reflect wholesale services' ability to generate significant upside in periods of market volatility.
(2)     Colder-than-normal weather positively impacted year-to-date results by $8 million and $17 million in 2015 and 2014, respectively.
(3)     Colder-than-normal weather positively impacted year-to-date results by $8 million and $15 million in 2015 and 2014, respectively. Retail operations results for 6-mos 2015 include recovery of $13 million of hedge losses and lower of cost or market (LOCOM) adjustments from 2014 that were recorded in the first half of 2015. Before minority interest of $14 million for 6-mos 2015 and 2014.

For the second quarter, the primary drivers of the year-over-year decline in EPS from continuing operations include the following:

• Commercial activity at wholesale services of $1 million in the second quarter of 2015, compared to $30 million in the second quarter of 2014. The change in commercial activity was driven by lower volatility in natural gas commodity and transportation prices compared to prior year;
• Lower mark-to-market accounting hedge gains, net of inventory adjustments at wholesale services of $3 million in the current year quarter, compared to gains of $10 million in the second quarter of 2014; and
• Warmer-than-normal weather for the second quarter of 2015 resulting in lower EBIT of $(3) million across the distribution operations and retail operations segments; this compares to additional EBIT of $2 million for the second quarter of 2014 related to colder-than-normal weather.

These decreases were partially offset by the following:

• Increased revenues from regulatory infrastructure replacement programs in the distribution operations segment; and
• Improved performance in the midstream operations segment.

For the first six months, the primary drivers of the year-over-year decline in EPS from continuing operations include the following:

• Commercial activity at wholesale services of $108 million in the first half of 2015, compared to $401 million in the first half of 2014. The change in commercial activity was driven by lower volatility in natural gas commodity and transportation prices compared to prior year record commercial activity resulting from extremely cold temperatures in 2014; and
• Colder-than-normal weather for the first half of 2015 resulting in additional EBIT of $16 million across the distribution operations and retail operations segments; this compares to additional EBIT of $32 million for the first half of 2014 related to significantly colder-than-normal weather.

These decreases were partially offset by the following:

• Increased margin from regulatory infrastructure replacement programs of $11 million and higher margin related to customer growth of $10 million in the distribution operations segment;
• Higher EBIT at retail operations related to favorable gas costs and storage optimization; 
• Lower mark-to-market accounting hedge losses, net of inventory adjustments, at wholesale services of $(23) million in the current year, compared to hedge losses of $(33) million in the first half of 2014; and 
• Lower incentive compensation expense of $14 million year-over-year, primarily at wholesale services where a fixed percentage of earnings is paid, related to lower earnings compared to prior year. 

INTEREST EXPENSE, INCOME TAXES AND MINORITY INTEREST

• Interest expense for the second quarter of 2015 was $42 million, a decrease of $3 million compared to the second quarter of 2014.  Interest expense for the first six months of 2015 was $86 million, a decrease of $5 million compared to the first six months of 2014 mainly due to lower outstanding debt.
   
• Income tax expense for the second quarter of 2015 was $25 million, compared to $37 million for the same period in 2014. Income tax expense for the first six months of 2015 was $143 million compared to $240 million for the first six months of 2014. The decreases were due to lower earnings relative to the prior year.
   
• Net income attributable to minority interest was $2 million for each of the second quarters of 2015 and 2014, and $14 million for each of the six months ended June 30, 2015 and 2014. This reflects the 15% share earnings attributable to our SouthStar Energy Services joint venture partner.

2015 EARNINGS GUIDANCE AFFIRMED

AGL Resources continues to expect its consolidated diluted EPS in 2015 to be in the range of $2.85 to $3.10, excluding mark-to-market hedge movements for 2016 and forward positions. Adjusted 2015 earnings per share excluding wholesale services are expected to be in the range of $2.70 to $2.80. Adjusted EPS guidance excludes the wholesale services segment to remove earnings volatility created by mark-to-market accounting in this segment, and to better describe the underlying earnings drivers and results from our other operating segments. 

As previously disclosed, the wholesale services segment is expected to generate economic earnings in the range of $80 million to $110 million in 2015 (substantially higher than annual average expectation of $50 million). However, expected EPS on a GAAP basis in the wholesale services segment remains $0.15-$0.30 per share, reflecting the impact of hedge gains in 2014 related to 2015 transactions. The wholesale services EPS estimate excludes mark-to-market movements that may impact EPS in 2015. Reported EBIT for the wholesale services segment will be provided each quarter along with a reconciliation to economic earnings.   

Unanticipated changes in these events or other circumstances could materially impact earnings, and could result in earnings for 2015 significantly above or below this guidance. Factors that could cause such changes are described below in Forward-Looking Statements and in other company documents on file with the Securities and Exchange Commission.

EARNINGS CONFERENCE CALL/WEBCAST

AGL Resources will hold a conference call to discuss its second quarter 2015 results on July 29, 2015, at 9 a.m. Eastern Time. The conference call will be webcast and can be accessed via the Investor Relations section of the company's website (www.aglresources.com). Participants also may listen via telephone by dialing 877.703.6106 if calling from the U.S., or 857.244.7305 if dialing from outside of the U.S. (Passcode: 95845180). For participants on the telephone, please place your call 10 minutes prior to the start of the call. 

The webcast will be archived on the Investor Relations section of the company's website. A telephone replay will be available for seven days following the call and can be accessed by dialing 888.286.8010 from the U.S., or 617.801.6888 from outside of the U.S. (Passcode: 98759089).