8-K: NW Natural Holdings Reports Mixed Q3 Results, Reaffirms Full-Year Guidance

Northwest Natural Holding Company reported a net loss for the third quarter of 2024, but reaffirmed its full-year earnings guidance and long-term growth targets.

Summary

• Northwest Natural Holding Company (NWN) reported a net loss of $27.2 million, or $0.71 per share, for the third quarter of 2024, compared to a net loss of $23.7 million, or $0.65 per share, for the same period in 2023.
• For the first nine months of 2024, the company reported net income of $33.9 million, or $0.88 per share, down from $49.2 million, or $1.37 per share, in the same period of 2023, primarily due to regulatory lag.
• The company added nearly 17,000 gas and water utility connections in the last 12 months, representing a combined growth rate of 1.9% as of September 30, 2024.
• NWN invested $294 million in gas and water systems in the first nine months of 2024.
• New rates went into effect on November 1, 2024, related to NW Natural's Oregon general rate case and the Purchased Gas Adjustment (PGA) mechanism for Oregon and Washington customers.
• The company closed the Puttman/ICH water acquisition, expanding its water utility portfolio.
• NW Natural Renewables completed two renewable natural gas (RNG) facilities and expects them to contribute to earnings and cash flow in 2025.
• The company reaffirmed its 2024 earnings per share (EPS) guidance of $1.94 to $2.14 on a GAAP basis, or $2.20 to $2.40 on a non-GAAP adjusted basis, and its long-term EPS growth rate target of 4% to 6% from 2022 through 2027.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the reported net loss and decreased year-to-date income, but this is balanced by the reaffirmation of guidance and long-term growth targets, as well as the company's strategic investments and dividend increase.

Positives

• The company added nearly 17,000 gas and water utility connections in the last 12 months, showing growth in customer base.
• The company invested $294 million in gas and water systems, supporting future growth and reliability.
• The Puttman/ICH water acquisition expands the company's utility portfolio and service offerings.
• Two renewable natural gas facilities reached substantial completion, contributing to the company's renewable energy initiatives.
• The company reaffirmed its 2024 EPS guidance and long-term EPS growth rate target, providing stability and predictability.
• The company increased its dividend for the 69th consecutive year, demonstrating a commitment to shareholder returns.

Negatives

• The company reported a net loss of $27.2 million for the third quarter of 2024, a decrease compared to the loss of $23.7 million in the same period of 2023.
• Net income for the first nine months of 2024 decreased to $33.9 million from $49.2 million in the same period of 2023, primarily due to regulatory lag.
• The company was required to forego recovery of $13.7 million of rate base related to line extension costs, resulting in a non-cash, pre-tax charge of $13.7 million in the fourth quarter of 2024.
• Operating cash flows decreased to $219.7 million for the first nine months of 2024, compared to $301.5 million for the same period in 2023.

Risks

• Regulatory lag continues to impact the company's earnings, particularly in the natural gas distribution segment.
• The company faces risks related to weather, which can significantly affect customer demand and revenue.
• The company is subject to regulatory risks, including the outcome of rate cases and changes in regulatory policies.
• The company faces risks related to environmental regulations and the transition to renewable energy.
• The company's financial performance is subject to macroeconomic and geopolitical risks.

Future Outlook

The company expects continued customer growth, average weather conditions, and no significant changes in regulatory policies to achieve its 2024 EPS guidance and long-term growth targets. The company also expects the renewable natural gas facilities to contribute to earnings and cash flow in 2025.

Management Comments

• The Company continues to perform well, said David H. Anderson, CEO of NW Natural Holdings.
• Our focus in 2024 is operating safe, reliable systems and executing on our capital plan, regulatory dockets, and growth opportunities.
• We remain focused on maintaining our systems and affordability for our customers.
• I'm confident our hard work this year positions us well for long-term growth and creating value for stakeholders.

Industry Context

This announcement reflects the ongoing challenges and opportunities in the utility sector, including regulatory pressures, the need for infrastructure investment, and the transition to renewable energy sources. The company's focus on water acquisitions and renewable natural gas aligns with broader industry trends towards diversification and sustainability.

Comparison to Industry Standards

• The company's customer growth of 1.9% is moderate compared to some high-growth utilities, but is solid for a mature market.
• The investment of $294 million in infrastructure is consistent with the capital expenditure needs of regulated utilities.
• The reaffirmed long-term EPS growth target of 4-6% is within the range of many established utility companies.
• The company's focus on renewable natural gas is in line with the industry's move towards decarbonization, but the scale of these projects is still relatively small compared to larger players in the renewable energy space.
• The regulatory lag impacting earnings is a common issue for regulated utilities, highlighting the importance of effective regulatory management.
• The company's dividend increase for the 69th consecutive year is a strong indicator of financial stability and commitment to shareholder returns, which is a key metric for utility investors.

Management Changes

Stakeholder Impact

• Shareholders will receive a quarterly dividend of 49 cents per share.
• Customers in Oregon will see an average increase of 4.7% in their residential bills due to new rates.
• Employees will benefit from a 6% pay increase for union employees.
• The company's investments in infrastructure and renewable energy aim to provide long-term benefits to the community.

Next Steps

• The company will continue to execute its capital plan and regulatory dockets.
• The company will focus on integrating the Puttman/ICH water acquisition.
• The company will complete the second investment in the renewable natural gas facility by the end of 2024.
• The company will continue to monitor and manage regulatory proceedings and outcomes.

Key Dates

Keywords

natural gas, renewable natural gas, water utility, earnings, EPS, regulatory, acquisition, dividend, infrastructure, growth