8-K: NW Natural Holdings Reports Lower First Quarter Earnings Despite Customer Growth

NW Natural Holdings reported a decrease in net income for the first quarter of 2024, despite adding nearly 15,000 new utility connections and achieving record gas delivery during a winter storm.

Summary

• NW Natural Holdings reported a net income of $63.8 million, or $1.69 per share, for the first quarter of 2024, down from $71.7 million, or $2.01 per share, in the same period of 2023.
• The company added nearly 15,000 gas and water utility connections in the last 12 months, representing a 1.7% growth rate.
• Oregon gas customers received bill credits totaling nearly $30 million in early 2024.
• The gas system delivered a record 9.0 million therms on January 13, 2024, during a winter storm.
• The company reaffirmed its 2024 earnings guidance of $2.20 to $2.40 per share and a long-term earnings per share growth target of 4% to 6% from 2022 through 2027.
• The decrease in net income was primarily due to higher pension expenses, increased depreciation from system investments, and higher interest expenses.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company highlights customer growth and ethical recognition, the decrease in earnings and the regulatory lag concerns temper the overall outlook.

Positives

• The company achieved a 1.7% growth in utility connections, adding nearly 15,000 new customers.
• NW Natural's gas system demonstrated its reliability by delivering a record 9.0 million therms during a severe winter storm.
• The company has been recognized as one of the World's Most Ethical Companies for the third year in a row.
• NW Natural reaffirmed its long-term earnings per share growth target of 4% to 6%.

Negatives

• Net income decreased by $7.8 million compared to the first quarter of 2023.
• The decrease in net income was primarily due to higher pension expenses, increased depreciation, and higher interest expenses.
• The company's 2024 earnings per share guidance is not in line with its long-term growth target due to regulatory lag.
• The natural gas distribution segment experienced a $1.5 million decline in gains on the Oregon gas cost incentive sharing mechanism.

Risks

• Regulatory lag is impacting the company's earnings, particularly in the natural gas distribution segment.
• Increased operating expenses due to inflationary pressures and multi-year contract renewals are affecting profitability.
• The company is exposed to risks related to weather conditions, which can impact customer demand and revenue.
• The company faces risks related to regulatory proceedings and potential changes in laws or regulations.

Future Outlook

The company reaffirmed its 2024 earnings guidance of $2.20 to $2.40 per share and a long-term earnings per share growth target of 4% to 6% from 2022 through 2027. The company expects a loss in the second and third quarters of 2024, followed by earnings in the fourth quarter.

Management Comments

• Our continued success is due to our employees. They kept the gas flowing in January during an extended winter weather event that affected our entire region, said David H. Anderson, CEO of NW Natural Holdings.
• Our system performed well, and we provided safe and reliable energy to our region and customers when they needed it most.
• Delivering essential energy on the coldest winter days is the result of disciplined planning and investments in the system.
• Safe and reliable energy delivery is our highest commitment to our customers, and we take it very seriously.
• We remain on track to meet our business objectives and financial goals this year, and we're working to capture growth opportunities that add long-term value.

Industry Context

The company operates in the regulated utility sector, which is subject to regulatory oversight and rate case proceedings. The company's focus on renewable energy and water services aligns with broader industry trends towards sustainability and diversification. The company's performance is also influenced by weather patterns and economic conditions.

Comparison to Industry Standards

• NW Natural's customer growth of 1.7% is a positive sign, but it is important to compare this to other utilities in the region and nationally to assess its relative performance.
• The company's earnings per share of $1.69 is lower than the $2.01 reported in the same quarter last year, indicating a potential underperformance compared to its own historical results.
• The company's reaffirmed long-term earnings per share growth target of 4% to 6% is a common target for utilities, but the company's current guidance is not in line with that goal.
• The company's recognition as one of the World's Most Ethical Companies for the third year in a row is a positive differentiator compared to other utilities.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and the potential for lower returns in the short term.
• Customers will benefit from the continued reliability of the gas system and the bill credits provided.
• Employees will be impacted by the company's continued focus on safety and ethical practices.
• The company's focus on renewable energy and water services will benefit the environment and communities.

Next Steps

• The company will continue to execute its business plan and work to capture growth opportunities.
• The company will continue to make substantial investments to provide continued safe and reliable service for its customers.
• The company will continue to work through the Oregon general rate case, with new rates expected to be effective on November 1, 2024.

Key Dates

Keywords

earnings, natural gas, utility, renewable energy, water services, financial results, customer growth, regulatory lag, pension expense, depreciation, winter storm, ethical company