Executive Summary

Q4 2014 EPS was $0.69, down from $0.75 in Q4 2013, as warmer weather versus the prior year and a higher proportion of gas margin recovered through fixed charges reduced seasonality; full-year 2014 EPS rose to $1.79 from $1.57 on stronger gas and electric sales margins .
Gas sales margin increased to $29.4M (+$0.5M YoY) and electric sales margin to $20.1M (+$1.0M YoY) in Q4; total sales margin was $50.7M vs $49.4M in Q4 2013, supported by customer additions and prior rate cases .
The Board raised the quarterly dividend to $0.35/share (annualized $1.40), signaling confidence in a plan to grow EPS 6–8% annually over the next 3–5 years; management also outlined a $98M 2015 capex program focused on gas expansion and infrastructure replacement .
Wall Street consensus estimates via S&P Global were unavailable, so beat/miss vs street cannot be assessed; results were driven by underlying customer growth, colder winter in early 2014, rate relief, and financing actions including a $50M 30-year note in Oct-2014 .

What Went Well and What Went Wrong

What Went Well

Continued growth in natural gas business and rate case outcomes drove strong full-year results; gas sales margin reached $97.4M in 2014 (+14.3% YoY) and electric sales margin reached $80.8M (+6% YoY), with 5.2% weather-normalized gas therm sales growth YoY .
Constructive regulatory environment and trackers support earnings sustainability; consolidated ROE of ~9.2% in 2014 aligned with allowed ROEs, with capital cost trackers in place across subsidiaries .
Dividend increase to $0.35/share reflects confidence in the plan to deliver regular annual increases and 6–8% EPS growth over the next 3–5 years; management emphasized payout ratio targets of 70–75% longer-term .

What Went Wrong

Q4 EPS declined to $0.69 from $0.75 YoY due to warmer weather versus Q4 2013 and gas margin recovery shifts toward fixed charges, reducing seasonal uplift in the heating period .
O&M rose $0.9M YoY in Q4 and $4.4M for FY, and depreciation/amortization/property taxes increased $1.8M in Q4 and $5.8M for FY, reflecting higher plant in service, storm cost amortization, and property tax burden .
Net interest expense increased $0.6M in Q4 and $2.1M for FY, driven by lower interest income on regulatory assets and higher long-term debt interest following the $50M issuance .

Financial Results

Metric	Q4 2013	Q2 2014	Q3 2014	Q4 2014
EPS ($)	$0.75	$0.08	$0.11	$0.69
Net Income ($MM)	$10.3	$1.1	$1.6	$9.4
Total Revenue ($MM)	$109.8	N/A	N/A	$119.8
Total Sales Margin ($MM)	$49.4	N/A	N/A	$50.7

Notes: Total revenue equals Gas Revenues + Electric Revenues + Usource Revenues per the press release table . Consensus estimates for Q4 2014 were unavailable via S&P Global, so estimate comparison is not shown.

Segment margins and revenue detail:

Segment Metric ($MM)	Q4 2013	Q2 2014	Q3 2014	Q4 2014
Gas Revenues	$58.6	N/A	N/A	$62.1
Cost of Gas Sales	$29.7	N/A	N/A	$32.7
Gas Sales Margin	$28.9	$16.3	$15.2	$29.4
Electric Revenues	$49.8	N/A	N/A	$56.5
Cost of Electric Sales	$30.7	N/A	N/A	$36.4
Electric Sales Margin	$19.1	$18.9	$22.6	$20.1
Usource Revenues	$1.4	$3.0 (six months)	$4.5 (nine months)	$1.2

Operating cost detail (Q4 and FY):

Metric ($MM)	Q4 2013	Q4 2014	FY 2013	FY 2014
Operation & Maintenance	$14.4	$15.3	$60.2	$64.6
Depreciation, Amort., Property Taxes & Other	$13.6	$15.4	$53.9	$59.7
Interest Expense, net	$4.8	$5.4	$18.8	$20.9
Income Before Income Taxes	$16.6	$14.6	$34.3	$38.7
Income Tax Expense	$6.3	$5.2	$12.7	$14.0

KPIs:

KPI	Q4 2013	Q4 2014
Total Gas Therm Sales (MM therms)	53.7	52.8
Residential Gas Therm Sales (MM therms)	10.0	10.2
C/I Gas Therm Sales (MM therms)	43.7	42.6
Total Electric kWh Sales (MM kWh)	387.1	392.2
Residential Electric kWh Sales (MM kWh)	155.9	155.1
C/I Electric kWh Sales (MM kWh)	231.2	237.1
Weather-Normalized Gas Therm Sales YoY (FY)	+5.2% (FY 2014)	—

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share (annualized)	2015	$1.38	$1.40 ($0.35 quarterly)	Raised
EPS Growth Outlook	3–5 years	Not previously quantified	6–8% per year	Initiated
2015 Capex (Total)	2015	Not previously quantified	$98M total: $58M gas, $31M electric, $9M business systems/tech	Provided
Infrastructure Replacement	2015–2017	Not previously quantified	~14 miles/year of cast iron/bare steel replaced through 2017; ~9 miles/year thereafter	Provided
Rate Base Growth (Gas)	Forward	~10% annual since 2009, continue ~10% forward	~10% expected forward	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2014, Q3 2014)	Current Period (Q4 2014)	Trend
Natural gas customer growth & weather-normalized sales	+6.4% weather-normalized gas therm sales in 1H14; strong customer additions	+5.2% weather-normalized gas therm sales FY 2014; gas customer count +2.6%	Sustained growth; slight moderation vs 1H
Regulatory rate relief & trackers	~$20M rate relief in 2014; trackers in place	Constructive plans, trackers; ROE ~9.2% aligned with allowed	Stable support
Capex & infrastructure programs	Capital budget maintained; emphasis on storm resiliency and rate case outcomes	$98M 2015 capex; $22M infrastructure replacement; two NH substations underway	Ramping investment
Pipeline capacity / supply	Negotiating anchor role on Spectra Atlantic Bridge; in-service target 2017	Granite pipeline filing expected; additional MA infrastructure tracker	Progress toward capacity solutions
Dividend policy	Not highlighted	Quarterly dividend increased; plan for regular annual increases; 70–75% payout target	Shareholder returns emphasis
Weather impact and seasonality	Cold winter boosted 1H14; degree days +12% in first six months	Warmer Q4 vs prior year; more gas margin recovered via fixed charges reduces seasonality	Less seasonal sensitivity developing

Management Commentary

“The continued growth of our natural gas business along with recently completed gas and electric rate cases helped the Company to achieve strong financial results in 2014.”
“We plan to spend about $58 million on gas projects, $31 million on electric projects, and $9 million on business systems and supporting technology for a total of $98 million of spending in 2015.”
“In 2014, we earned a 9.2% return on equity, which is in line with the ROEs allowed by our regulators.”
“This $0.02 increase is really kind of a signal that we have full confidence in our business plan… our intent is to again begin to implement regular annual dividend increases.”
“Earnings in the fourth quarter reflect warmer weather than the fourth quarter of the prior year as well as lower gas margins due to an increase in the amount of margin recovered through fixed charges.”

Q&A Highlights

Dividend policy and growth: Management targets a 70–75% payout ratio and intends to pursue regular annual increases as EPS grows 6–8% annually over the next 3–5 years; weather variability should not derail the policy given customer additions and expected cold start to 2015 .
Capex sustainability: 2015 capex near $100M includes some one-time items (two substations, CIS changeout); core spend likely ~$80–85M thereafter, with infrastructure programs continuing through 2017 .
Earned ROE trajectory: With full-year impact of Fitchburg electric rate case in 2015 and trackers, management aims to maintain earned ROE at or near authorized levels, potentially improving .
Regulatory filings: Granite pipeline filing expected; MA infrastructure replacement tracker under new legislation provides regular increases; New Hampshire electric rate plan likely revisited in 2016 .

Estimates Context

Wall Street consensus EPS and revenue estimates for Q4 2014 via S&P Global were unavailable due to a system limit, so beat/miss versus consensus cannot be assessed at this time. Values retrieved from S&P Global were unavailable.
Given lack of consensus data, relative performance is framed against prior-year and prior-quarter reported results, with drivers explained via management commentary .

Key Takeaways for Investors

Q4 EPS declined YoY due to weather and margin seasonality shifts, but full-year growth remains robust on structural drivers (customer additions, rate relief, infrastructure investment) .
The dividend increase and explicit 6–8% EPS growth outlook signal confidence; regular annual dividend increases are a credible medium-term shareholder return catalyst .
2015 capex at $98M focuses on gas expansion and replacement, supporting ~10% gas rate base growth and long-term earnings visibility; trackers mitigate recovery risk .
Regulatory positioning remains constructive, with additional filings (Granite pipeline, MA infrastructure tracker) and full-year Fitchburg rate case benefits underpinning ROE stability .
Financing capacity is intact; $50M 30-year notes at 4.42% support programmatic investment, though interest expense stepped up in Q4/FY .
Near-term trading: Dividend action and capex clarity are potential positives; lack of street estimates limits immediate beat/miss catalysts, but narrative supports defensive utility growth exposure .
Medium-term thesis: Gas penetration opportunity in New England, infrastructure modernization, and constructive regulation provide a durable runway for earnings and dividend growth .

UNITIL CORP (UTL)·Q4 2014 Earnings Summary