NYSE:
MDUR:
krc5

Record Second Quarter Earnings at Construction Materials Leads MDU Resources' Results

Aug 02, 2016
  • Construction materials has record second quarter earnings of $33.7 million, up 67 percent driven by higher margins and 9 percent revenue growth due to higher product volumes and construction workloads.
  • Construction services backlog up 18 percent to $508 million.
  • Pipeline and midstream segment earnings increase with 139 percent rise in natural gas storage volumes.
  • Electric utility earnings up 36 percent, driven by regulatory rate relief; natural gas distribution earnings impacted by unfavorable weather.
  • Completed the exit of E&P business and sold interest in the refining business.

MDU Resources Group, Inc. (NYSE: MDU) today reported second quarter earnings from continuing operations of $46.1 million, or 24 cents per common share, compared to earnings from continuing operations of $25.8 million, or 13 cents per common share for the second quarter of 2015. Including discontinued operations, the exploration and production and refining businesses, the company reported a loss of $109.3 million, or 56 cents per common share for second quarter 2016, compared to a loss of $229.8 million, or $1.18 per share for second quarter 2015.

For the six months ended June 30, MDU Resources reported earnings from continuing operations of $77.9 million, or 40 cents per common share, compared to $46.3 million, or 24 cents per share for the first six months of 2015. Including discontinued operations, the company had a loss of $84.6 million, or 43 cents per share for the six months ended June 30, compared to a loss of $535.9 million, or $2.75 per share in 2015.

"This was a significant quarter strategically for our company, as we completed our exit from the exploration and production business and sold our interest in the refining business," said David L. Goodin, president and CEO of MDU Resources. "Going forward, we are a more streamlined company with a lower risk profile and less exposure to commodity prices. We are focused on growing our two primary business lines: construction materials and services and regulated energy delivery.

"Our construction materials business had an outstanding quarter, achieving record second quarter earnings while adding projects to backlog. Our construction services operations continue to build momentum and also added projects to backlog," Goodin said. "Higher utilization of natural gas storage helped increase our earnings at the pipeline business. Earnings also were up 36 percent at our electric utility, but warmer weather led to a larger seasonal loss at our natural gas utilities despite regulatory rate relief in some areas."

Business Unit Results

Construction Materials and Services

The construction materials business reported record second quarter earnings of $33.7 million, up 67 percent from a year ago, with higher earnings across all regions. Earnings growth was driven by margins that continue to trend higher and by a 9 percent increase in revenue. Construction revenues increased and sales volumes were higher on aggregates, asphalt and ready-mix. Major jobs that have been awarded to this business in 2016 include a $63.4 million Interstate 29 project in Iowa, a $30.5 million bypass in Oregon and a $25.0 million Interstate 35 project in Minnesota.

The construction services business completed the quarter with earnings of $7.0 million, on pace with second quarter 2015. Stronger inside electrical and industrial results were offset by lower margins from outside work and equipment sales and rentals. Backlog at end of second quarter was $508 million, up 18 percent. This segment has diverse construction capabilities. Current projects include a utility-scale solar farm, a government research facility, a 345-kilovolt transmission project, a corporate campus expansion, utility maintenance contracts and mission critical projects.

Combined construction materials and services backlog was $1.3 billion at June 30, up 4 percent from a year ago. These businesses are focused on adding strong-margin contracts to backlog while executing on existing projects.

Regulated Energy Delivery

Recovery trackers and successful rate recovery efforts related to the utility's historic record levels of investment boosted the electric utility earnings to $8.0 million for the second quarter, up $2.1 million from second quarter 2015. Rate relief at the natural gas utilities was more than offset by higher operating expenses and by weather that was 8 to 29 percent warmer across the service territory compared to the previous year, resulting in a larger seasonal second quarter loss of $7.8 million compared to a loss of $5.4 million last year. The utility continues to make significant infrastructure investments to serve its anticipated 1 to 2 percent customer growth, including beginning construction in June with a partner on the 345-kilovolt transmission line from Big Stone City, South Dakota, to Ellendale, North Dakota.

Earnings at the pipeline and midstream business were $6.3 million, $2.9 million higher than a year ago, with utilization of natural gas storage services and volumes transported to storage more than doubling as customers took advantage of seasonal basis differentials. This segment also benefited from the absence of a $1.9 million after-tax impairment recorded in second quarter 2015 on certain natural gas gathering assets. The pipeline business completed construction in the second quarter on growth projects and has agreements signed for additional growth projects, totaling 150,000 dekatherms per day of pipeline capacity. This business also closed the open season July 15 on its proposed $50 million Valley Expansion pipeline project that will deliver natural gas supply to eastern North Dakota and far western Minnesota. Initial interest in the project, which would be regulated by the Federal Energy Regulatory Commission (FERC), has been promising, and the company expects to make further announcements in the near future.

2016 Guidance

MDU Resources' 2016 earnings guidance from continuing operations is $1.00 to $1.15 per common share. Including discontinued operations, the company expects 2016 earnings of 15 cents to 30 cents per share.

With the recent sales of MDU Resources' exploration and production and refining businesses, results from these operations have been reported as discontinued operations. Any continuing results from MDU Resources' exploration and production and refining businesses, such as general and administrative expenses, have been included in the "other" category. To reflect this change, MDU Resources is providing guidance in two formats that meet generally accepted accounting principles: one guidance range reflects continuing operations and the other includes discontinued operations. The continuing operations range is similar to the company's previously reported "adjusted earnings" guidance in that both exclude results from the exploration and production and refining businesses. The discontinued operations guidance range includes the results from the exploration and production and refining businesses as well as associated impairments, including a $156.7 million after-tax impairment on the refining business in second quarter 2016.

Conference Call

The company will host a webcast at 10 a.m. EDT Aug. 3 to discuss second quarter 2016 results. The event can be accessed at www.mdu.com. Webcast and audio replays will be available through Aug. 17. The dial-in number for audio replay is 855-859-2056, or 404-537-3406 for international callers, conference ID 38294454.

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 materials and services businesses. 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: Janelle Steiner, assistant treasurer, 701-530-1031
Media: Laura Lueder, manager of communications and public relations, 701-530-1095