Q2 2025 MDU Resources Group Inc Earnings Call
Hello, my name is Sylvie, and I will be your conference facilitator. I would like to welcome everyone to the MDU Resources Group, Inc. Q2 2025 earnings conference call. Please note that all lines have been placed on mute to prevent any background noise.
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I would now like to turn the conference over to Jason Vollmer, Chief Financial Officer of MDU Resources Group. Thank you, Mr. Vollmer. You may begin.
Thank you, operator, and welcome everyone to our second quarter 2025 earnings conference call.
You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the Investors tab.
Meeting today's discussion with me is Nicole Kivisto, President and CEO of MDU Resources Group.
During the call we'll make certain forward-looking statements within the meaning of federal Securities laws. For more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statements, please refer to our most recent SEC filings.
I'll begin by providing consolidated financial results. Excuse me. I will provide consultative answers later during the call. Uh, but first, we'll turn the call over to Nicole for her formal remarks. Thank you, Jason, and thank you everyone for joining us today and for your continued interest in MDU Resources. This morning, we reported income from continuing operations of $14.1 million or $0.07 per diluted share for the second quarter of 2025.
Unfavorable weather in our Natural Gas Distribution segment and increased operating costs across our business did impact our second quarter results.
Despite these challenges, we have had a solid start to the year. Strong customer demand at our pipeline segment, along with progress in our utility regulatory schedule, provides opportunity as we move forward.
In addition, our utility experience combined retail customer growth of 1.4%. When compared to this time last year, this is within our targeted annual growth rate of 1% to 2%.
This strong customer demand at our pipeline, along with the growth and infrastructure needs at our utility, provides a robust investment opportunity across our entire regulated business model.
I am extremely proud of our employees, whose dedication to our core strategy continues to drive our business to deliver solid performance in positions, MDU Resources, with compelling long-term growth prospects.
At our electric segment, we filed a general rate case in Wyoming during the quarter and plan to file a general rate case in Montana later this year.
As mentioned last quarter, we filed an advanced determination of prudence with the North Dakota Public Service Commission for our proposed acquisition of a 49% ownership interest in the Badger Wind Farm, which equates to 122.5 megawatts of the project's total 250 megawatts of generation capacity.
The commission has scheduled this hearing for September 9.
We also continue to refine our wildfire mitigation plans across our electric service territory in accordance with recent legislation. We will be filing those plans in North Dakota, Montana, and Wyoming later this year.
On the data center front, we continue to see opportunities for both our electric utility and pipeline business.
Specifically, at our electric utility, we currently have 580 megawatts of data center load under signed electric service agreements.
Of that total, 180 megawatts is currently online, with an additional 100 megawatts expected to come online late this year.
Another 150 megawatts is expected in 2026 and the remaining 150 megawatts in 2027.
Our current approach on the 580 megawatt load is a capital-light business model, which not only benefits our earnings and returns but also provides cost savings to our other retail customers.
Continue to pursue additional discussions on incremental data center load, and should those discussions progress to sign agreements, we would consider investing capital into new generation and transmission assets to serve the increased load.
For our natural gas segment, we filed a general rate case in Idaho during the quarter, with a requested effective date of January 1, 2026.
We also reached a settlement agreement in our Wyoming rate case, with new rates effective August 1.
In Montana, we filed a settlement agreement on April 3, which is pending Commission approval. We are currently collecting interim rates in Montana pending the Commission's final ruling.
Our pipeline segment is executing well on our core strategy and delivering solid results, driven by strategic expansion in increased demand for transportation and storage services.
We remain committed to investing in future expansion projects to meet customer demand for services, including strong interests from industrial customers and power generation projects.
We began construction on our Minot Expansion Project in May, which will add approximately 7 million cubic feet of natural gas transportation capacity per day, and is expected to be in service toward the end of this year.
In regards to our proposed Bachan East pipeline project, which could run approximately 350 miles from western North Dakota to the eastern part of the state, plus additional pipeline laterals, we continue to engage with all interested parties to further refine the project scope, timelines, and commercial terms.
This project would provide much-needed takeaway capacity to meet the forecasted natural gas production growth in the region and provide natural gas transportation service to industrial power generation and local distribution companies.
The project is not currently in our 5-year capital forecast. It would be incremental should we determine to proceed.
The binding open season for our Baker storage field enhancement and transportation expansion project concluded. In May, we are reviewing results and, based on initial feedback, are evaluating a smaller project to align with customer interest received in the open season.
In addition to these specific projects, the team also continues to pursue several other growth projects that are in various stages of development.
With the weather and operating expense impacts we experienced in the second quarter and our view midway through the year, we are narrowing our earnings per share guidance to a range of $0.88 to $0.95 per share from our previous range of $0.88 to $0.98 per share.
We remain confident in our ability to execute on our long-term growth strategy and believe our operational focus and financial discipline continue to position us well for delivering safe and reliable energy, customer value, and strong stockholder returns.
As we look ahead, we are focused on our core strategy, emphasizing customers and communities. Operational excellence returns, focused and employee-driven.
We believe we are well positioned for growth into the future with an anticipated capital investment of $3.1 billion over the next 5 years.
78% compounded annual utility rate, with a base growth and customer growth of 1% to 2% annually.
We also anticipate a long-term EPS growth rate of 68% while targeting a 60% to 70% annual dividend payout ratio.
As always, MB Resources is committed to operating with integrity and maintaining a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call back over to Jason for the financial update.
Thank you, Nicole.
This morning, we announced second quarter earnings of $13.7 million, or $0.07 per share. Compared to the second quarter of 2024, we reported earnings of $60.4 million, or $0.30 per share.
Income from continuing operations, which excludes the impacts of Everest, which became a separate public company, in October of 2024, was $14.1 million for the second quarter, or $0.07 per share, compared to $20.2 million, or $0.10 per share, in 2024.
According to our individual businesses, our electric utility reported second-quarter earnings of $10.4 million.
Compared to 15.5 million for the same period in 2024.
Higher payroll-related costs and costs related to a planned outage at our Coyote Generating Station drove the increase in operation and maintenance expenses experienced during the quarter.
From data center load and rate relief in South Dakota.
Our natural gas utility reported a seasonal loss of $7.4 million in the second quarter compared to a loss of $5 million in 2024.
Increased operation and maintenance expenses, primarily due to higher payroll-related costs, and lower volumes due to warmer weather largely in Idaho, drove the increased loss in the quarter.
Partially offsetting the loss were higher retail sales revenues due to rate relief and higher transportation revenue.
The pipeline business posted second-quarter earnings of $15.4 million, compared to a record second-quarter earnings of $17.3 million in the prior year.
In the second quarter of 2024, the pipeline received proceeds from a customer settlement of $1.5 million, net of tax.
Backing that off of the total earnings for 2024 reviewed, the second quarter at our pipeline segment is very solid.
Higher operation and maintenance expenses further drove the decrease in earnings.
Partially offsetting the decrease was higher transportation revenue due to the Wton Expansion Project and customer demand for short-term natural gas transportation contracts.
And finally, MDU Resources continues to maintain a strong balance sheet and ample access to working capital to finance our operations throughout our peak seasons.
Well, we have no equity needs in 2025 based on our current capital plan. Our $3.1 billion capital investment program over the next 5 years will require some access to the capital equity markets.
As mentioned last quarter, we plan to reestablish an ATM program in the near future to meet those needs.
We will update our forward-looking capital investment plan later this year and provide further guidance around the size and timing of future equity needs at that point.
That summarizes the financial highlights for the second quarter. We appreciate your interest in and commitment to MDU Resources and ask that we now open the line to questions. Operator, thank you. At this time, I would like to remind everyone that if...
All is in the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 2 on your telephone keypad. If you're using a speakerphone, please pick up your handset before entering your request.
We will pause for just a brief moment to compile the Q&A roster.
Thank you. And your first question will be from Ryan Levine at City. Please go ahead, Ryan.
Um, hey everybody.
Hello, Ryan. What impact does the lower storage project size have on the potential scale of the Buck and East Pipe? And can you walk through the implications that this might have?
That Revis scale of the storage facility.
Yeah, appreciate the follow-up on that Ryan essentially as as we were providing an update there on the baker storage um enhancement and transportation project. I would see that as, you know, 1 data point but as it relates to Bach and East essentially um we'll talk a little bit about that and provide a little more color on where we're at with that project. But I wouldn't say that what happened with Baker storage enhancement in the Open Season. We did there has implications on Bach and East. In fact, if we continue with the bachan East project, there may be incremental enhanced opportunities to a for us to expand storage opportunities on a go forward basis. So essentially, the the 2 projects are deemed really separate right now. But to the extent, we have enough customer commitment on a go forward basis to move forward with bachan that could provide uh incremental opportunity from an expansion of our storage assets going forward.
So, maybe just stepping back for a minute. Um, you know, as I think about Bakken and East and, you know, quite frankly, our storage assets in general, I really do like our strategic position. I've talked about this before in the Bakken, but we believe the Bakken play in North Dakota provides, you know, many opportunities with the growing production that we see coming out of the Bakken and the low cost of gas. So, as I think about WBI's position, strategically located over that play, it certainly provides us a strategic advantage.
As we think about positioning as it relates to the balconies pipeline, as well as potential storage opportunities going forward.
Great. And then one unrelated question in terms of the revised EPS guidance range given that the drivers of the revision there. How does that impact your longer-term EPS outlook? Does that signal your moving towards a certain end of the range, or any color you can share on that?
I had looked at their as we look at the operating expense based on of course, as we look forward into our guidance. How do we think about where we're going to finish the year? Um, you know, what goes through the operating expense? There is, is a few items. There are certainly some items that are, uh, we'll call it pass through in nature. So items that we would have, uh, seen some higher expense, uh, 4 related to conservation programs. As an example, on the regulated side, which we get to recover in Revenue. So it stands out as a larger expense uh items related to the transition Services agreement for Everest, which we are billing them for again, providing service uh, through that stands out an expense but also shows up in in Revenue. Uh, so those items are really kind of a pass through as we look. Um, uh, look on that side. Uh, however, we did see on a quarter over quarter basis, uh, and again, we had planned for an outage at the coyote station, but we're seeing, I think just general inflationary costs uh across the board for various items. Such as uh you know, Insurance costs are going up. Payroll related costs, we talked about. We've seen some increases there and I think it's as we navigate through the balance of the rest of the year.
Based on our forward look, we don't see those being as impactful as they probably are in the run rate that you see today, and certainly don't think that's a longer-term trend for us. But we had to really step back and look at where we're at at this point in the year, and our guidance range right now would tell us that, you know, it's unlikely we would have hit that top end of that range based on that. So we felt comfortable moving that top end back and feel that where we have the range set at right now is very reasonable for the rest of the year.
Great. Thanks for taking my questions.
Thank you.
Once again, I would like to remind everyone that if you would like to ask a question, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 2 on your telephone keypad. If you're using a speakerphone, please pick up your handset before entering your request.
The next question will be from Julian Smith at Jefferies. Please go ahead.
Yeah. Hi. It's Brian Russo on for Julian. Good afternoon.
Good afternoon, Brian.
Hey, just to follow up on the balconies project.
I think the next uh, North Dakota industrial commission meeting is on August 21st. Maybe, what can we expect? Uh, and they're regarding their decision or recommendation on on. I think some takeaway capacity uh, over 10 years. Would that alter the BBI energies development plans at all?
So first, let me address, uh, the
next meeting, you are
In terms of the timing of the next meeting of the North Dakota Industrial Commission,
It it appeared that they were leaning into potentially providing a decision at that meeting. Um, however we're not, you know, 100% certain on that. Uh but in in the public format uh there was indication that there, they were going to try to get to conclusion by the August meeting. So more to follow in terms of whether that happens or not, certainly um State support as you come.
Commented on, uh, would enhance, uh, the project and provide what we believe to be a bridge. Because as we work through these customer, uh, commitments that we are.
You know, in conversations with with there's varying degrees in terms of needs. So timing is 1 consideration. Where we, you know, it's probably makes sense that obviously not all customers have the same timing in mind. And so as we think about uh the state's interest in this project and what it will do for the state of North Dakota, certainly they've got interest right? We talked already about increasing production out of the bach and gas to oil. Ratios continue to increase. They want takeaway capacity out of the box and so they're very focused. The state is on uh getting a project done as it relates to wbi and our project specifically, we do believe, uh, a state decision does help in terms of provide some certainty for our customers. But that being said, it isn't the only thing that we're focused on. Certainly we are very focused on what kind of customer commitments. We can get and how we can continue with the dialogue with our customers as that dialogue progresses. We are hopeful, then that, that would turn into a binding Open Season. So,
For our next step, we would be holding a binding Open Season. All of this conversation will continue to transpire. We're hoping, over the next 6 plus months, just to give you some timeline in terms of next steps on Bachan East.
Okay, great. And then also just uh again, to follow up on the um, the guidance revision to the top end is, is there a way to quantify uh, those various drivers? You know, some seem to be 1 time where others might be ongoing whether 1 time. I think maybe um the uh planned outage might also be 1 time. Versus you know, what's kind of
Transaction.
Yeah, no thanks. Brian. Happy to, uh, try to do that. Where we can? Yes, the planned outage. I mean, we had planned for that. And that was part of our original guidance range that we had looked at already and that really stayed pretty true to what we had expected there. Uh, so don't expect much of a, of a difference there, whether of course, that's, you know, 1 of the, the items that it's tougher to plan for as we look through that. So what we did see, uh, in the second quarter was warmer weather, especially impacting volumes of the gas business. Now, you know, thankfully we do have some very good mechanisms in most of our states where we've got weather normalization and a lot of our states. We are not what the normalized or decoupled in the states of Idaho or Montana. So we did see some impacts their you know to quantify that broadly speaking and I think uh if you look at our SEC filings, we talk about roughly a million dollars of impact, just related to weather in the quarter alone here. Um, other items that we see as far as payroll and various, uh, you know, items along that line. Some of that can vary a little bit depending on your timing of capital projects. And are we capitalizing labor or not? There's a various items that can impact that of course.
We have seen increases for uh, employees along the way, which doesn't uh, add to payroll until you, you know, file new rate cases and really get recovery of some of the in, uh, increased cost of service there. But overall again, as we stated, uh, earlier from our run rate perspective, what you saw in the first half of the year on a, on a year-over-year comparison basis, we don't expect that to be a similar run rate to what we see the balance of the year that number will will come in some, but certainly did have an impact for us, in the, in the first half of the year, and in the second quarter,
Okay great and then just lastly uh you know, mention you mentioned you're in uh you know, active discussions with with more data centers. Um, just curious
um,
you know, when will kind of, you know, and the capital like strategy and the esa's, right? When when when do you think that this these pockets of excess capacity can be absorbed can absorb um you know the the any incremental load before mgu would need to build uh generation infrastructure to serve that, incremental demand.
Like, how many blocks do you think? Is there to be absorbed, I guess?
Yeah, so what we have shared in the past on that particular topic is that we do believe we have additional capacity without the buildout of a of new infrastructure. However, saying that probably not to the level of what you're seeing currently and that's 5:30 that we have, um, developed at Lendale. So there are Pockets within our system where we could do a similar Capital light strategy, and we continue in conversation, uh, with potential customers in those in that regard that being said, I think, you know what, we what we shared here in my earlier remarks is, we are willing to explore other opportunities to perhaps invest in transmission, or generation to serve incremental, load over, and above, what could have been served with the, the capacity we will.
Previously talking about. So the the conversations continue to be fluid, uh, our approach has been that we really come forward with, you know, where we're at. Once we have an energy service agreement. So, uh, we will certainly keep the market, uh, aware when that happens. But we did want to provide the data point that conversation can continues in terms of, uh, data center customers across the various footprint, whether that be
Incremental generation or transmission investment opportunity in areas where we have the ability to continue on this capital-light approach.
All right, great. Thank you very much.
Thank you.
This morning.
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The webcast can be accessed at www.mdu.com. Under the investor heading, select "Events and Presentations" and click on "Q2 2025 Earnings Conference Call." After the event, a replay of the webcast will be available at the same location.
And at this time, there are no further questions. I would like to turn the conference back over to management for closing remarks.
All right, I want to thank you all again for joining us today. We appreciate your interest in and support of India Resources and look forward to connecting with you throughout the year. With that, I will turn the call back over to you, Operator.
Thank you, ladies and gentlemen. This concludes today's MDU Resources Group conference call. Thank you for your participation. You may now disconnect your lines.