MDU Resources Group, Inc. (NYSE:MDU) Q1 2024 Earnings Call Transcript

MDU Resources Group, Inc. (NYSE:MDU) Q1 2024 Earnings Call Transcript May 2, 2024

MDU Resources Group, Inc. beats earnings expectations. Reported EPS is $0.52, expectations were $0.47. MDU isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Jeff Thiede – President and Chief Executive Officer of Everus:

Garret Senger – Chief Utilities Officer: Stephanie Sievert – Vice President, Chief Accounting Officer and Controller Rob Johnson – President of WBI Energy

Operator: Hello, everyone. My name is Bo and I will be your conference facilitator today. At this time, I would like to welcome everyone to the MDU Resources Group 2024 First Quarter Earnings Conference Call. [Operator Instructions] The webcast can be accessed at www.mdu.com under the Investors heading. Select Events & Presentations and click Q1 2024 Earnings Conference Call. After the conclusion of the webcast, a replay will be available at the same location. I would now like to turn the conference over to Mr. Jason Vollmer, Vice President, Chief Financial Officer and Treasurer of MDU Resources Group. Mr. Vollmer, please go ahead.

Jason Vollmer: Thank you, Bo, and welcome, everyone, to our first quarter 2024 earnings conference call. You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the Investors tab.

Everus: During our call, we will make certain 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, actual results may differ materially. For more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statements, please refer to our most recent SEC filings. We may also refer to certain non-GAAP information. For a reconciliation of any non-GAAP information to the appropriate GAAP metric, please reference our earnings release. I will provide a consolidated financial results later during the call. But first, I’ll turn the call over to Nicole for her formal remarks. Nicole?

See also 12 ChatGPT Penny Stock Picks Right Now and 25 Countries with the Highest Informal Employment in the World.

Q&A Session

Nicole Kivisto: Thank you, Jason, and thank you, everyone, for spending time with us today and for your continued interest in MDU Resources. I am pleased to report we had a solid start to our 100th year as a company, marked by strong performance from all of our businesses. This strong performance is a direct result of our employees’ dedication and hard work providing essential services to our customers. It shows an exciting time in MD Resources as we continue to make meaningful progress towards the planned tax-free spin-off of our Construction Services business recently rebranded as Everus. I’m proud of our employees, both past and present to have built these businesses to be capable of standing on their own and enabling us to accomplish our stated goal of transforming MDU Resources into a pure-play regulated energy Delivery Company.

We expect this spin-off to significantly enhance the value of both businesses and are on track to complete the spin-off of Everus late this year. Looking to the future, we are excited to focus on our core strategy. This core strategy emphasizes customers and communities, operational excellence, returns focused and employee-driven. As a pure-play regulated business, we will be able to pursue strategy specific to regulated energy business models and optimize our capital structure and financial policy. The strong first quarter results continue the momentum we observed in 2023, reflecting outstanding performance across all companies. New rates implemented at our electric, natural gas and pipeline businesses had a positive result, and we expect regulatory activity to remain busy for our utility group.

At our Construction Services business, Everus has very strong momentum with an all-time record backlog. Our businesses continue to have exciting long-term growth opportunities as we look to the future. Diving in just a little deeper, I’d like to start with our utility business. Electric retail sales volumes for the first quarter were 8% higher than last year. The increase is largely the result of a data center customer operating in our service area. We have also filed a request with the North Dakota Public Service Commission to serve another data center that is expected to become operational in the second quarter of 2024. Additionally, we expect Heskett Unit IV, an 88-megawatt natural gas-fired electric generating facility near Mandan, North Dakota to be operational in the second quarter.

We also continue to expect rate base to grow 7% compounded annually over the next 5 years, driven mainly by investments in system, infrastructure upgrades and replacements to ensure the safe and reliable delivery of service to meet customer demand. On March 1, the utility business implemented interim electric and gas rates in South Dakota. The utility business also implemented interim gas rates in North Dakota on January 1. Additionally, the utility filed a multiyear natural gas rate case with the Washington Utilities and Transportation Commission on March 29. These cases are pending decisions by the respective commissions. As we remain focused on providing safe and reliable electric and natural gas service to our expanding customer base, we are actively seeking regulatory recovery for those investments.

In 2024, the utility business plans to pursue additional natural gas cases in Montana, Oregon and Wyoming. At our pipeline business, we achieved record first quarter earnings, which were 82% higher when compared to the same period last year, driven by record natural gas transportation volumes. This increase is largely attributable to expansion projects placed in service in late ’23 and early ’24 as well as additional North Bakken expansion volumes from increased contract commitments beginning February of 2023. The earnings also includes continued benefit from new transportation and storage rates, which were effective on August 1 of 2023, and along with strong demand for natural gas storage services. Our pipeline business is currently undertaking several growth projects.

The 2023 Line Section 27 expansion in Northwestern and North Dakota was placed in service on March 1, and added natural gas capacity of 175 million cubic feet per day. The Line Section 28 expansion project located in the same region began construction in April of ’24. Once completed, it is expected to add 137 million cubic feet per day of transportation capacity and will serve a natural gas-fired power plant. We anticipate this project will be in service in the third quarter of 2024. We are scheduled also to begin construction on the Wahpeton expansion project in Eastern North Dakota in June, which is expected to be in service in late ’24. This project will increase our natural gas transportation capacity by approximately 20 million cubic feet per day.

We are continuing to look at a number of future expansions that are in the early planning stages. At our regulated energy delivery businesses, we are pleased to reaffirm previously communicated guidance for 2024 with projected earnings in the range of $170 million to $180 million. Looking ahead, as a pure-play regulated energy delivery business, we remain confident in the long-term guidance ranges that we updated at Investor Day. Given our historic track record and strong quarter-over-quarter results, we feel confident in a long-term EPS growth rate of 6% to 8%, a growth rate of 7% on utility rate base and 1% to 2% customer growth. We plan to invest $2.7 billion of capital at the regulated businesses over the next 5 years, while maintaining a 60% to 70% annual dividend payout ratio.

And we plan to do all this with no current plans to issue equity until 2027. Moving on to Everus. We saw higher earnings and record EBITDA. The Construction Services results were driven by higher demand, particularly for institutional work as well as efficiency gains on projects. Everus reported an all-time record backlog of $2.18 billion compared to $2.1 billion at the same time last year. Additionally, completed or near completed projects have successfully been replaced, ensuring a continuous flow of work. We are reaffirming revenue guidance for Everus in the range of $2.9 billion to $3.1 billion, with margins comparable to 2023 and EBITDA guidance in the range of $220 million to $240 million. Looking forward, Everus is well-positioned to benefit from increased bidding opportunities with the funding from the infrastructure investment and Jobs Act and the inflation Reduction Act as well as data center construction and continued reshoring of manufacturing Everus expects to see increased demand for services throughout 2024 and beyond.

As previously mentioned, the spin-off of Everus is expected to be completed in late 2024. We plan to host an Everus Investor Day event ahead of the spin-off, and we’ll continue to keep you updated on our progress throughout the year. We are very optimistic as we look ahead. Opportunities for ongoing customer and system growth at the electric and natural gas utilities a robust slate of pipeline expansion projects and steady demand for our pipeline services and high demand for construction services are encouraging as we progress through 2024. As always, MDU Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to creating superior shareholder value as we continue providing essential products and services to our customers, while being a great and safe place to work.

I will now turn the call back over to Jason for the financial update. Jason?