8-K: NW Natural Holdings Reports Net Loss in Second Quarter, Reaffirms Full-Year Guidance

Northwest Natural Holding Company reported a net loss of $2.8 million for the second quarter of 2024, but reaffirmed its full-year earnings guidance.

Summary

• Northwest Natural Holding Company (NWN) reported a net loss of $2.8 million, or $0.07 per share, for the second quarter of 2024, a decrease from a net income of $1.2 million, or $0.03 per share, in the same period of 2023.
• For the first six months of 2024, the company's net income was $61.0 million, or $1.60 per share, compared to $72.9 million, or $2.03 per share, for the same period in 2023.
• The decrease in net income is primarily attributed to regulatory lag, higher depreciation from system investments, and increased pension expenses.
• NW Natural added nearly 16,000 gas and water utility connections in the last 12 months, representing a combined growth rate of 1.8% as of June 30, 2024.
• The company signed an agreement to acquire Puttman and ICH water, adding 4,200 customers and expanding its water utility portfolio.
• NW Natural reaffirmed its 2024 earnings guidance in the range of $2.20 to $2.40 per share and a long-term earnings per share 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 income, but this is balanced by the reaffirmed guidance and growth initiatives. The regulatory lag and increased expenses are concerning, but the company is taking steps to address these issues.

Positives

• NW Natural added nearly 16,000 gas and water utility connections in the last 12 months, showing growth in customer base.
• The acquisition of Puttman and ICH water will add 4,200 customers and expand the company's water utility portfolio.
• The company reaffirmed its 2024 earnings guidance, indicating confidence in its financial outlook.
• The long-term earnings per share growth target of 4% to 6% was also reaffirmed, showing a positive outlook for future growth.
• The company declared a quarterly dividend of 48.75 cents per share, providing returns to shareholders.

Negatives

• The company reported a net loss of $2.8 million for the second quarter of 2024, a decrease from a net income of $1.2 million in the same period of 2023.
• Net income for the first six months of 2024 decreased by $11.9 million compared to the same period in 2023.
• The decrease in net income is primarily due to regulatory lag, higher depreciation, and increased pension expenses.
• Operating cash flows decreased from $297.9 million to $246.1 million for the first six months of 2024 compared to 2023.

Risks

• Regulatory lag is impacting earnings due to increased investments in the system and higher depreciation expenses.
• Increased pension expenses are negatively affecting the company's profitability.
• The company's 2024 earnings per share guidance is not fully aligned with its long-term growth target due to regulatory lag.
• Warmer weather in the first six months of 2024 compared to 2023 reduced margin by $4.5 million.
• Lower commodity price volatility and higher than estimated gas costs during a cold weather event in January 2024 resulted in a $1.6 million decline in gains on the Oregon gas cost incentive sharing mechanism.

Future Outlook

The company expects a loss in the range of -$0.74 to -$0.86 per share in the third quarter of 2024 and earnings in the range of $1.43 to $1.63 per share in the fourth quarter of 2024. The company reaffirmed its 2024 earnings guidance and long-term growth targets.

Management Comments

• The Company continues to perform well, and we're on track for the year.
• Our focus for 2024 is operating safe, reliable systems and executing on our capital plan, regulatory dockets, and growth opportunities.
• I'm happy to report that we're making good progress on all fronts.
• Related to growth, I'm excited that we've signed an agreement to acquire Puttman and ICH.
• Tom Puttman and his team have a proven track record of leadership and a strong pipeline of water expansion opportunities for years to come.

Industry Context

The results reflect the challenges faced by regulated utilities, including regulatory lag and the impact of weather on demand. The company's focus on water acquisitions and renewable energy initiatives aligns with broader industry trends towards diversification and sustainability.

Comparison to Industry Standards

• The regulatory lag impacting NW Natural's earnings is a common issue for regulated utilities, particularly those with significant capital investment programs, similar to companies like Consolidated Edison (ED) and Sempra Energy (SRE).
• The company's customer growth of 1.8% is moderate compared to some high-growth water utilities like American Water Works (AWK), which often see higher growth rates through acquisitions and organic expansion.
• The reaffirmed long-term EPS growth target of 4-6% is within the range of many established utility companies, but may be lower than some growth-oriented renewable energy companies.
• The company's focus on renewable natural gas and water acquisitions is similar to strategies employed by other utilities seeking to diversify their portfolios and address environmental concerns, such as NextEra Energy (NEE) and Xcel Energy (XEL).

Management Changes

Stakeholder Impact

• Shareholders may be concerned about the net loss and decreased income, but reassured by the reaffirmed guidance and dividend.
• Employees may be affected by cost-saving initiatives and changes in personnel costs.
• Customers will benefit from the expansion of services and continued investment in infrastructure.
• Suppliers may see changes in procurement due to the company's focus on renewable energy and water acquisitions.
• Creditors may be impacted by changes in the company's debt levels and cash flows.

Next Steps

• The company will continue to execute its capital plan and regulatory dockets.
• The company will focus on integrating the Puttman and ICH water acquisitions.
• The company will continue to pursue growth opportunities in both gas and water utilities.
• The company will work through the Oregon general rate case, with new rates expected to be effective on November 1, 2024.

Key Dates

Keywords

Earnings, Net Loss, Regulatory Lag, Water Acquisition, Earnings Guidance, Natural Gas, Utility Connections, Dividend, Depreciation, Pension Expense