PR Newswire
BISMARCK, N.D., Aug. 3, 2023
BISMARCK, N.D., Aug. 3, 2023 /PRNewswire/ -- MDU Resources Group, Inc. (NYSE: MDU) today reported second quarter earnings on a generally accepted accounting principles (GAAP) basis of $130.7 million, or 64 cents per share, compared to second quarter 2022 GAAP earnings of $70.7 million, or 35 cents per share. Income for second quarter 2023 from continuing operations was $147.6 million, or 72 cents per share. When adjusting for the May 31 spinoff of approximately 90% of the outstanding shares of Knife River Corporation, including the unrealized gain on the retained shares, as well as items related to other strategic initiatives, second quarter adjusted income from continuing operations were $60.0 million, or 29 cents per share, compared to second quarter 2022 adjusted income from continuing operations of $36.1 million, or 18 cents per share.
For the six months ended June 30, 2023, MDU Resources had earnings on a GAAP basis of $169.0 million, or 83 cents per share, compared to GAAP earnings of $102.4 million, or 50 cents per share, for the same period in 2022. Income from continuing operations for the same period was $231.5 million, or $1.14 per share. For the six months ended June 30, 2023, income from continuing operations adjusted for items as previously noted was $147.2 million, or 72 cents per share, compared to adjusted income from continuing operations of $104.8 million, or 51 cents per share, for the same period in 2022.
For an explanation of non-GAAP adjustments, see the "Non-GAAP Financial Measures" section in this news release.
"While completing a historic quarter at MDU Resources with the successful separation of Knife River Corporation, we experienced outstanding performance from all our businesses and achieved record results in a number of areas, all thanks to the hard work and dedication of our employees," said David L. Goodin, president and CEO of MDU Resources.
"We expect our strong momentum to continue into the second half of the year as our utility and pipeline businesses have active regulatory schedules and a number of growth projects underway. Reflecting the robust start to the year, we are increasing our earnings guidance for our regulated energy delivery businesses from $140 million to $150 million up to $150 million to $160 million for 2023.
"Our construction services business had record performance through the first half of the year and a record second quarter backlog. We announced on July 10, following a strategic review, that we intend to pursue a tax-advantaged separation of MDU Construction Services Group as we work toward achieving our objective of becoming a pure-play regulated energy delivery business."
Results at each of MDU Resources' businesses were positively impacted in the second quarter on a non-cash basis by higher investment returns on nonqualified benefit plans. Collectively, the positive earnings variance contributed approximately $8.4 million, or 4 cents per share to income from continuing operations, compared to second quarter 2022. Through June 30, the positive variance contributed approximately $15.7 million, or 8 cents per share to income from continuing operations, compared to the same period in 2022. The company attributes this change in investment returns to fluctuations in the financial markets.
Regulated Energy Delivery Highlights
Electric and Natural Gas Utility
The electric and natural gas utility earned $13.1 million in the second quarter, compared to a loss of $2.9 million in the second quarter of 2022.
Rate relief in certain electric and natural gas jurisdictions contributed to the increase in earnings. With warmer temperatures impacting customers' energy usage and the electric utility bringing on a new large-volume customer during the quarter, electric retail sales volumes were 31.4% higher and natural gas retail sales volumes were 12.5% lower than second quarter 2022.
Regulatory update:
- On June 6, the North Dakota Public Service Commission approved an all-party settlement allowing for a 7.4% revenue increase of $15.3 million in the utility's electric rate case, with new rates effective July 1.
- On June 12, the utility filed an all-party settlement for its electric rate case before the Montana Public Service Commission. If approved, it would result in a 9.1% annual revenue increase of $6.1 million.
- On June 30, the Idaho Public Utilities Commission approved an all-party settlement allowing for a 0.73% revenue increase of $3.1 million in the utility's natural gas rate case, with new rates effective July 1.
- On July 14, the utility filed with the North Dakota Public Service Commission an adjustment to its transmission cost adjustment tracker that reduces revenue collected from customers by approximately $10.7 million.
- Before year-end, the utility anticipates filing an electric rate case and a natural gas rate case in South Dakota and a natural gas rate case in North Dakota.
The company is constructing an 88-megawatt natural gas-fired, simple-cycle combustion turbine electric generating facility near Mandan, North Dakota, and expects it to be operational later this year.
Pipeline
The pipeline business earned $8.7 million in the second quarter, compared to $7.1 million in the second quarter of 2022. The business had higher transportation and storage-related revenues during the quarter and record quarterly natural gas transportation volumes, largely related to increased contracted volume commitments on the North Bakken Expansion project that was placed into service in February 2022.
The company began construction in the second quarter on three pipeline expansion projects that are expected to be in service later in 2023. These projects are expected to add incremental natural gas transportation capacity of approximately 300 million cubic feet per day, increasing total transportation capacity from 2.4 billion to 2.7 billion cubic feet per day.
Regulatory update:
- The company filed a rate case in January with the Federal Energy Regulatory Commission in which it is seeking rate increases for its transportation and storage services. The company is working with the FERC and customers on a settlement agreement for new rates effective in August 2023, pending approval by the FERC.
Construction Services Highlights
The construction services business had record second quarter revenues of $747.0 million and record second quarter earnings of $38.6 million, compared to revenues of $685.4 million and earnings of $34.5 million in the second quarter of 2022.
The company experienced strong demand during the quarter for commercial work, including hospitality-related and data center construction services, and industrial work, including high tech construction services. It also saw higher demand for utility-related work, with stronger gross profit due to the type of work performed. Increased labor costs and interest expense offset some of the gains.
While completing a record amount of work as evidenced by record revenues during the quarter, MDU Construction Services Group continues to see strong demand for its services and had record second quarter backlog of $1.94 billion at June 30, compared to $1.92 billion at June 30, 2022.
Discontinued Operations and Adjusted Earnings
On May 31, 2023, MDU Resources completed a spinoff of approximately 90% of the outstanding shares of its construction materials subsidiary, Knife River, which became an independent, publicly traded company. Knife River's results, transaction costs associated with the spinoff, and certain interest expense associated with the spinoff are reported as discontinued operations, and MDU Resources' prior period results have been restated to reflect this spinoff. The unrealized gains from the approximately 10% of retained shares of Knife River's outstanding stock are reported as part of MDU Resources' continuing operations in its Other segment.
MDU Resources is reporting adjusted income from continuing operations that excludes the unrealized gain on the retained interest of the Knife River shares, as well as costs related to MDU Resources' other strategic initiatives. Adjusted income from continuing operations is a non-GAAP measure. For an explanation of non-GAAP earnings adjustments, see the "Non-GAAP Financial Measures" section in this news release. More information about the strategic initiatives can be found on the company's website at www.mdu.com.
Guidance
Because of MDU Resources' strategic initiatives, the company is providing guidance for 2023 results by business. For 2023, MDU Resources expects:
- Earnings from its regulated energy delivery businesses in the range of $150 million to $160 million, up from $140 million to $150 million.
- Construction services revenues in the range of $2.80 billion to $3.00 billion, with slightly higher margins compared to 2022, and EBITDA of $200 million to $225 million.
Conference Call
MDU Resources' management will discuss second quarter results on a webcast at 2 p.m. EDT today. The webcast can be accessed at www.mdu.com under the "Investor Relations" heading. Select "Events & Presentations," and click on "2Q 2023 Earnings Conference Call." A replay of the webcast will be available at the same location.
About MDU Resources
MDU Resources Group, Inc., a member of the S&P MidCap 400 index, provides essential products and services through its regulated energy delivery and construction services businesses. For more information about MDU Resources, see the company's website at www.mdu.com or contact the Investor Relations Department at [email protected].
Media Contact: Laura Lueder, manager of communications and public relations, 701-530-1095
Financial Contact: Brent Miller, assistant treasurer, 701-530-1730
Forward-Looking Statements
The information in this news release highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries and other matters for each of the company's businesses. Many of these highlighted statements and other statements not historical in nature are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations are based on reasonable assumptions, there is no assurance the company's projections, including estimates for growth, shareholder value creation and financial guidance or other proposed strategies, including the pursuit of a tax-advantaged separation of its construction services business and proposed future structure of a pure-play regulated energy delivery company will be achieved. Please refer to assumptions contained in this news release, as well as the various important factors listed in Part I, Item 1A - Risk Factors in the company's most recent Form 10-K and subsequent filings with the Securities and Exchange Commission.
Changes in such assumptions and factors could cause actual future results to differ materially from growth and financial guidance. All forward-looking statements in this news release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Except as required by law, the company does not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.
Throughout this news release, the company presents financial information prepared in accordance with GAAP, as well as EBITDA, EBITDA from continuing operations, adjusted EBITDA from continuing operations, adjusted income from continuing operations, and adjusted earnings per share from continuing operations, which are considered non-GAAP financial measures. The use of these non-GAAP financial measures should not be construed as alternatives to earnings, operating income or operating cash flows. The company believes the use of these non-GAAP financial measures are beneficial in evaluating the company's financial performance due to its diverse operations. Please refer to the "Non-GAAP Financial Measures" section contained in this document for additional information.
Consolidated Statements of Income | ||||
Three Months Ended | Six Months Ended | |||
June 30, | June 30, | |||
2023 | 2022 | 2023 | 2022 | |
(In millions, except per share amounts) | ||||
Operating revenues: | (Unaudited) | |||
Electric, natural gas distribution and regulated pipeline | $ 340.5 | $ 323.6 | $ 1,014.4 | $ 877.3 |
Non-regulated pipeline, construction services and other | 750.6 | 686.2 | 1,506.8 | 1,239.6 |
Total operating revenues | 1,091.1 | 1,009.8 | 2,521.2 | 2,116.9 |
Operating expenses: | ||||
Operation and maintenance: | ||||
Electric, natural gas distribution and regulated pipeline | 95.5 | 94.5 | 197.5 | 192.3 |
Non-regulated pipeline, construction services and other | 674.1 | 615.1 | 1,368.5 | 1,117.8 |
Total operation and maintenance | 769.6 | 709.6 | 1,566.0 | 1,310.1 |
Purchased natural gas sold | 115.9 | 115.3 | 487.0 | 382.7 |
Depreciation, depletion and amortization | 53.5 | 54.9 | 105.7 | 106.8 |
Taxes, other than income | 49.7 | 45.5 | 117.1 | 99.0 |
Electric fuel and purchased power | 20.4 | 21.9 | 44.8 | 48.3 |
Total operating expenses | 1,009.1 | 947.2 | 2,320.6 | 1,946.9 |
Operating income | 82.0 | 62.6 | 200.6 | 170.0 |
Unrealized gain on investment in Knife River | 140.0 | — | 140.0 | — |
Other income (expense) | 10.0 | (2.3) | 20.3 | (3.2) |
Interest expense | 26.5 | 19.2 | 50.4 | 38.1 |
Income before income taxes | 205.5 | 41.1 | 310.5 | 128.7 |
Income tax expense | 57.9 | 5.3 | 79.0 | 24.2 |
Income from continuing operations | 147.6 | 35.8 | 231.5 | 104.5 |
Discontinued operations, net of tax | (16.9) | 34.9 | (62.5) | (2.1) |
Net income | $ 130.7 | $ 70.7 | $ 169.0 | $ 102.4 |
Earnings per share – basic: | ||||
Income from continuing operations | $ .72 | $ .18 | $ 1.14 | $ .51 |
Discontinued operations, net of tax | (.08) | .17 | (.31) | (.01) |
Earnings per share – basic | $ .64 | $ .35 | $ .83 | $ .50 |
Earnings per share – diluted: | ||||
Income from continuing operations | $ .72 | $ .18 | $ 1.14 | $ .51 |
Discontinued operations, net of tax | (.08) | .17 | (.31) | (.01) |
Earnings per share – diluted | $ .64 | $ .35 | $ .83 | $ .50 |
Weighted average common shares outstanding – basic | 203.6 | 203.4 | 203.6 | 203.4 |
Weighted average common shares outstanding – diluted | 203.9 | 203.4 | 203.9 | 203.4 |
Selected Cash Flows Information* | ||
Six Months Ended | ||
June 30, | ||
2023 | 2022 | |
(In millions) | ||
Net cash provided by operating activities | $ 73.1 | $ 119.2 |
Net cash used in investing activities | (276.6) | (291.1) |
Net cash provided by financing activities | 183.8 | 184.8 |
Increase (decrease) in cash and cash equivalents | (19.7) | 12.9 |
Cash and cash equivalents - beginning of year | 70.4 | 40.8 |
Cash and cash equivalents - end of period | $ 50.7 | $ 53.7 |
*Includes cash flows from discontinued operations. | ||
Capital Expenditures | ||||
Business Line | 2023 | 2024 | 2025 | 2023 - 2027 |
(In millions) | ||||
Electric | $ 98 | $ 127 | $ 130 | $ 810 |
Natural gas distribution | 245 | 311 | 260 | 1,287 |
Pipeline | 145 | 117 | 127 | 459 |
Construction services | 38 | 34 | 34 | 178 |
Total capital expenditures* | $ 526 | $ 589 | $ 551 | $ 2,734 |
* Excludes "Other" category, as well as net proceeds from the sale or disposition of property | ||||
Note: Total capital expenditures is presented on a gross basis | ||||
The capital program is subject to continued review and modification by the company. Actual expenditures may vary from the estimates due to changes in load growth, regulatory decisions and other factors, including the pursuit of a tax-advantaged separation of MDU Construction Services Group.
Non-GAAP Financial Measures
The company, in addition to presenting its earnings in conformity with GAAP, has provided non-GAAP financial measures of EBITDA by operating segment, EBITDA from continuing operations, adjusted EBITDA from continuing operations, 2023 EBITDA guidance, adjusted income from continuing operations and adjusted earnings per share from continuing operations. The company defines EBITDA as net income (loss) attributable to the operating segment before interest; taxes; and depreciation, depletion and amortization; EBITDA from continuing operations as income (loss) from continuing operations before interest; taxes; and depreciation, depletion and amortization; and adjusted EBITDA from continuing operations as income (loss) from continuing operations before interest; taxes; and depreciation, depletion and amortization before any transaction-related impacts from strategic initiatives. The company defines adjusted income (loss) from continuing operations as income from continuing operations attributable to the company before any transaction-related impacts from strategic initiatives, including the unrealized gain on the investment in Knife River.
The company believes these non-GAAP financial measures provide meaningful information to investors about operational efficiency compared to the company's peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels, capital investment, the gain on the investment in Knife River and the one-time costs associated with the company's strategic initiatives. The company's management uses the non-GAAP financial measures in conjunction with GAAP results when evaluating the company's operating results internally and calculating compensation packages. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies' non-GAAP financial measures having the same or similar names. The presentation of this additional information is not meant to be considered a substitution for financial measures prepared in accordance with GAAP. The company strongly encourages investors to review the consolidated financial statements in their entirety and to not rely on any single financial measure.
The following tables provide a reconciliation of consolidated income from continuing operations to adjusted income from continuing operations, earnings per share from continuing operations to adjusted earnings per share from continuing operations, GAAP net income to EBITDA from continuing operations for actual as well as forecasted results. The reconciliation for each operating segment's EBITDA is included within each operating segment's condensed income statement.
Three Months Ended | Six Months Ended | |||
June 30, | June 30, | June 30, | June 30, | |
2023 | 2022 | 2023 | 2022 | |
(In millions, except per share amounts) | ||||
(Unaudited) | ||||
Income from continuing operations | $ 147.6 | $ 35.8 | $ 231.5 | $ 104.5 |
Adjustments: | ||||
Less: Unrealized gain on investment in Knife River, net of tax* | 90.8 | — | 90.8 | — |
Costs attributable to strategic initiatives, net of tax* | 3.2 | .3 | 6.5 | .3 |
Adjusted income from continuing operations | $ 60.0 | $ 36.1 | $ 147.2 | $ 104.8 |
* Includes unrealized gain of $140.0 million, net of tax of $49.2 million for the quarter and year to date | ||||
Earnings Per Share Reconciliation | ||||
Earnings per share from continuing operations | $ .72 | $ .18 | $ 1.14 | $ .51 |
Adjustments: | ||||
Less: Earnings per share attributable to unrealized gain on investment in Knife River | .45 | — | .45 | — |
Loss per share attributable to strategic initiative costs | .02 | — | .03 | — |
Adjusted earnings per share from continuing operations | $ .29 | $ .18 | $ .72 | $ .51 |
Three Months Ended | Six Months Ended | |||
June 30, | June 30, | |||
2023 | 2022 | 2023 | 2022 | |
(In millions) | ||||
Net income | $ 130.7 | $ 70.7 | $ 169.0 | $ 102.4 |
Discontinued operations, net of tax | (16.9) | 34.9 | (62.5) | (2.1) |
Income from continuing operations | 147.6 | 35.8 | 231.5 | 104.5 |
Adjustments: | ||||
Interest expense | 26.5 | 19.2 | 50.4 | 38.1 |
Income taxes | 57.9 | 5.3 | 79.0 | 24.2 |
Depreciation, depletion and amortization | 53.5 | 54.9 | 105.7 | 106.8 |
EBITDA from continuing operations | $ 285.5 | $ 115.2 | $ 466.6 | $ 273.6 |
Adjustments: | ||||
Less: Unrealized gain on investment in Knife River, net of tax* | 90.8 | — | 90.8 | — |
Costs attributable to strategic initiatives, net of tax* | 3.2 | .3 | 6.5 | .3 |
Adjusted EBITDA from continuing operations | $ 197.9 | $ 115.5 | $ 382.3 | $ 273.9 |
EBITDA Guidance Reconciliation for 2023 | ||
Construction Services | ||
Low | High | |
(In millions) | ||
Income from continuing operations | $ 120.0 | $ 140.0 |
Adjustments: | ||
Interest expense | 15.0 | 15.0 |
Income taxes | 40.0 | 45.0 |
Depreciation, depletion and amortization | 25.0 | 25.0 |
EBITDA from continuing operations | $ 200.0 | $ 225.0 |
Electric | Three Months Ended | Six Months Ended | |||||
June 30, | June 30, | ||||||
2023 | 2022 | Variance | 2023 | 2022 | Variance | ||
(In millions) | |||||||
Operating revenues | $ 91.0 | $ 85.5 | 6 % | $ 186.7 | $ 179.3 | 4 % | |
