10-Q: MDU Resources Group Reports Q1 2025 Earnings, Impacted by Everus Spinoff

MDU Resources Group's Q1 2025 earnings were affected by the spinoff of Everus, with increased earnings in natural gas distribution and pipeline segments partially offsetting the absence of discontinued operations income.

Summary

• MDU Resources Group reported net income of $82.0 million for Q1 2025, compared to $100.9 million in Q1 2024.
• The decrease in earnings is primarily due to the absence of income from discontinued operations following the separation of Everus Construction Group.
• Earnings per share (EPS) from continuing operations were $0.40, consistent with $0.37 in the prior year.
• The electric business experienced decreased earnings due to higher operation and maintenance expenses and lower investment returns.
• The natural gas distribution business saw improved earnings due to higher retail sales revenue and increased volumes.
• The pipeline business earnings increased due to growth projects and customer demand for short-term firm capacity contracts.
• The company's 'CORE' strategy prioritizes customers and communities, operational excellence, returns focused initiatives and an employee driven culture.
• The company expects to grow rate base by approximately 7 percent to 8 percent annually over the next five years on a compound basis.
• The company expects customer growth to continue to average 1 percent to 2 percent per year.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While earnings are down due to the Everus spinoff, the company is showing growth in key segments and has a positive outlook for rate base and customer growth. However, there are risks related to regulatory changes and environmental compliance.

Positives

• Natural gas distribution earnings improved due to rate relief in Washington, Montana, and South Dakota, as well as increased volumes due to colder weather.
• Pipeline business earnings increased due to growth projects placed in service and customer demand for short-term firm capacity contracts.
• The company expects to grow rate base by approximately 7 percent to 8 percent annually over the next five years on a compound basis.
• The company expects customer growth to continue to average 1 percent to 2 percent per year.

Negatives

• The company's consolidated earnings decreased $18.9 million primarily due to the absence of income from discontinued operations in 2025.
• Electric business earnings decreased largely the result of higher operation and maintenance expense, primarily due to higher contract services related to electric generation station outage-related costs, increased software expenses and higher payroll-related costs, and lower investment returns on nonqualified benefit plans.
• Other experienced lower operation and maintenance expense, primarily a result of corporate overhead costs classified as continuing operations allocated to Everus in 2024, which are not included in Other in 2025.

Risks

• The company continues to manage the inflationary pressures experienced throughout the United States, including the impact that inflation, higher interest rates, changes in tariffs, commodity price volatility and supply chain disruptions may have on its business and customers and proactively looks for ways to lessen the impact to its business.
• Existing and proposed emissions reduction plans from the EPA could require the owners of Coyote Station to incur significant new costs.
• The company is one of four owners of Coyote Station and cannot make a unilateral decision on the plant's future; therefore, the company could be negatively impacted by decisions of the other owners.
• The company continues to monitor legislation and rulemaking related to clean energy standards that may impact its segments.

Future Outlook

The company expects to grow rate base by approximately 7 percent to 8 percent annually over the next five years on a compound basis and expects customer growth to continue to average 1 percent to 2 percent per year.

Management Comments

• Through a strategy focusing on its 'CORE,' the Company strives to deliver superior value and achieve industry-leading performance as a pure-play regulated energy delivery company, while pursuing organic growth opportunities.
• The Company's 'CORE' strategy prioritizes customers and communities, operational excellence, returns focused initiatives and an employee driven culture.

Industry Context

The report highlights the challenges and opportunities in the energy sector, including regulatory changes, environmental compliance, and the increasing demand for renewable energy sources. The company is actively managing these factors to ensure continued growth and profitability.

Comparison to Industry Standards

• The company's strategy to focus on regulated energy delivery aligns with the industry trend of utilities seeking stable and predictable earnings.
• The company's planned utility investments in the Company's estimated capital expenditures for 2025 include construction of electric transmission lines and substations, as well as natural gas delivery infrastructure, to serve a customer base that is expected to continue growing at 1 percent to 2 percent annually over the next five years, construction of JETx, power generation projects, and replacement and modernization of existing electric and natural gas utility infrastructure to ensure continued safe and reliable service to customers.
• The company's focus on improving existing operations and on growth opportunities through organic expansion projects in all areas in which it operates, which includes additional projects with local distribution companies, Bakken area producers, electric generation customers and industrial customers in various stages of development, including: Expecting to begin construction in the second quarter of 2025 on the Minot Expansion Project, to meet the needs of a local distribution company in north central North Dakota. The project will add approximately 7 MMcf of natural gas transportation capacity per day. The project is supported by a long-term customer agreement and is expected to be in service in the fourth quarter of 2025. Line Section 32 Expansion project which will serve a new electric generation facility in northwest North Dakota. The project consists of approximately 20 miles of pipe and ancillary facilities and is designed to increase natural gas transportation capacity by 190 MMcf per day, which is supported by a long-term customer agreement. The project is dependent on regulatory approvals and targeted to be in service in late 2028. Potential Bakken East Pipeline project, which could consist of 375 miles of pipeline construction from western North Dakota to the eastern part of the state. A non-binding open season for the project concluded on January 31, 2025. The Company is actively working with interested parties to determine the feasibility of the project. Potential Baker Storage Field Enhancement and associated transportation expansion project, which will increase the firm storage deliverability and transportation from the Company's Baker Storage Field in southeastern Montana. The storage enhancement project includes the purchase of additional cushion gas, construction of new storage wells and well lines and a new compressor station. The transportation expansion project includes the construction of new pipeline and compression. A binding open season for this capacity began in April 2025 and concludes in May 2025.

Related Party Transactions

• For the three months ended March 31, 2025, the Company received $1.8 million and paid $13,000 for these related activities.

Stakeholder Impact

• The company's performance impacts shareholders through earnings and dividends.
• The company's operations affect customers through rates and service reliability.
• The company's activities impact communities through economic development and environmental stewardship.

Next Steps

• The company will continue to monitor and comply with environmental regulations.
• The company will continue to pursue various opportunities under the Grid Resilience and Innovative Partnerships Program and the IRA.
• The company will continue to focus on improving existing operations and on growth opportunities through organic expansion projects in all areas in which it operates.

Key Dates

Keywords

MDU Resources Group, earnings, Everus, natural gas distribution, pipeline, electric, rate base, customer growth, capital expenditures, regulatory matters