MDU Resources Group Announces Strategic Review for MDU Construction Services Group, Q3 Reports By Investing.com

MDU Resources Group, Inc. (MDU) today reported third quarter earnings on a generally accepted accounting principles (GAAP) basis of $147.9 million, or 73 cents per share, with adjusted earnings of 152 .0 million, or 75 cents per share, compared to third quarter 2021 GAAP earnings of $139.3 million, or 68 cents per share.

For the nine months ended Sept. 30, MDU Resources on a GAAP basis earned $250.4 million, or $1.23 per share, with adjusted earnings of $254.5 million, or $1.25 per share. share, compared to GAAP earnings of $291.6 million, or $1.44 per share, for the same period in 2021.

MDU Resources announced on August 4 that it intends to spin off its building materials subsidiary, Knife River Corporation, into a stand-alone, publicly traded company and, for this reason, reports adjusted earnings that exclude costs attributable to the separation transaction. Adjusted earnings is a non-GAAP measure. For an explanation of non-GAAP earnings adjustments, see the “Non-GAAP Measures” section of this press release. Additional information about the proposed separation is available on the Company’s website at www.mdu.com.

“Our quarter-over-quarter results improved, with very strong demand for building materials and construction services, as evidenced by record revenues and backlogs from our two construction businesses. strong year-to-date results and growing backlog, we have increased our construction services revenue guidance by approximately $100 million as we continue to experience and adjust to inflationary pressures in our business, we are gaining momentum to recover from these impacts,” said David L. Goodin, President and CEO of MDU Resources. “Our utilities and gas pipeline businesses continue to perform well, well that higher interest expense had an impact on earnings.”

Corporate Strategy UpdatesAs the next step in MDU Resources’ strategic planning, the Board of Directors unanimously determined that the best way to maximize value would be to create two pure-play companies: a leading building materials company and a pure-play regulated energy delivery company. Accordingly, the board has authorized management to initiate a strategic review process for MDU Construction Services Group, Inc. with the goal of achieving the board’s goal of creating two pure public companies.

MDU Resources is working to complete the separation of Knife River, which as previously announced is expected to be achieved as a non-taxable spinoff for MDU Resources shareholders to be completed in 2023. Knife River is one of the major producers of construction aggregates in the United States.

“We believe these steps will unlock significant value for MDU shareholders,” Goodin said. “Having two pure-play companies would give each company the ability to execute their individual business plans and achieve peak performance.”

Business Unit Highlights The building materials business posted record quarterly revenue, up 17% from the third quarter of 2021, and earned $102.8 million, compared to $96.3 million in the third quarter of 2021. The impacts inflation, particularly rising fuel, material and labor costs, were largely recovered during the quarter through price increases. The company carried out a significant portion of the work which was delayed by adverse weather conditions earlier in the year. Demand remains strong for building materials and contract work, with a record third-quarter backlog of $895 million as of September 30, up 37% from $652 million as of September 30 2021.

The construction services business posted record quarterly revenue, up 43% from the third quarter of 2021, and earned $28.0 million, compared to $23.1 million in the third quarter of 2021. The charge Electrical and mechanical services work remained strong during the quarter, particularly for hospitality, data centers and renewable projects. Utility-related transmission and distribution work was also strong in the quarter. Earnings were negatively impacted by adjustments of $7.5 million, after tax, related to changes in estimates on certain construction contracts; earnings for the third quarter of 2021 were also negatively impacted by a $5.5 million, after-tax, adjustment to construction contract estimates. Demand remains strong for construction services work, with a record backlog of $2.00 billion as of September 30, up 57% from $1.27 billion as of September 30, 2021. The company raised its 2022 revenue forecast by $100 million for construction services. .

The electric and natural gas utility earned $3.5 million in the third quarter, compared to a profit of $5.2 million in the third quarter of 2021. The utility recorded higher interest expense due to increased debt balances to fund capital expenditures related to system upgrades and growth, as well as higher average interest rates. An interim 5.3% electricity rate increase was implemented July 15 in North Dakota, pending a decision on a requested 12.3% increase before the US Public Service Commission. State. The Washington Utilities and Transportation Commission approved the utility’s request for an approximately 4% increase in natural gas rates, which went into effect Sept. 1. In the fourth quarter, the utility intends to file an application for an electric rate increase with the Montana Public Service Commission. and a natural gas rate increase application to the Idaho Public Utilities Commission.

Pipeline business reported $9.8 million in the third quarter, compared to $10.6 million in the third quarter of 2021. The company reported higher transportation revenues and record transportation volumes in the quarter, the growth being largely attributable to the North Bakken expansion project which was placed in service earlier this year. The increase in revenue was partially offset by the lack of recorded revenue in 2021, as authorized by the Federal Energy Regulatory Commission for funds used during the construction of the North Bakken expansion project, a higher amortization and higher interest charges. The company continues work on a number of expansion projects across its network that are expected to add more than 300 million cubic feet per day of additional natural gas transmission capacity as they are completed in 2023-24. pending regulatory approvals.

Results from each of MDU Resources’ businesses were negatively impacted on a non-cash basis by lower investment returns on non-qualified employee benefit plans. Collectively, the negative variance in earnings in the third quarter from a year ago was about $2.5 million, or 1 cent per share. For the nine months ended Sept. 30, the negative earnings variance resulting from lower investment returns on non-qualified benefit plans is approximately $20.8 million, or 10 cents per share, per compared to the same period in 2021. The company attributes this change in investment returns to large fluctuations in financial markets.

TipsMDU Resources said it expects adjusted earnings per share of between $1.75 and $1.90 in 2022, based on these assumptions:

  • Normal weather for the remainder of 2022, including precipitation and temperature, in all of the Company’s markets.
  • Continuous availability of necessary equipment and materials.
  • Price increases more than offset inflationary pressures in its construction business.
  • Growth in electricity and natural gas customers continues at a rate of 1 to 2% per year.
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations of between $875 million and $925 million.
  • Building materials revenue is between $2.45 billion and $2.65 billion with margins slightly lower than in 2021 and construction services revenue is between $2.5 billion and 2, $7 billion with lower margins than 2021.

The company plans to invest $702 million in capital projects in 2022. The capital program is expected to be largely funded by operating cash flow of between $550 million and $600 million. Future acquisitions are not included in this amount and would be in addition to the capital program. The company, on a consolidated basis, expects long-term compound annual growth of 5% to 8% in earnings per share.

Conference callMDU Resources management will discuss third quarter results during a webcast at 8:30 a.m. EDT on November 3. The event is accessible at www.mdu.com under “Investor Relations” by selecting “Events & Presentations” and clicking on “Q3 2022 Earnings Conference Call”. A replay of the webcast will be available at the same location.

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