MDU Resources (MDU) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Full year 2023 earnings were $414.7 million or$2.03 per share on a GAAP basis, compared to $367.5 million or$1.81 per share in 2022 [20] - Income from continuing operations in 2023 was $480.4 million or$2.36 per share, compared to $250.8 million or$1.23 per share in 2022 [20] - Adjusted income from continuing operations for 2023 was $305.1 million or$1.50 per share, compared to $254.5 million or$1.25 per share in 2022 [32] - The pipeline business posted record earnings of $46.9 million in 2023, a 33$35.3 million in 2022 [38] Business Line Performance - The combined utility business reported record earnings of $120.1 million in 2023, up from$102.3 million in 2022 [4] - Electric Utility earnings increased to $71.6 million in 2023 from$57.1 million in 2022, driven by higher retail sales revenue and transmission interconnect upgrades [4] - The natural gas utility business reported earnings of $48.5 million in 2023, up from$45.2 million in 2022, primarily due to higher retail sales revenues and investment returns [21] - Construction Services business reported record revenues of $2.85 billion and record earnings of$137.2 million in 2023, compared to $2.7 billion and$124.8 million in 2022 [22] - EBITDA for Construction Services increased 15% year-over-year to $222.7 million in 2023 [22] Market and Operational Data - The pipeline business achieved record annual transportation volumes in 2023, with a capacity of approximately 2.6 billion cubic feet of natural gas per day, reflecting a 6.6$405 million in the pipeline business over the next 5 years to expand natural gas transportation capacity [1] - The utility business serves 1.2 million customers, with rate base growth of 8.5% in 2023 and customer growth of 1.3% [29] - The company expects to grow rate base by approximately 7% compounded annually over the next 5 years and plans to invest $2.3 billion in utility infrastructure [29] Strategic Direction and Industry Competition - The company is transitioning to a pure-play regulated energy delivery business, with the spin-off of Knife River completed and the Construction Services spin-off expected by late 2024 [25] - The company is focusing on system growth in its pipeline business, with several expansion projects expected to be in service by 2024 [1] - Construction Services is well-positioned to benefit from increased bidding opportunities due to funding from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act [30] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about growth opportunities in regulated delivery projects and the strong demand for Construction Services [47] - The company initiated 2024 earnings guidance for regulated energy delivery businesses in the range of$170 million to $180 million [18] - Construction Services revenue guidance for 2024 is in the range of$2.9 billion to $3.1 billion, with EBITDA guidance of$220 million to $240 million [30] - The company expects to file multiyear rate cases in Washington and rate cases in Montana, Oregon, and Wyoming during 2024 [28] Other Important Information - The Heskett Unit IV natural gas-fired electric generating facility is expected to be fully operational by Q2 2024 after operational setbacks [17] - Interim natural gas rates in North Dakota were implemented on January 1, 2024, increasing revenues by$10.1 million or 6.5% [16] - The company maintains a strong balance sheet and ample access to working capital to finance operations [40] Q&A Session Summary Question: Update on MISO Tranche 1 transmission projects - The project is progressing within the $220 million capital budget, with expenditures expected in 2026 and 2027, and the property to be in service by 2028 [65][66] Question: Outlook for renewable-related customers - The company has picked up more renewable work in the Midwest and Southwest, with several projects targeted for backlog in the current quarter [50] Question: Impact of severe weather in California - The company has experienced some labor hour impacts due to severe weather but has also captured storm work opportunities in the Midwest [51] Question: Comparison of current guidance to prior years - Management views the current guidance as enthusiastic, reflecting strong demand for services and consistent backlog [54] Question: Timing of pipeline expansion projects - The Line Section 27 expansion is expected to come online in Q1 2024, and the Wahpeton expansion is expected in November 2024 [77] Question: Impact of Heskett Unit IV delay on power costs - Elevated costs from the January winter weather event will flow through fuel clause adjustments but are unrelated to Heskett [79][80] Question: Drivers of lower EBITDA guidance for Construction Services in 2024 - The guidance reflects new project starts and timing, with confidence in achieving record performance levels [81]