MDU Resources Group Inc (MDU) (Q1 2024) Earnings Call Transcript Highlights: Strong Start with ...

• Q1 2024 Earnings: $100.9 million or $0.49 per share

• Q1 2023 Earnings: $38.3 million or $0.19 per share

• Income from Continuing Operations (Q1 2024): $100.9 million or $0.49 per share

• Income from Continuing Operations (Q1 2023): $83.8 million or $0.41 per share

• Adjusted Income from Continuing Operations (Q1 2024): $106.6 million or $0.52 per share

• Adjusted Income from Continuing Operations (Q1 2023): $87.1 million or $0.43 per share

• Electric Utility Earnings (Q1 2024): $17.9 million

• Electric Utility Earnings (Q1 2023): $16.6 million

• Natural Gas Utility Earnings (Q1 2024): $40.1 million

• Natural Gas Utility Earnings (Q1 2023): $38.9 million

• Pipeline Earnings (Q1 2024): $15.1 million

• Pipeline Earnings (Q1 2023): $8.3 million

• Everus Earnings (Q1 2024): $28.2 million

• Everus Earnings (Q1 2023): $26.1 million

• Everus EBITDA (Q1 2024): $46.9 million

• Everus Backlog: $2.18 billion

• 2024 Earnings Guidance: $170 million to $180 million

• Long-term EPS Growth Rate: 6% to 8%

• Utility Rate Base Growth Rate: 7% annually over the next 5 years

• Customer Growth Rate: 1% to 2%

• Capital Investment: $2.7 billion over the next 5 years

• Dividend Payout Ratio: 60% to 70% annually

• Equity Issuance Plans: None until 2027

• Warning! GuruFocus has detected 10 Warning Signs with MDU.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• MDU Resources Group Inc reported a strong start to 2024 with solid performance across all business units, reflecting the company's operational excellence and strategic initiatives.

• The planned tax-free spinoff of the Construction Services business, Everus, is on track, which is expected to enhance the value of both the spun-off entity and the remaining business.

• Record first quarter earnings were achieved in the pipeline business, driven by expansion projects and increased contract commitments, highlighting robust growth and operational efficiency.

• The utility business implemented new rates that positively impacted earnings and continues to pursue regulatory recovery for ongoing investments, ensuring financial stability and growth.

• Everus reported a record backlog of $2.18 billion, indicating strong demand and future revenue potential, particularly from sectors like data centers and institutional work.

Negative Points

• Despite overall growth, the utility business experienced a 7% decrease in retail sales volumes due to warmer weather, which could indicate vulnerability to seasonal fluctuations.

• Higher operation and maintenance expenses were reported across several business units, potentially impacting profit margins if not managed effectively.

• The ongoing need for regulatory approvals for rate cases and expansions introduces uncertainty and could affect the timing and realization of projected benefits.

• Increased debt balances and higher interest rates led to higher interest expenses, which could affect net earnings and cash flow if not strategically managed.

• While the company is not planning to issue equity until 2027, this could limit financial flexibility in the face of unforeseen challenges or opportunities.

Q & A Highlights

Q: What percentage of Everus' business mix or backlog mix is now data centers, and what are the other key drivers of growth? A: Jeffrey S. Thiede, President & CEO of Everus Construction Group, explained that the backlog is significantly built upon success in diversified businesses, especially in commercial areas like data centers. He highlighted the importance of data centers for major clients, emphasizing repeat business due to performance, safety, productivity, and quality. However, specific percentage details were not disclosed.

Q: Can you provide any geographical insights into where Everus is most active in data center construction? A: Jason L. Vollmer, VP, CFO & Treasurer, and Jeffrey S. Thiede discussed that while specific percentages aren't disclosed, significant data center activities are happening in Ohio, the Southwest, and the Pacific Northwest. These areas complement other strong sectors like healthcare and institutional work.

Q: What trends are you observing in electricity demand growth within your service territories, and what implications might these have for your capital budgets? A: Garret Senger, Chief Utilities Officer, noted an average annual increase in customer numbers around 1%, with interest in industrial and commercial loads potentially expanding operations in the coming years. Nicole A. Kivisto, President & CEO, added that data centers are a significant part of this growth, emphasizing that current models do not require MDU to invest in new generation facilities, which benefits the company's return on equity and reduces transmission costs for customers.

Q: Are there any updates on the regulatory front, particularly regarding rate cases and their impact on financial performance? A: Nicole A. Kivisto mentioned ongoing regulatory activities, including interim rate implementations and filings for multiyear rate cases in various states. These regulatory efforts are crucial for recovering investments aimed at ensuring safe and reliable service delivery, which directly influences financial performance.

Q: Could you elaborate on the projected growth and future plans for MDU's utility and pipeline businesses? A: Nicole A. Kivisto outlined expectations for a 7% compounded annual growth in rate base over the next five years, driven by infrastructure investments. She also highlighted several pipeline expansion projects aimed at increasing natural gas transportation capacity, which are expected to contribute significantly to future earnings.

Q: What are the financial expectations for Everus following its spinoff, and how does it fit into the broader strategic goals of MDU Resources? A: Nicole A. Kivisto discussed the anticipation of enhanced value post-spinoff, with Everus positioned to capitalize on increased demand from infrastructure investments and manufacturing reshoring. She reaffirmed revenue and EBITDA guidance for Everus, emphasizing its strong market position and backlog.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.