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22 Percent Earnings Increase at Utility Group Drives MDU Resources’ First Quarter Earnings

May 03, 2016

  • Construction businesses build nearly $1.4 billion backlog, up 38 percent
  • Construction materials group off to strongest start in 9 years
  • Pipeline group experiences record first quarter transportation volumes
  • Refinery continues to experience commodity price challenges
  • Sale of marketed E&P assets finalized; in aggregate approximately $500 million sale proceeds and tax benefits
  • Company reaffirms 2016 guidance
MDU Resources Group, Inc. (NYSE: MDU) today reported first quarter earnings of $24.7 million, or 13 cents per share, compared to a loss of $306.1 million, or $1.57 per share in the first quarter of 2015. The 2015 loss was driven by a noncash write-down at its now-sold exploration and production business.

 

Consolidated adjusted earnings were $32.6 million, or 17 cents per share, compared to $20.9 million, or 11 cents per share for the first quarter of 2015.

Consolidated adjusted earnings is a non-GAAP measure. For an explanation of non-GAAP earnings adjustments, see the Reconciliation of GAAP to Adjusted Earnings and the Use of Non-GAAP Financial Measures sections in this press release.

“We are off to a good start in 2016. We are beginning to see results from our efforts to restore earnings to a satisfactory level,” said David L. Goodin, president and CEO of MDU Resources. “We will continue to focus on controlling costs, expanding margins and growing earnings, although we are disappointed with market conditions that continue to challenge our refinery investment.

“Our utility group is seeing the benefits of record-level investments to serve its growing customer base, and I’m pleased with the way that our construction businesses have started the year. They have built a combined backlog of nearly $1.4 billion that is up 38 percent from the first quarter of last year, which includes a first quarter record backlog at our construction materials group.”

Goodin noted that the company last month announced it completed the sale of its last marketed oil and natural gas production assets, with aggregate sale proceeds and related tax benefits of approximately $500 million. “Exiting the E&P business lowers our risk profile and allows us to focus more on growing our other business operations,” he said.

Business Unit Results

The utility business reported earnings of $36.3 million, a 22 percent increase from the first quarter of 2015. Success in recovering electric and natural gas investments through tracking mechanisms and rate cases was a significant factor. The utility invested a record $464 million in 2015, with an additional $1.5 billion planned over the next five years, to serve a customer base that is expected to continue growing by 1.5 to 2 percent per year.

The electric utility, which had a record first quarter, also benefited from production tax credits associated with the Thunder Spirit Wind Farm, a 107.5-megawatt facility that went into full production in late December. That was partially offset by lower electric sales volumes and increased depreciation costs. Natural gas retail sales volumes increased 3 percent, benefiting from weather in its northwestern states that was 11 percent colder than last year. That was partially offset by increased depreciation costs and weather that was 9 percent warmer than last year in its eastern states.

The construction materials business sustained its 2015 momentum, narrowing its normal seasonal loss to $14.5 million, the best start in nine years. The business experienced higher realized construction revenues and margins, partially offset by lower aggregate margins and lower earnings associated with the effects of a large precast project in the prior year. The group’s backlog was a first quarter record of $831 million, up 25 percent from the first quarter of 2015.

The construction services business reported earnings of $6.0 million, an increase from $4.8 million last year. The business experienced higher inside construction workloads and margins, partially offset by lower equipment sales and rental margins and lower industrial construction workloads and margins. The group continues to successfully rebuild backlog, finishing the quarter with $530 million. That is a 65 percent increase from $321 million in the first quarter last year.

Earnings at the pipeline and midstream business declined to $5.3 million, largely due to lower gathering and processing volumes at the Pronghorn facilities, in which the company owns a 50 percent interest. Total transportation volumes on its pipeline system reached a first quarter record, with an 11 percent increase from last year driven by growth in off-system volumes and volumes transported to storage, offset by lower firm demand revenue.

The refining segment experienced a $7.2 million loss, which includes the results of the company's 50 percent ownership interest in the Dakota Prairie Refinery. The refinery, which began commercial operation in May 2015, is operating satisfactorily. However, market conditions for diesel and naphtha have deteriorated greatly. The Bakken basis differential from West Texas Intermediate (WTI) pricing remains narrow, which increases the refinery’s cost for its crude oil feedstock. The company continues to focus on operational improvements and cost-cutting measures at the plant to improve profitability.

In light of current market conditions, the company is assessing various options with respect to its ownership interest in the refinery, is assessing the potential for an impairment charge at some future time if current market conditions persist, and continues to assess potential impairment indicators.

Reaffirming 2016 Guidance

“Based on first quarter results, we are reaffirming our 2016 earnings guidance,” Goodin said. GAAP earnings are expected to be in the range of 85 cents to $1.10 per share. Adjusted earnings are expected to be in the range of $1.00 to $1.15 per share.

Adjusted earnings per share are based on results from the company’s utility, pipeline and midstream and construction businesses. Historically these businesses have been more predictable and provide a more reliable guidance range to investors. The refining segment is not included because the refining industry tends not to give earnings guidance due to the volatility and unpredictable nature of the key commodity assumptions supporting its financial results. This approach to adjusted earnings per share allows investors to evaluate the refining segment as to performance and valuation. GAAP earnings per share are all-in. For an explanation of non-GAAP adjustments, see the Use of Non-GAAP Financial Measures section in this press release.

Conference Call

The company will host a webcast at 10 a.m. EDT May 4 to discuss first quarter 2016 results. The event can be accessed at www.mdu.com. Webcast and audio replays will be available through May 18. The dial-in number for audio replay is 855-859-2056, or 404-537-3406 for international callers, conference ID 77094219.

About MDU Resources

MDU Resources Group, Inc., a member of the S&P MidCap 400 index, provides value-added natural resource products and related services that are essential to energy and transportation infrastructure, including regulated utilities, pipeline and midstream operations, construction materials and services and a diesel refinery. For more information about MDU Resources, see the company's website at www.mdu.com or contact the Investor Relations Department at investor@mduresources.com.

Contacts
Financial: Rick Matteson, director of investor relations, 701-530-1057
Media: Laura Lueder, manager of communications and public relations, 701-530-1095