MDU Resources Reports First Quarter Earnings, Affirms EPS Guidance

BISMARCK, N.D., May 4, 2022 /PRNewswire/ -- MDU Resources Group, Inc. (NYSE: MDU) today reported first quarter earnings of $31.7 million, or 16 cents per share, compared to first quarter 2021 earnings of $52.1 million, or 26 cents per share.

"We have a solid start to the year with higher revenues at all our businesses, including record revenues at our construction businesses. Although we continue, as expected, to experience inflationary headwinds, we remain optimistic about 2022 with an all-time record combined backlog of work at our construction companies and growth projects underway at our regulated energy delivery businesses," said David L. Goodin, president and CEO of MDU Resources. "With good operational momentum and pricing increases primed to be impactful as construction season heats up, we are increasing revenue guidance for our construction materials business and maintaining our earnings per share guidance of $2.00 to $2.15 for 2022."

Business Unit Highlights
Regulated Energy Delivery
The electric and natural gas utility earned $47.6 million in the first quarter, compared to $46.9 million in the first quarter of 2021. Natural gas sales volumes increased 9.0% and electric retail sales volumes increased 2.5% compared to first quarter 2021. In March, the company filed a multi-party natural gas rate settlement with the Washington Utilities and Transportation Commission that would increase annual revenue approximately $10.7 million, which is approximately 4% higher than current rates. A hearing on the settlement is set for June 1. In the first quarter, the company ceased operating its last wholly owned coal-fired electric generation facilities and in the second quarter will begin constructing an 88-megawatt simple-cycle natural gas-fired combustion turbine in Mandan, North Dakota, that is expected to be in service in the first half of 2023.

Earnings at the pipeline business were $7.3 million in the first quarter of 2022, compared to a record $8.9 million in first quarter 2021. The decrease in earnings primarily reflects higher operating expenses and lower storage-related revenue. The company benefited in the quarter from its North Bakken Expansion project, which was placed into service Feb. 1 and has capacity to transport 250 million cubic feet of natural gas per day. The company continues work on a number of other pipeline expansion projects across its system, including the previously announced Wahpeton Expansion in southeastern North Dakota that is expected to be in service in 2024, pending regulatory approval. It also has entered into long-term customer agreements for four additional projects, three of which are dependent on regulatory approvals. These projects are anticipated to be completed in 2022 and 2023 and will add incremental natural gas transportation capacity of more than 300 million cubic feet per day.

Construction Materials and Services
The construction services business had record revenues of $552.6 million in the first quarter resulting in earnings of $21.3 million, compared to revenues of $518.5 million and record earnings of $29.8 million in first quarter 2021. While the company had a larger volume of utility-related transmission and distribution work in first quarter 2022 compared to first quarter 2021, it had less storm-related, higher-margin repair work. Within its electrical and mechanical operations, the company had a larger volume of work, particularly renewable- and commercial-related projects, while seeing a decrease in industrial-related margins. Construction services backlog increased 31% over the prior year, with an all-time high of $1.67 billion at March 31, compared to $1.27 billion at March 31 last year. A number of these projects are getting underway and are expected to contribute to 2022 results.

The construction materials business had a seasonal loss of $40.0 million in the first quarter, compared to a seasonal loss of $30.8 million in first quarter 2021. Although the business had record first quarter revenues of $310.0 million, the higher sales were offset by higher operating expenses, including fuel, materials and labor costs. The company has increased and continues to increase pricing to offset higher operating expenses. It expects to see greater benefit from these price increases as construction season gets underway and sales volumes ramp up, particularly across the company's seasonally impacted northern U.S. operations. The construction materials backlog of work increased 15% to $940 million at March 31, compared to $819 million at March 31 last year.

Additional Highlights
Each of MDU Resources' businesses saw lower returns on certain benefit plan investments in the first quarter, collectively having a negative earnings variance of approximately $6.2 million compared to first quarter 2021. The company attributes this change in investment returns to significant fluctuations in the financial markets.

Guidance
MDU Resources expects earnings per share in the range of $2.00 to $2.15 in 2022, based on these assumptions:

• Normal weather for the remainder of 2022, including precipitation and temperatures, across all company markets.
• Continued availability of necessary equipment and materials.
• Pricing increases offsetting inflationary pressures at its construction businesses.
• Electric and natural gas customer growth continuing at a rate of 1-2% annually.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations in the range of $900 million to $950 million.
• Construction materials revenues in the range of $2.45 billion to $2.65 billion, with margins slightly lower than 2021, and construction services revenues in the range of $2.2 billion to $2.4 billion, with margins comparable to 2021.

The company plans to invest $770 million for capital projects in 2022. The capital program is expected to be largely funded from operating cash flows in the range of $550 million to $600 million. Future acquisitions are not included in this amount and would be incremental to the capital program.

Corporate Strategy
MDU Resources' strategy is to deliver superior value with a two-platform model of regulated energy delivery and construction materials and services, while pursuing organic growth opportunities and strategic acquisitions of well-managed companies and properties. The company, on a consolidated basis, anticipates 5-8% long-term compound annual growth on earnings per share.

Conference Call
MDU Resources will discuss first quarter results on a webcast at 2 p.m. EDT May 5. The event can be accessed at www.mdu.com. Webcast and audio replays will be available through May 19 at 855-859-2056, or 404-537-3406 for international callers, conference ID 2188415.

About MDU Resources
MDU Resources Group, Inc., a Fortune 500 company and a member of the S&P MidCap 400 and the S&P High-Yield Dividend Aristocrats indices, is Building a Strong America® by providing essential products and services through its regulated energy delivery and construction materials and services businesses. For more information about MDU Resources, visit www.mdu.com or contact the Investor Relations Department at [email protected].

Media Contact: Laura Lueder, manager of communications and public relations, 701-530-1095
Financial Contact: Jason Vollmer, vice president and chief financial officer, 701-530-1755

Forward-Looking Statements

The information in this news release highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries and other matters for each of the company's businesses. Many of these highlighted statements and other statements not historical in nature are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations are based on reasonable assumptions, there is no assurance the company's projections, including estimates for growth and financial guidance, will be achieved. Please refer to assumptions contained in this news release, as well as the various important factors listed in Part I, Item 1A - Risk Factors in the company's most recent Form 10-K and subsequent filings with the SEC.

Changes in such assumptions and factors could cause actual future results to differ materially from growth and financial guidance. All forward-looking statements in this news release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. The company does not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.

Throughout this news release, the company presents financial information prepared in accordance with GAAP, as well as EBITDA and EBITDA from continuing operations, which are considered non-GAAP financial measures. The use of these non-GAAP financial measures should not be construed as alternatives to earnings, operating income or operating cash flows. The company believes the use of these non-GAAP financial measures are beneficial in evaluating the company's financial performance due to its diverse operations. Please refer to the "Non-GAAP Financial Measures" section contained in this document for additional information.

Performance Summary

Forecasted capital expenditures include line-of-sight opportunities at the company's business units, with a focus on infrastructure development and grid safety, reliability and resiliency. Future acquisitions would be incremental to the outlined capital program.

Non-GAAP Financial Measures
The company, in addition to presenting its earnings in conformity with GAAP, has provided non-GAAP financial measures of EBITDA by operating segment, EBITDA from continuing operations and 2022 EBITDA guidance from continuing operations. The company defines EBITDA as net income (loss) attributable to the operating segment before interest; taxes; and depreciation, depletion and amortization; and EBITDA from continuing operations as income (loss) from continuing operations before interest; taxes; and depreciation, depletion and amortization.

The company believes that these non-GAAP financial measures are useful to investors by providing meaningful information about operational efficiency compared to the company's peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. The company's management uses the non-GAAP financial measures in conjunction with GAAP results when evaluating the company's operating results internally and calculating compensation packages. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies' non-GAAP financial measures having the same or similar names. The presentation of this additional information is not meant to be considered a substitution for financial measures prepared in accordance with GAAP. The company strongly encourages investors to review the consolidated financial statements in their entirety and to not rely on any single financial measure.

The following tables provide a reconciliation of consolidated GAAP net income to EBITDA from continuing operations for actual as well as forecasted results. The reconciliation for each operating segment's EBITDA is included within each operating segment's condensed income statement.

The electric business reported net income of $11.3 million in the first quarter of 2022, compared to $10.7 million for the same period in 2021. This increase was the result of higher retail sales driven by a 2.5% increase in electric retail sales volumes, primarily higher residential sales because of colder weather, and higher transmission revenues. Partially offsetting the increase were lower investment returns of $1.2 million on certain benefit plans. The previous table also reflects the pass-through of higher electric fuel and purchased power costs, which are included in both operating revenues and electric fuel and purchased power, and the pass-through of higher production tax credits driven by higher wind production during the quarter, which are included in both operating revenues and income tax benefit.

The electric business's EBITDA increased $1.2 million in the first quarter of 2022, compared to 2021, primarily the result of higher retail sales margins partially offset by lower investment returns on certain benefit plans, as previously discussed.

The natural gas distribution business reported net income of $36.3 million in the first quarter of 2022, compared to $36.2 million for the same period in 2021. This business benefited from higher natural gas retail sales from approved rate relief in certain jurisdictions and a 9.0% increase in retail natural gas sales volumes across all customer classes, which was partially offset by weather normalization and decoupling mechanisms. These increases were further offset, in part, by higher operation and maintenance expense, including increased payroll-related, contract services and software costs. Lower investment returns of $2.3 million on certain benefit plans also had a negative impact on the quarter. The previous table also reflects the pass-through of higher natural gas costs, which are included in both operating revenues and purchased natural gas sold, and the pass-through of revenue-based taxes, which are included in both operating revenues and taxes, other than income.

The natural gas distribution business's EBITDA increased $300,000 in the first quarter of 2022, compared to 2021, primarily the result of higher retail sales margins partially offset by higher operation and maintenance expense and lower investment returns on certain benefit plans, as previously discussed.

The pipeline business reported net income of $7.3 million in the first quarter of 2022, compared to $8.9 million for the same period in 2021. The decrease reflects lower storage-related revenues, higher operation and maintenance expense and lower investment returns of $550,000 on certain benefit plans. The business benefited from increased transportation revenues due largely to the demand associated with the North Bakken Expansion project offset in part by depreciation expense.

The pipeline business's EBITDA decreased $300,000 in the first quarter of 2022, compared to 2021, primarily from higher operation and maintenance expense and lower investment returns on certain benefit plans partially offset by higher revenues, as previously discussed.

The company expects to complete an estimated $1.42 billion of backlog on record at March 31, 2022, within the following 12 months.

The construction services business reported net income of $21.3 million in the first quarter of 2022, compared to $29.8 million for the same period in 2021. Results were impacted by lower margins due to the timing and mix of projects in the quarter. Transmission and distribution operations performed less storm-repair and fire-hardening power line work than in the prior year, which is typically higher-margin work. Electrical and mechanical operations had lower industrial margins due to the timing of projects, offset in part by increased commercial margins.

Record revenues during the quarter reflect higher workloads in several areas. Transmission and distribution experienced higher utility workloads, primarily in the distribution and electrical sectors. This increase in utility work was partially offset by lower electric transportation workloads, largely traffic signalization and street lighting projects. Electrical and mechanical experienced an increase in renewable projects, largely from commercial customers; higher commercial workloads; increased service work for the repair and maintenance of electric systems; and increased institutional project demand in the education and government sectors. Lower industrial revenues reflect the absence of a significant project completed in the prior year. Increased commercial workloads were partially offset by the timing of hospitality-related projects.

The construction services business's EBITDA decreased $11.0 million in the first quarter of 2022, compared to 2021, primarily a result of lower margins, as previously discussed.

The construction materials and contracting business's backlog was $940 million at March 31, 2022, compared to backlog at March 31, 2021, of $819 million. The company expects to complete an estimated $887 million of backlog on record at March 31, 2022, within the following 12 months.

The construction materials and contracting business reported a seasonal loss of $40.0 million in the first quarter of 2022, compared to a seasonal loss of $30.8 million in the same period in 2021. Negatively impacting results across all product lines were higher fuel, repair and maintenance, and labor-related costs, offset somewhat by increased average product pricing. Contracting services had lower margins as a result of the mix of work performed in the quarter while revenues were higher due to favorable weather, timing of work, contributions from businesses acquired, and strong demand in some regions. The asphalt product line experienced lower margins on sales growth of 27% due to the increased costs previously mentioned. Ready-mix concrete margins were negatively impacted by less bad debt recovery while revenues increased 7.8% mainly due to higher average product pricing. Also negatively impacting the quarter was higher selling, general and administrative expense as a result of increased payroll-related costs, less bad debt recovery and higher office expenses, as well as lower investment returns of $1.7 million on certain benefit plans.

The construction materials and contracting business's EBITDA decreased $6.6 million in the first quarter of 2022, compared to 2021. The decreased EBITDA was the result of lower materials and contracting margins and higher selling, general and administrative expenses, as previously discussed.

Other experienced higher operation and maintenance expense in 2022 related to a loss on the disposal of assets. Premiums for the captive insurer were higher in 2022 compared to 2021, which impacts both operation and maintenance expense and operating revenues. The net loss for Other also reflects income tax adjustments related to the consolidated company's annualized estimated tax rate. General and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income (loss) from discontinued operations also are included in Other.

SOURCE MDU Resources Group, Inc.