Q2 2020 MDU Resources Group Inc Earnings Call
In addition to David myself members of our management team, who will be available to answer questions today and are dialing in from multiple locations are.
Dave Barney President and CEO of Knife River Corporation, Jeff Thiede, President and CEO of MD, you construction services group, Nicole Kivisto, President and CEO of our utility group, Trevor Hastings, President and CEO of Wi Fi Energy and Stephanie Barth, Vice President Chief Accounting Officer, and controller of MD resources.
Yesterday, we announced second quarter earnings of $99.7 million or 50 cents per share compared to second quarter 2019 earnings of $61.8 million or 31 cents per share. This is an increase of 61% year over year.
Our combined utility business reported record second quarter earnings of 11.2 million a significant increase from earnings of 1.2 million in the second quarter of 2019.
The electric utility segment reported earnings of $12.2 million for the quarter compared to $7.5 million for the same period in 2019.
This earnings increase was largely result of a $4.6 million decrease in operation and maintenance expense, which includes the absence of of prior year planned outage at the Coyote station as well as lower payroll related costs.
The company also benefited from higher investment returns on certain benefit plans on the quarter.
The absence of a prior year write down on a non utility investment also had a positive impact on earnings.
Hi, residential electric sales drove an increase in the retail sales margins, which was partially offset by lower industrial and commercial sales volumes.
The increase in earnings was partially offset by higher depreciation depletion and amortization expense.
Our natural gas utility segment reported a seasonal loss of $1 million improved from a seasonal loss of $6.3 million for the same period in 2019.
Adjusted gross margin increased during the quarter as a result of weather normalization and conservation adjustments approved rate recovery and a 4.3% increase in retail sales volumes.
This increase in natural gas retail sales was driven by higher residential sales offset somewhat by lower industrial and commercial volumes.
Like the electric side higher investment returns on certain benefit plans and the absence of the prior year write down on a on a non utility investment. We're also beneficial in the quarter.
Higher depreciation depletion and amortization expense from increased property plant equipment balances, partially offset the decrease loss.
The pipeline business had earnings of 9 million in the second quarter compared to 7.1 million in the second quarter of 2019. This business saw increased revenues from its Demicks Lake line section 22 initial phase and Demicks Lake expansion growth projects, which were placed into service in late 2019 in early 2020.
As well as seeing strong customer demand for storage services in the quarter due to seasonal price differentials.
Higher investment returns on certain benefit plans also had a positive impact on this segment's earnings.
Turning now to our construction businesses construction services reported a record second quarter earnings of 27.9 million compared to 22.8 million in 2019.
This business also reported record second quarter revenues of $497.2 million up from second quarter 2019 revenues of $464.9 million.
Demand for Crunch construction services remains high for both inside and outside specialty contracting inside specialty contracting was busy with hospitality data center and commercial work and the outside contracting workloads increase from high demand in the utility industry.
Increased workloads are partially offset by higher selling general administrative costs.
Primarily payroll related as this business operated at record employment levels levels for the second quarter.
Our construction materials business also reported record results for the second quarter with 53 million and earnings up 82% from the prior years $29.2 million.
Revenues were also a record for the second quarter at 621.1 million compared to $596 million for the same period in 2019.
The increase in earnings was driven by higher contracting and materials margins and revenues.
Favorable weather across this business is footprint allowed for higher product sales and the ability to work through more backlog than typical for the second quarter, which drove the increase in margins.
Turning to this segment also benefited from higher investment returns on certain benefit plans.
While these higher investment returns on benefit plans positively affect earnings for all segments. The combined impact is only 6.2 million or 16% of the 37.9 million increase in earnings from quarter to quarter.
All business lines successfully contained operating costs and continued providing essential services to our customers. During this unprecedented time.
And we were also able to deliver exceptional year over year earnings growth.
That summarizes the financial highlights from the quarter and now I'd like to turn the call over to Dave for his formal remarks.
Well, thank you Jason and thank you to everyone listening for spending your time with us today and for your continued interest in AMDR resources.
We hope that everywhere, there is safe and healthy.
I want to start out by saying, Thank you two or more than 15000 employees for making this a very successful quarter.
Our financial results, which we released yesterday show the continued strength of our two platform business model and underscores our ability to continue providing essential services across our business lines. During this challenging economic times.
[music].
Given the strong performance that we saw the quarter with record revenues at both construction companies near record combined construction backlog and the excellent results from our regulated energy delivery companies. We are raising our earnings per share guidance for 2022, now a range of $1.65 to.
$1.85 per share.
Looking at our forecast for the remainder of 2020 and our performance in the second quarter. We're also raising revenue guidance for both construction services and construction materials as well as reinstating margin guidance. We now expect construction services to end the year with revenues in a range for.
1.9 billion to 2.1 billion with margins comparable to 2019 levels.
And construction materials revenues now in a range of 2.2 billion to $2.4 billion with margins actually slightly higher than what we saw in 2019.
Turning to the regulated energy delivery platform, our utility business filed several regulatory cases to record cost incurred associated with providing safe and reliable electric and natural gas service to our now 1.13 million customers.
We continue to see strong customer growth across our service territory in fact on a year over year basis customer growth has been slightly higher than 2%.
During this quarter the utility received approval from the Montana Public Service Commission to defer accounting costs related to the closure of our Lewis and Clark and has good electric generating facilities.
We announced the closure of these two facilities at the beginning of 2019, along with our intent to build and 88 megawatt natural gas fired electric generating facility.
And just this morning, the North Dakota Public Service Commission approved at all party settlement on our applications relating to the deferred accounting order relating to the costs associated with retiring the current facilities along with the advanced determination of Prudence filing related to the 88 megawatt Heskett forest.
Patient.
In response to the Corona virus pandemic, the utility filed with public service commissions in all eight states a request to defer accounting for costs related to the crisis and as received approval from Idaho, Minnesota and Wyoming to date.
Natural gas General cases were also filed in the states of Montana, and Washington during the quarter requesting increases of 13.4% and 5.3% respectively.
At our pipeline business. We also had a great second quarter, showing the success of our organic growth projects.
This business also benefited from increased volumes of natural gas being transported to our storage facilities as customers took advantage of seasonal commodity price differentials.
The company continues to work on the planning and the regulatory filings required for the north bike and expansion project in Western North Dakota, and we expect construction to begin on this project early in 2020 Watt.
In July this business filed with the Federal Energy Regulatory Commission and amendment to its application for this project.
Revised forecast for Bakken natural gas production show slower growth. So we have decided to decrease the initial design capacity to this project to now 250 million cubic feet per day simply by reducing compression.
Which in turn reduces the anticipated capital expenditures for the project.
The size of the pipe used for this project will remain the same allowing us to scale up capacity by increasing compression as Bakken production rebounds, we expect this project to be in service in late 2021.
Now I'd like to move on to construction.
Our construction services group had simply an outstanding second quarter as demand for both inside and outside specialty contracting remains strong.
CSG reported record revenues record earnings and record backlog, all while working under modified conditions to protect the health and safety of our employees and customers during the pandemic.
While this business did see slowdowns on a handful of projects as it relates to co bid 19.
The strong demand that we have for it services has kept our crews working and we've already added to our backlog.
CSG ended the quarter with a record 1.31 billion in backlog showing the strength of the bidding opportunities across this businesses footprint.
As a reminder, we are increasing revenue guidance at this business to now a range of 1.9 to 2.1 billion with margin is comparable to 2019 levels.
And finally, our largest contributor to earnings for the quarter is our construction materials business.
This business like construction services reported record revenues and earnings in the second quarter.
Favorable weather across this business as markets allowed the company to begin work on projects earlier, thus working through more backlog then typically completed in the second quarter.
The goodweather paired with recent acquisitions drove more product sales and in turn resulted in higher margins construction materials backlog at June Thirtyth stood at 875 million and is the second highest on record falling short only of last year's record second quarter.
A backlog of one point, all 4 billion.
We have seen a decline in a number of new projects awarded in the quarter, which we believe stems from economic uncertainty as a result of Cove at 19.
While bidding out new projects has been challenging under pandemic related working conditions.
We are excited about the opportunities in front of this business and the strong bidding opportunities we see going later into this construction season.
So to bring all of this together we had a very strong performance across all business lines here in the second quarter.
While we continue to navigate through the changing in challenging times as it relates to covert 19 and its response, we have been able to continue provide the essential services to support the infrastructure that our nation needs. Our workforce has also grown over the last quarter and as of June Thirtyth, we are actually at Rex.
Third employment levels for the corporation with 15247 employees nearly 1000 employees higher than at this same time last year.
It is this type of growth than our companies that allows us to continue building a strong America.
As always MD resources is committed to operating with integrity, along with a focus on safety, while creating superior shareholder value as we continue providing essential services to our customers.
I certainly appreciate your interest in and commitment to empty resources and asked now that we open the line to questions operator.
At this time I would like to remind everyone. If you would like to ask your question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key on your telephone keypad.
You are honest speakerphone, please pick up your hands that before entering request.
Pause for just a moment to compile today roster.
Our first question comes from the line of Chris Ellinghaus Siebert William.
Hey, everybody.
Hey, doing great how are you a chris.
Good.
But should we think about second quarter for construction materials.
If you had a jump start as the weather.
Should we be thinking about you've shifted some from the third quarter.
That give you extra capacity to go a work in the third quarter.
How should we be thinking that.
Construction.
Sure, Chris I'll ask Dave Barney to touch on that Dave.
Hi, Chris.
Yes, we did get out too.
Second quarter, but.
You see we have that record second best record backlog.
Going into that third quarter. So we definitely have capacity to do more work.
And last year in September we had quite a bit of rain that affected some of our regions. So we're excited about the third quarter. We're excited about.
This year.
It looks good for as far as Peter.
It looks like the weather's been pretty cooperative in July is that the ways.
Absolutely.
No effect from the weather.
Okay.
It looks like there's been some slowdown in in your ability to add back to back [noise].
In the quarter is that it does that date.
Jerry constrained because.
Hain is that commercial activity would you give us a little color on that.
Hi, really Kristen.
We burned through.
More backlog in the second quarter, because the favorable weather.
Pretty much saying, we don't view a lot of bidding.
In the second and third quarter. Most typically most of our bidding starts in January and February for next year will burn through most of our backlog that we have right now.
Probably about 20% that carries over to next year, but.
We've seen a few jobs.
Handful or delay, but not that many right.
Okay great.
Can you can you give me a little color.
What you're seeing in Vegas market is there some slowdown in.
Specter projects there from obviously, they've got some revenue problems.
Yes. Thank you Chris will turn it over to Jeff Thiede to touch on the CSG businesses in that Vegas market Jeff.
Thanks for the question, Chris we're very busy in Las Vegas.
Hours are up and we have quite a bit of backlog up 30% of our backlog is the biggest market we're working on.
Of course the hospitality.
Work, but also mission critical work and we just finished up the Allegion football Stadium on a fire protection side and then the headquarters practice facility on the mechanical side. So an example of our diversified business.
There has been a project that we were involved in it was not in our backlog that get postponed indefinitely and there's another project that we.
Have reduced our workforces temporarily looking for that job to restart.
Okay.
And one last thing some states are looking to accelerate some infrastructure spend to stimulate dairy local economies can you talk about what you've been hearing from your various states in terms of there.
Dire too.
The utilities.
Sort of economic stimulus.
Yeah, Chris Oh, the calls here with us so she can touch on that I know, Minnesota is one of the states that you're touching you're talking about.
So Chris Don just to clarify from utility perspective, I'm not sure if youre asking it from a broader perspective, but I will certainly answer on behalf of the utility.
We have seen that coming out as I have our eight states in particular, Minnesota has highlighted that and you've probably seen some of our peer companies do some announcements on that certainly when we look at our Minnesota operations were obviously, a smaller player in that state, but we are doing what we can do accelerate a few into projects that we have in that area and coming.
To the capital that we had already budgeted in that state. We are currently in an active rate case and that stayed as well so hopefully that answers your question from utility perspective.
I'm just curious whether.
So not the only state.
Done this before I'm, just curious whether it's spreading to some of your other jurisdictions or whether.
You want to recommend.
Coming to that so many other state.
Yes.
Yes from that from the utility specific specific perspective, we havent seen a whole lot of other activity in some of our other state so and are we pushing it might be your other other question that you're answering asking.
As we look at our capital program, we've got a fair amount in the pipeline already Chris and we obviously as we think about the economic environment that we're in we're doing our best to manage as we think about what the impact to some of these capital programs might be for our customers and so it's certainly were well what we're well aware of that.
Matt and doing what we can to continue to invest in the communities and manage our capital. Accordingly, So again no I would just in summary, say not a significant impact than any of our other state.
Chris I'll jump in and ask Jeff Thiede to comment, but certainly we got utility customers as it relates to our CSG lines of business anything to add there Jeff from our outside line business that we would see from or utility clients there.
Yes, we're seeing continued strong demand for our services and the.
Transmission distribution.
Our gas.
And also communications.
Our our employment levels are up with all of our businesses, we have strong forecast for these businesses.
As we continue to see demand for our services with our utility customers.
Okay. Thanks, everybody I appreciate your color.
Yep. Thank you Chris I appreciate your calling in.
Once again, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Ryan Levine of Citi.
Hi, good afternoon.
Hi, Ryan good afternoon.
And when does the legal challenges for some of the other Bakken pipeline can you comment on the current key milestones for getting back to the extent expansion in service Valuate 21 target.
Sure Ryan Trevor Hastings is with us today as Trevor to touch on that one.
Sure.
The I think the primary challenge that we had run into as the Montana District Court ruling on the Keystone XL project, which had.
Basically remove the nationwide permit 12.
For new gas and oil pipelines in early July I think it was July six the Supreme Court basically overturned bad so that the ruling just.
Resulted in a stay on Keystone XL, but opened up the nationwide permit 12 to the two new oil and gas pipelines. So from that standpoint, it put back in place that as an option which is the.
Permit we typically used on our projects. Our timeline is we have filed with FERC.
Earlier this year, we filed the amendment as referenced in Dave's notes in the earnings release here last week, and we'll be making our permit filing.
I think it's in the next one to two months probably line and then really it from that point. Our FERC approval is in the next main approval or certificate to proceed and so that should be in early 2021, and then construction wouldn't be again sometime in the spring time frame.
Okay, no legal challenges as head of the FERC process.
And your perspective.
Not at this point in time no.
Okay.
Switching gears, what's your current volume growth outlook for aggregate in the second half the year, that's embedded in guidance and why.
Hi, Joe the.
A material change in construction and guidance from three months ago.
You are talking in the construction materials space correct, Ryan you broke up just a little bit there.
Yes, and construction materials, specifically in the aggregate volume outlook.
Dave Barney could you address that.
Yes, Hi, Ryan.
Okay aggregate volume outlook for the rest of the here so when you're talking about.
Correct.
Okay Yeah.
And then being about where we were last year as far as area.
Not a big increase and and.
Additional volumes.
I am pretty steady so we are getting price increases on our aggregate. So that's definitely helping the margins.
Oh, Hey.
In terms of the in place that drove the guidance revision.
Division.
On the guidance last quarter is it primarily a pricing outlets difference or a volume outlook difference or whether are there other factors at play.
Well I think it had a lot to deal with the we had.
Record second quarter, so that definitely helped with.
With that our second strong as backlog going into the third quarter.
Was that played a part two.
Right right.
Okay, and then in terms of contribution.
Yeah on EBITDA from acquisitions, that's embedded in in that division.
The way to break that out or write any color if that way.
A factor.
In year over year comparison.
Yeah.
I don't have definitely numbers on there Ryan but to the new they know companies and acquisitions played a very small part most of the.
Came from existing company.
Okay, great. Thank you.
Thank you.
Thank you Ryan.
This marks the last call for questions. If you would like to ask a question Press Star then the number one on your telephone keypad again this call will be available for replay beginning at five PM Eastern time today through 11, 59 PM Eastern time on August 19.
The conference I'd number for the replay is 8684 or 589.
Again, the conference I'd number for the replay is 64 or 589.
At this time there are no further questions I would now like to turn the conference back over to management for closing remarks.
Well I'd like to thank you for taking the time to join US on our second quarter earnings call here today. As a reminder, we were able to post record results at our businesses, while all working under modified conditions as it relates to the cobot 19 pandemic.
Given our strong results from the first half of the year, we've increased our earnings per share guidance range to now to $1.65 to $1.85 for 2020, along with having reinstated guidance barges at both of our construction businesses.
Thank you again for taking the time to join US on the second quarter earnings call and we do appreciate your continued interest and the support of MTO resources and with that I'll turn this back to the operator.
Thank you. This concludes today's Andy you Resources Group Conference call. We thank you for your participation you may now disconnect.