MDU Resources Group, Inc. Q3 FY2024 earnings call

• Completed Everus Construction Group spinoff on October 31, becoming a pure-play regulated energy delivery business.
• Core strategy focuses on customers and communities, operational excellence, returns focused, and employee-driven.
• Utility business showed solid results with strategic rate adjustments and infrastructure investments; electric segment benefited from rate relief and warmer weather; regulatory activity included rate case filings in multiple states.
• Pipeline segment achieved record earnings driven by record transportation volumes, increased storage revenues, and new service rates; expansion projects like Line section 28 and Wahpeton Expansion underway, and a pipeline acquisition in northwestern North Dakota.
• Data center front: Filed electric service agreements for a 50 MW data center in South Dakota and amended an agreement for a 350 MW data center in North Dakota, with 580 MW of data center load under signed agreements.

The utility business reported earnings of $6.8 million for the quarter compared to $3.2 million in Q3 2023. Electric utility had earnings of $24.3 million in Q3 2024 vs $20.9 million in the same period in 2023, driven by higher retail sales revenue from rate relief and warmer weather. Natural gas utility had a seasonal loss of $17.5 million in Q3 2024 compared to $17.7 million in Q3 2023, with improvement from higher retail sales revenue offset by absence of interest expense recovery. The pipeline business posted record third quarter earnings of $15.1 million compared to $11.9 million in Q3 2023, driven by record transportation volumes, higher storage related revenue, and new service rates. The utility business contributes a certain portion to total revenue, and the pipeline segment's revenue contribution is also significant based on its earnings growth.

• Revised regulated energy delivery earnings guidance for 2024 to a range of $180 million to $185 million, up from previous range.
• Anticipates 1% to 2% annual customer growth.
• Expect long-term EPS growth of 6% to 8% while targeting a 60% to 70% annual dividend payout ratio.

Q: Can you add color to the increase in guidance, especially regarding weather and pipeline performance?

A: Nicole Kivisto said the increase was due to weather-related impacts in the quarter and strong momentum at the pipeline, with Rob Johnson adding storage was a primary driver for pipeline results.

Q: Can you provide color on the pipeline acquisition?

A: Rob Johnson said it's a strategic acquisition, $17 million in capital, $0.75 million in integrity testing, generating ~$3 million in annual earnings with normalized regulated return.

Q: Thoughts on Montana interim increase and regulatory climate?

A: Nicole Kivisto said they're moving forward with reconsideration on the interim request, and the Montana piece represents about 5% of overall rate base.

Q: Thoughts on M&A for the pipeline business and organic growth opportunities?

A: Nicole Kivisto and Rob Johnson said the pipeline will look at acquisition opportunities if they make sense for shareholders, customers, and employees, with organic growth opportunities from supply and demand projects, including data centers and power gen.

Q: Contribution of gas storage asset this quarter and outlook?

A: Nicole Kivisto said storage was outsized relative to expectations, and strong demand for storage services is expected to continue into the future.