Q4 2020 MDU Resources Group Inc Earnings Call
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Hello, My name is Jason and I will be your conference facilitator today at this time I would like to welcome everyone to the MDU resources Group 2020 year and earnings results and 2021 guidance conference call. All lines have been placed on mute to prevent any background noise. After the.
Speakers remarks, there will be a question and answer period. If you would like to ask a question. During this time simply 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. This call will be available for replay beginning at five P. M Eastern time today.
Through 11, 59 P M Eastern time on February 18.
All of them for inside the number for the replay is seven 190 for three for again the conference I'd number for the replay is seven 190 for three for.
And the number to dial for the replay is 1855 <unk>.
8592, 056, or 140 for 5373 for zero six.
I would now like to turn the conference over to Jason Vollmer, Vice President and Chief Financial Officer of MDU Resources Group. Thank you. Mr. Vollmer you may begin your conference.
Thank you and welcome to our conference call covering our 2020 earnings results and 2000 and 'twenty. One guidance. This call is being broadcast live for the public over the Internet and slides will accompany our remarks.
You'd like to view of the slides. Please visit our website at www Dot MDU dot com and go to the events and presentations page under the investors tab. Our earnings news release is also available on our website.
During this presentation, we will make certain forward looking statements within the meaning of section 21 E of the Securities and Exchange Act of $19 30 for all.
Though the company believes that its expectations and beliefs are based on reasonable assumptions actual results may differ materially.
And for a discussion of factors that may cause actual results to differ please refer to item <unk> risk factors and our most recent form 10-K and 10-Q.
We will also reference EBITDA throughout this conference call, which is considered a non-GAAP financial measure for a reconciliation of EBITDA to net income. Please refer to the earnings release filed yesterday.
For our call today, I will discuss the key financial highlights and then turn the presentation over to Dave Goodin, President and CEO of MDU resources group. After Dave's remarks, we will open the line for questions.
In addition to David and myself members of our management team who are available to answer questions. Today are Dave Barney President and CEO of the Knife River Corporation.
<unk>, President and CEO of MDU construction services group.
Nicole <unk>, President and CEO of Cascade natural gas, Great Plains, natural gas Intermountain gas and Montana Dakota utilities.
Trevor Hastings, President and CEO of WBI energy, and Stephanie Barth, Vice President and Chief Accounting Officer, and controller of MDU resources.
Yesterday after market close we announced our 'twenty and 'twenty earnings of $392 million or $1 95 per share, which is the second best earnings results ever and our 97 year history. This compares to 2019 earnings of $335 $5 million or of $1 69 per share.
Earnings in the fourth quarter were $112 3 million or <unk> 56 per share compared to $95 1 million or <unk> 47 per share in 2019 that is an increase of 18%.
Thank you for river, our construction materials and contracting business earned a record $147 $3 million and 2020 up 22% from 2019 earnings.
This increase was driven by higher gross margins as a result of higher realized materials pricing and margins.
Pacifically margins for our asphalt and asphalt related products, which benefited from lower energy related costs and.
In addition, strong ready mixed concrete pricing in most markets and higher construction margins had a positive impact on earnings partially offset by higher selling general and administrative expense.
EBITDA for this business increased 18% to $304 9 million for 2020.
While the acquisitions previously closed on and contributed to the earnings and EBITDA growth not much of the.
Excuse me much of this increase was generated by organic growth of existing operations.
Turning to the other half of our construction platform MDU construction services group set a new revenue and earnings record for the third consecutive year.
Earnings increased 18% from 2019 earnings of 93 million to $109 7.002 million 20, and revenues increased 13% to $2 1 billion for the year.
EBITDA increased 19% to a record $173 1 million.
The earnings increase was the result of higher inside specialty contracting margins driven by strong demand and the high tech commercial and hospitality industries as well as higher outside specialty contracting margins from increased workloads and the utility space.
These increases were partially offset by higher selling general and administrative expense, including and increased reserve for uncollectible accounts and higher payroll.
Our regulated energy delivery platform also delivered strong results and 2020 with our combined utility business, earning $99 6 million up from $94 3.002 million 19.
Our electric segment reported earnings of $55 6 million compared to $54 8.002 million 19.
Driving this increase was for $4 million lower operation and maintenance expense, primarily due to lower generating station expenses, including the absence of of prior year planned outage at the Coyote generating station.
Other income increased during the year from and out of period adjustment of $1 9 million after tax related to previously overstated benefit plan expense, which benefited earnings.
Group rate relief was largely offset during the year by of three 3% decrease and electric retail sales volumes attributed to the COVID-19 pandemic and mild weather.
Higher depreciation depletion and amortization expense. The result of increased plant and equipment balances and higher interest expense were a partial offset to this earnings increase.
The natural gas segment reported earnings of $44 million up from $39 5 million and the prior year.
Retail sales margins increased as a result of approved rate recovery and several states.
And out of period adjustment of $2 $7 million after tax to the Companys benefit plan expense also contributed to the earnings increase.
Retail sales volumes decreased seven 4% during the year as a result of mild weather and COVID-19 impacts weather normalization and decoupling mechanisms largely offset the impact from decreased volumes.
Higher depreciation depletion and amortization against for implant asset additions as well as increased income tax expense, partially offset the increase in earnings.
The pipeline business reported $37 million for earnings and the year compared to earnings of $29 6 million in 2019.
The increase in earnings was largely the result of higher transportation and storage revenues from recently completed organic growth projects and strong demand for the company's gas storage services.
Higher transportation rates from a previously settled FERC rate case, and the divestiture of this business is a natural gas gathering assets also had a positive impact on earnings.
Operations and maintenance expense decreased year over year due to lower non regulated project costs, partially offset by increased payroll expenses.
The increase in earnings was partially offset by lower Nonregulated project revenues as well as higher depreciation from plant asset additions and higher depreciation rates from the FERC rate case previously mentioned.
In addition to the strong earnings performance provided by our businesses. This year, our consolidated EBITDA grew 14% to $856 7 million as we continue to execute on our growth plans.
Excuse me.
As we look forward to 2021, we plan to invest $826 million of capital expenditures back into our business. This year.
These investments include line of sight of opportunities for each of our business lines, such as investments and the natural gas distribution space, New electric generation and transmission investments the north Bakken expansion project and organic expansion of the construction businesses.
In the strategic acquisitions would be incremental to this investment amount.
Our balance sheet of strong and we expect operating cash flows and the range of 600 of $650 million to be the primary financing source for our capital plan in.
In addition, we currently intend to issue modest amounts of debt and equity to fill the remaining needs, including equity issuance of up to $100 million. During the 2021 time period through our ATM equity program.
I'll now turn the call over to Dave for his formal remarks David.
And thank you, Jason and good afternoon, everyone and thank you for joining US here this afternoon.
MDU resources had an outstanding year and 2020 with record results from both our construction materials and construction service companies and strong results from our regulated energy delivery businesses.
<unk> 2020 was a challenging year in many ways, but with our employees commitment to each other to our communities and to our customers. We were able to deliver solid performance, all while safely and effectively providing the essential services needed across the country.
Our strong two platform business model capable of providing sustainable growth and benefits to our shareholders proved it success throughout the year as our country experienced one of the most severe economic shocks and our history.
As we start 2021 and I'm excited for the opportunities in front of us to continue to execute on our growth strategy. While we continue to build the strong America.
We reported 2020 earnings of $1 95 per share compared to 2019 earnings of $1 69 per share and as Jason stated. These are the second best results and a 97 year history, only coming behind our 2007 results which benefited.
From gains on the sale of a major business unit.
Our utility companies reported strong earnings for 2020 throughout the year, We work day Institute several measures to protect our utility employees and customers from COVID-19.
Including suspending disconnects due to non payment of utility bills.
To date, we have reinstate of disconnect and a majority of our jurisdictions.
As a result of the pandemic and mild weather across our service territory. The utility experienced some impacts the commercial and industrial electric and natural gas loads.
To offset these impacts the utility business worked hard to implement cost containment and was able to successfully decrease operating expenses enough to offset in part the decreased retail sales volumes.
Looking at this year, we will retire our Lewis and Clark station, our wholly owned coal fired electric generating facility located near Sidney Montana here at the end of March.
And we continue to preparations to retire heskett, one and heska to coal fire stations and early 2022.
Which meaningfully reduces our coal exposure.
Currently the company is rate cases, pending before our regulatory agencies and for of our states of operation.
And looking forward, we continue to see solid customer growth and expect to grow our customer base between 1% and 2% annually. We were near the higher end of that range in 2020 with customer growth of one 8%.
We also expect rate base growth to grow 5% compounded annually over the next five years, primarily driven by investments and system infrastructure upgrades and replacements to safely meet customer demand.
And our pipeline business. We also had a very strong 2020 and for the fourth consecutive year, we transported record volumes of natural gas throughout its pipeline system.
This is really a direct result of the organic growth projects. The company completed in both 2019 and 2020.
During the year WBI exited the natural gas gathering businesses, which resulted in a $3 $1 million earnings benefit in 2020.
Debbie EBITDA is awaiting final regulatory approvals on the North Bakken expansion project and expects to begin construction and the second quarter with and in service date later this year.
This project will help to reduce natural gas flaring in the Bakken region and is designed to transport 250 million cubic feet of natural gas per day.
Long term take or pay customer contracts have been executed with support and support the need and the longevity of this project now.
Now turning to our construction platform.
Our construction materials business reported record earnings for 2020, beating the prior year by over 22%.
While revenues remained flat year over year EBITDA at this business increased 17% to $304 9.002 million 20.
This really showcase knife river's outstanding job of maintaining an efficient cost structure and growing profit margins.
The acquisitions completed over the last two years, continuing our 29 year strategy of building this business through a rate base acquisitions were accretive to earnings. However, the vast majority of the increase in earnings and 2020 was driven by organic growth.
Looking ahead, we plan to continually evaluating acquisition opportunities at this business of.
All of executing on our year end backlog, which now stands at $673 million.
The construction services group finished 2020 with its third consecutive year of record revenues record earnings and record backlog and.
We continue to see strong demand for both inside and outside specialty contracting work.
The inside contracting segment saw a strong demand and the high Tech industrial and hospitality industries drive increased workloads.
Outside contracting continues to see high volumes of work for utility customers across all market areas.
While organic growth at this business was the primary driver for increased year over year results. The acquisitions completed in 2019, and 2020 helped grow the company's footprint and market share as well.
We continue to evaluate additional acquisition opportunities for our construction and service companies.
And with full year revenues and the range of 2.1, we expect full year revenues and the range of two 1% to $2 3 billion for each of our construction services and construction materials businesses this coming year.
With margins comparable to or slightly higher than our 2020 levels at both businesses.
That completes our individual business unit discussion now looking ahead as an overall corporation.
We are initiating our 2021 earnings guidance to be and the range of $1 95 to $2 15 per share and now of added and EBIT guidance range, ranging from 875 million to $925 million on a consolidated basis.
As Jason Jason noted.
The acquisitions or divestitures are not included in the stated guidance and would be incremental to our 2021 guidance results.
MDU resources performed at record levels in 2020 and.
And I am optimistic, we're well positioned to produce significant long term value as we execute on our business plans and explore potential acquisitions, along with organic growth opportunities.
We continue to maintain a strong balance sheet solid credit ratings and a good liquidity position and for 83 consecutive years. We have continued to provide a competitive dividend to our shareholders all while increasing this dividend for the past 30 years.
As always MDU resources is committed to operating with integrity and a focus on safety, while creating superior shareholder value as we continue along our tagline of building a strong America.
I certainly appreciate your interest in and commitment to MDU resources and ask now that we open up the line for questions operator.
At this time I would like to remind everyone. If you would like to ask a question.
<unk> 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.
And the speaker phone and you just.
Pick up your handset before entering your request, we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Chris or the House from Siebert Williams. Your line is open.
Hey, everybody how are you.
Hi, Chris So we're doing well hope youre doing the same.
Everything's fine.
The margins are really quite exceptional, particularly at construction materials.
Last year.
And did mention.
Having some asphalt benefit.
From the low energy prices.
Sort of talk about whats your.
The thought process and is what youre seeing with making margin so exceptional and and.
And if you did have.
Our benefit.
Asphalt and.
And the oil prices, how do you see that play out this year and.
If the oil prices rising.
How might you be offsetting that elsewhere.
Sure, Chris I will ask Dave Barney to weigh in but just to clarify are you.
Is your question, referring to our margin specific to 2020 or because of the low energy prices in 2020, and the uncertainty of 2021, how are we thinking about our margins associated with our asphalt oil products and 'twenty one yes.
Yes, that's basically and the correct.
Okay perfect.
I'll call on Dave Barney, who is calling and remote but Dave can you.
Start with that response for Chris.
Yes, and I can David Hi, Chris.
Yes for asphalt related products because of the the oil ups and down and the beginning of the year of the pandemic.
Last year, we were able to buy asphalt oil at a better pricing and we got better margins on that so that really helped and that industry and net add.
Business and it helps with the hot asphalt and.
And we continue.
And moved pricing on our ready mix and aggregates.
And <unk>.
Different byproducts. So we can think we we think thats going to continue through 2021, not so much of announced oil prices have gone up but all of it.
The other product lines.
The continued to get price increases.
Okay. So.
You said you expect flat.
Slightly higher margin.
Given the.
You'd have some sort of the tailwind from the asphalt.
Net fills and that difference in 2021.
And just the aggregate pricing.
The aggregate and ready mix pricing increasing.
Yes, it will be increased and our.
Well, we're trying to increase our ass hot ex all mix.
We're always pushing prices higher.
<unk> line.
And right now David.
Statements sticking we've been getting them.
We were helped out to last year, and some of our margins by and the low field pricing.
Okay and.
And should we be expecting you ahead of.
And pretty extraordinary fourth quarter earnings wise, and you sort of warned us that you had.
The length and the <unk>.
Section season, but.
Should we be expecting that the construction season.
And it's been extended or is this really truly and our non.
Unusual fourth quarter.
Well, we can never predict what the weather's going to do from quarter to quarter, and usually that fourth quarter and can really make a great year for us.
And average year, and we had great weather.
The work longer and the.
And in November and December and some of our areas so that definitely helps.
Uh huh.
We've seen it happen before we saw somewhat of the same thing in 2019, so yes, the weather definitely helps.
Early and late Chris.
You can get out early and the weather cooperates and we get out early and we can work a little later and we have the work.
To work on and then later months.
That helps.
Okay and last question.
And I'm hearing that there's some pretty.
Significant construction work in California.
Are you seeing.
The unusually high levels.
Of state demand for construction of Mark.
Yes, California and looks strong.
<unk> been on.
California, and we're seeing the private side.
Houses and the residential subdivisions and.
We're excited about seeing the private side continues.
Warehouses, and and the Dod where there's quite a bit of DLT and work out there.
So the California looking strong.
Okay. Thanks, a lot I appreciate it thanks, Dan and welcome.
Yes, yes.
Yes. Thank you Chris I'll, just follow on Chris Dave talked about some of the extended season that we saw it that was helpful.
Somewhat offsetting that and certain markets and I think it points to our geographic diversity that day runs his business and 15 states and that we saw the wildfires out west actually had a negative effect and the business for parts of the fall.
And then the is the series of Hurricanes that affected the Gulf Coast actually had a negative effect too so, but I think rolling it all together net net benefit was the extended fall so very good thanks, Chris.
Thanks, David.
Okay.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound for you on your telephone keypad and you run the speakerphone. Please pick up your handset before entering your request for our next question comes from the line of Ryan.
Levine from Citi. Your line is open.
Hi, everybody.
Ryan.
Okay, and I guess, a couple of and start off on the North Bakken and what are the remaining milestones to start construction, there and given some of the stronger growth numbers out of the Bakken and recently.
Are there any active discussions to expand the existing customer contracts.
And add new customers to the expansion project.
Sure the great questions Ryan given it's the.
A major project for of WBI of this upcoming season, and I'll turn it over to Trevor to touch on both the parts of that question.
Oh.
Okay.
And Ryan Thanks.
Kind of a key milestone the.
The next key milestone will be obtaining our FERC certificate.
Which at this point, we would anticipate receiving by the end of the first quarter.
That would allow us to start construction early in the second quarter and bring the project in service.
By November 1st of this year.
In addition to the FERC certificate and theirs.
The number of permits that we need to get state and federally.
The other probably major key permits would be we've got a couple of U S core permits the 404 and 408 related to the more.
And then.
Utilizing nationwide permit 12.
As it relates to the Bakken rebound, yes the.
And the last report out of the state of the North Dakota, I think production has come back to just north of 80% of its peak on the oil side and on the gas side, it's actually up a little higher than that of 292% of its peak flows.
We continue to be in front of and contact with potential customers in the Bakken for expansion and as we've talked about before with that project the.
And it has the opportunity for expansion as we.
As we move forward beyond the 250.
And cubic feet of day, Dave mentioned on.
And lastly, it's.
And important project not just for us, but also it helps with the state of North Dakota gas capture targets of our flaring targets, if you will and helps.
Keep the state the lowest thresholds at its stated we're at nine are under 9% at this point and this project would help out with that as well.
Thank you.
And then I guess.
Maybe switching gears.
And part of the U S.
And then maybe which projects you are seeing the largest increase and construction materials backlog for this past quarter and have these trends continued so far in January.
Okay.
So Ryan your question is what parts of the U S are we seeing some of the pickup if you will that given that we closed our backlog on a year over year basis specific to materials I just wanted to make sure of capturing a question, yes correct. Okay.
Dave you want to touch on that $673 million of backlog and where we've seen the pickup associated with it.
Okay.
And if you're talking backlog, Ryan, we're seeing pickup and almost all of our regions.
And quite a bit of pickup and the south region.
Thank you and very well and the northwest region and western parts of our states.
And we're seeing backlog pick up almost through all of our regions.
And as far as you are talking about it for <unk>.
Seeing aggregate sales.
And our Idaho market, Montana, and or Oregon, and California, all did well and Lee.
Expect that to continue through 2021.
Okay, and then one on kind of more on the utility side, if the by the administration moves towards net zero of generation by 2035, do you expect of the any opportunities or headwinds for utility business.
Sure I'll ask Nicole to touch on that one Ryan.
Yes. Thanks for the question Ryan we are closely monitoring what's coming out there I mean, certainly you can see it and two categories right opportunity to build out and the renewable side, but also.
And I'm trying to make sure that we've got the appropriate reliability and the transmission infrastructure to get there. So.
As been said by the industry in total I think there is there is certainly some.
I would say thinking that that might be and aggressive timetable in terms of getting that transition complete and I would say that we would agree with the.
Some of the industry statements that have been made there so.
<unk>.
We'll have to wait and see it's early on and these discussions with BARDA and being pretty new here in the administration, but certainly it's something we're following very closely and again, we'll react accordingly.
Okay, along those lines.
Sorry, Ryan I would just add to nicole's comments that.
We have been obviously moving more of the renewable space and it's Barry we find that the economical we're fortunate that we live and are part of the country, where it is right in our backyard as well and so it gives us some options there, particularly associated with wind resources, but we're all watching very closely and the and stay tuned on this one.
Okay, and then of you're working on any initiatives around.
RMG for Youre on the fee business.
And also.
Any initiatives to support all of that are out of hydrogen.
Sure.
Good of coal to just comment briefly I would remind ryan that we've actually been and the RMG business with our own asset and the billings area for actually for.
While most of the dozen years now and so it's not anything brand new to us, but certainly it's getting more headlines here as of late and so.
And maybe Nicole can comment a little bit beyond that because we are seeing.
Interest and that particular, RMR western states from developers and others, but the call hope of it didn't steal all your comments.
Thank you, Dave So, yes, I would echo what David saying in terms of we currently have and LNG production facility out of landfill in Montana and and he mentioned that already in addition to that we are taking R&D from several locations and our Idaho market and the.
Then as the one would expect we are in.
Several conversations and particular out and our western states around more opportunities with respect to RMG.
We also have.
And then a part of the group looking at some of the R&D related to hydrogen as you bring that topic up as well and so very active and conversations and in particular like I set out and our western states as it relates to both R&D and hydrogen and so we haven't identified anything specifically and our capital program today, but are inactive.
The discussion.
Thank you appreciate it.
Thank you Ryan I appreciate the questions.
This marks the last call for questions. If you would like to ask a question. Please press Star then one of the one for telephone keypad. This call will be available for replay beginning at five P. M. Eastern time today through 11, 59 PM Eastern time on February.
The team.
The conference I'd number.
Replay seven and 190 for three for again the conference I'd number for the replay and seven 190 for three or four.
At this time there are no further questions I would now like to turn the conference back over to management for closing remarks.
Okay.
Well, thank everyone for taking the time to join US here on our 2020 earnings and 2021 guidance call today.
As noted in our comments 2020 and was really just and extremely strong year for our businesses. We were able to post record results. Despite all of the challenges presented throughout the year. We are committed to our tagline, which is building a strong America, along with being optimistic about the opportunities in front of us here in 2002.
One as well and as always we truly do appreciate your continued interest and MDU resources and thank you for participating here to date and with that we'll turn it back to the operator.
This concludes today's MDU resources Group conference call. Thank you for your participation.
Disconnect.
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