Vectren Earnings Call Insights: Infrastructure Services Trajectory and Contracting Activity

Vectren Corp (NYSE:VVC) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Infrastructure Services Trajectory

Matt Tucker – KeyBanc Capital Markets: First Question on infrastructure services, obviously a very strong quarter. So, if you could give us little sense for the trajectory going forward this year. Assuming that there are some moving parts whether actually how the first quarter maybe impacted April a little bit, you’ve got this large project going through the first half of the year. Maybe just help us get a sense for on the trajectory from here.

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Carl L. Chapman – Chairman, President and CEO: Basically while we do have the one large project as we’ve mentioned before. We certainly have a much larger portion of our business from integrity work than from the shale work at this point. So yes that is a large project related to shale. But we have very strong work on the integrity side and other work on the shale side. So we feel really very good as we mentioned the backlog is up and we feel good about where we are, we’ve raised the guidance and I think the other aspect of that is really that we would see some downturn a bit in April as we mentioned that we would see in April the road restrictions kick in a bit. But we raised the guidance because we feel good about what we are seeing in the business.

Matt Tucker – KeyBanc Capital Markets: I guess just a follow-up to that typically the seasonality would be such that revenues increased sequentially due to first three quarters of the year. Is the kind of typical seasonality going to hold true this year?

Carl L. Chapman – Chairman, President and CEO: We of course don’t give quarterly guidance but the first quarter was stronger than we expected that we shared when we rolled out guidance. We certainly expected a bit of dip versus last year because the weather had just been so good in the first quarter. But given how it worked out we were better than expected in the first quarter. So probably this year might be just a little bit different in transmission than a typical year, but as I said we feel good about the guidance we’ve provided for the rest of the way. We just don’t break it down by quarter…

Matt Tucker – KeyBanc Capital Markets: Just one more on SB 560, it certainly sounds positive for your guys. Can you talk little bit how that is going to change your spending plans and if doesn’t change that, maybe talk about how much of your plan that wasn’t covered by recovery mechanism can now fall under this new bill?

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Jerome A. Benkert, Jr. – EVP and CFO; President, Vectren Shared Services: I’ll go ahead and jump in on that question. We’ve put out CapEx plans with our February release of guidance for this year and we were looking ahead in somewhat the – certainly the discussion was going on or contemplated around 560, so we’re very pleased to have the order out now. That’s sort of first, and secondly, still estimating those plans if you conserve those plans estimates, we talked about CapEx spending in the $330 million – 320 million range roughly a year for ’13, ’14, and ’15. And what would fall under those plans, what we see falling under those plans over three year period, was maybe stepped up bare steel/cast iron programs through 560 or otherwise through tracking in Ohio, maybe somewhere in the $200 million range over that time period and other gas modernization spend, gas infrastructure spend, maybe in the range of another $150 million. So, I don’t think so those numbers are finalized. We’re still working on it, but that may give you some ballpark over all.

Carl L. Chapman – Chairman, President and CEO: I’d just add a little bit too that is that, as Jerry said, we really think it’s kind of what we’re anticipating and we certainly will not plan to do more because of particular approaches on the regulatory side but much more about knowing the spend we have in mind and trying to get regulatory support for that. So I would just add that caveat to make it clear that it fits right in line with what we already plan to do and feel like we need to do given the rules and our expectations.

 

Contracting Activity

Sarah Akers – Wells Fargo: On call the 2014 tons sold have been I think the 5.8 million since the third quarter of last year and I know some have pulled forward into ’13 here. But can you give us any inside into the lack of contracting activity over the last six months and why you think that is, and if you think it’s going to pick up in the second half of the year?

Carl L. Chapman – Chairman, President and CEO: I think it’s really the exact same thing that we’ve mentioned before although just by the amount of coal that we sold here in the last bit for ’13 I think it said something about a turn to some extent. But really what it gets into is the issue from last year a very warm winter coupled with some very low gas prices in 2012 really caused a number of customer coal piles to increase and so they are being very hesitant in the timing that they decide the buy coal. I’d only use any question that the coal we sold recently indicated some change in that regard and of course the gas prices are while still quite reasonable are definitely up from last year, which we certainly expected and so I think you’ll start to see the customers now start to be much more open about their future spending timelines. But it’s really just because they are working through those coal piles.

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Sarah Akers – Wells Fargo: Is there any way you can give us a sense of magnitude about the potential improvement in the costs per ton in ’14?

Carl L. Chapman – Chairman, President and CEO: That’s just something that as you know, we’ve just not done yet. Obviously, we are in mining Oaktown 2 now and as we would expect to see at this point, but I think until we get further along in Oaktown 2 and have a little better visibility on volumes as we see more demand open up, we are just not prepared to share those numbers yet at this point.

Sarah Akers – Wells Fargo: Then one on ProLiance, I just want to make sure I understand, is the reason for excluding this business from or from guidance, just the lack of visibility or is it the fact that it is now under a strategic review?

Carl L. Chapman – Chairman, President and CEO: Well, I think it’s really both Sarah is what we tried to say in our comments. Certainly, the big issue here is that visibility has become difficult particularly, for say the fourth quarter as we share before often that occurs, but as we just continue to look at other options as we mention the possibility of significant demand reductions and as ProLiance looks at its business model. So, it’s really for all those reasons as we share.

A Closer Look: Vectren Corp Earnings Cheat Sheet>>