Business Overview and History
MDU Resources' history can be traced back to its origins in 1924, when it was established as a small electric utility serving communities in Minnesota. Over the years, the company has undergone a remarkable transformation, expanding its operations and diversifying its portfolio to meet the evolving needs of its customers. In 1948, the company entered the natural gas distribution business, further solidifying its position as a comprehensive utility provider.
In the 1950s and 1960s, MDU Resources expanded its electric and natural gas utility operations into additional states in the northern Great Plains and Rocky Mountain regions. During this period, the company also ventured into the construction materials and contracting business through several strategic acquisitions. This diversification strategy would prove to be crucial for the company's long-term growth and stability.
The 1970s and 1980s brought significant regulatory and operational challenges for MDU Resources. The company had to navigate complex rate cases and adapt to changing environmental regulations impacting its coal-fired power plants. However, MDU Resources remained resilient, continuing to invest in infrastructure upgrades and diversifying its business model to weather these challenges.
In the 1990s and 2000s, MDU Resources underwent a series of restructurings and divestments, shedding non-core assets to focus on its regulated utility, pipeline, and construction materials operations. This strategic repositioning allowed the company to better serve its customers and shareholders, while also strengthening its balance sheet and operational efficiency. Despite these changes, MDU Resources maintained its commitment to safety, integrity, and reliable service - values that have been central to the company's success for nearly a century.
In the decades that followed, MDU Resources continued to grow, both organically and through strategic acquisitions. The company expanded its electric and natural gas distribution footprint, reaching customers across eight states, including North Dakota, Montana, South Dakota, Wyoming, Idaho, Minnesota, Oregon, and Washington. Additionally, the company established a strong presence in the pipeline segment, providing natural gas transportation and storage services to a diverse customer base.
In 2023, MDU Resources made a significant strategic move by completing the separation of its construction materials and contracting business, Knife River, into an independent, publicly-traded company. This decision allowed the company to sharpen its focus on its core utility operations, positioning it as a pure-play regulated energy delivery business. Subsequently, in 2024, the company also completed the spin-off of its construction services business, Everus, further solidifying its commitment to its regulated utility segments.
Financial Performance and Ratios
MDU Resources' financial performance has been consistently strong, with the company reporting solid results across its business segments. In 2024, the company reported total revenue of $1.76 billion, a slight decrease from the previous year's $1.80 billion. However, the company's net income for the year stood at $281.1 million, or $1.37 per diluted share, showcasing its ability to navigate through various market conditions.
One of the key indicators of MDU Resources' financial strength is its robust cash flow generation. In 2024, the company reported operating cash flow of $502.3 million, which provided the necessary resources to fund its capital expenditures and support its growth initiatives. The company's free cash flow, however, was negative $20.5 million, reflecting the significant investments it has made to enhance its infrastructure and service capabilities.
MDU Resources' balance sheet remains solid, with a debt-to-capitalization ratio of 46.0% as of the end of 2024. The company's debt-to-equity ratio stood at 0.852, indicating a balanced approach to capital structure. MDU Resources maintained a strong liquidity position with $551.5 million in cash and available borrowing capacity, comprising $66.9 million in cash and $484.6 million in available credit facilities. The company's current ratio of 0.98 and quick ratio of 0.92 further underscore its sound liquidity position and ability to meet short-term obligations.
In the most recent quarter (Q4 2024), MDU Resources reported revenue of $535.5 million and net income of $55.16 million. The year-over-year revenue decrease of 52.8% was primarily attributed to the completed spin-off of the Everus construction services business in October 2024.
Segmental Performance and Growth Drivers
MDU Resources' operations are organized into three primary business segments: Electric, Natural Gas Distribution, and Pipeline. Each of these segments has contributed to the company's overall success, showcasing its diversified business model.
The Electric segment, which generates, transmits, and distributes electricity, reported earnings of $74.8 million in 2024, up from $71.6 million in the prior year. This increase was largely attributable to higher retail sales revenue driven by rate relief in North Dakota, South Dakota, and Montana. The segment's customer base grew by 1.4% in 2024, highlighting the continued demand for the company's electric services. External operating revenues for the electric segment reached $414.41 million in 2024, up from $401.04 million in 2023. The increase was primarily due to rate relief of $7.10 million and higher fuel and purchased power costs of $6.40 million recovered in customer rates, partially offset by lower retail sales volumes of $2.60 million due to cooler weather in the second quarter of 2024.
The Natural Gas Distribution segment, responsible for the distribution of natural gas to residential, commercial, and industrial customers, reported earnings of $46.9 million in 2024, compared to $48.5 million in 2023. The slight decrease was primarily due to higher operation and maintenance expenses and increased depreciation and amortization, partially offset by higher retail sales revenue from rate relief in North Dakota and South Dakota. The segment's customer base also grew by 1.4% during the year. External operating revenues for this segment were $1.20 billion in 2024, down from $1.29 billion in 2023, largely due to lower purchased natural gas sold and net environmental compliance costs of $105.80 million, offset by rate relief of $14.10 million primarily in North Dakota and South Dakota.
The Pipeline segment, which provides natural gas transportation and underground storage services, delivered a standout performance, achieving record earnings of $68.0 million in 2024, up from $46.9 million in the previous year. This impressive growth was driven by record transportation volumes, increased storage-related revenue, and the full-year benefit of new transportation and storage rates implemented in 2023. External operating revenues for the pipeline segment increased to $142.60 million in 2024 from $115.08 million in 2023, driven by higher transportation volumes and demand revenue from growth projects placed in service, as well as new transportation and storage rates.
Looking ahead, MDU Resources' growth prospects remain promising, with the company's focus on strategic infrastructure investments, expansion of its renewable energy portfolio, and continued regulatory support for its utility operations. The company's 2024 Integrated Resource Plan outlines its commitment to meeting future energy demands through cost-effective solutions, including the acquisition of a 49% interest in the Badger wind farm in North Dakota, further diversifying its generation mix.
MDU Resources reported a 6.8% rate base growth in 2024 and expects 7-8% annual rate base growth over the next five years. The company also anticipates customer growth of 1-2% per year, supporting its long-term growth strategy.
Financial Guidance and Future Outlook
MDU Resources has demonstrated strong financial performance and provided guidance for future growth. In 2024, the company reported adjusted earnings per share from continuing operations of $0.90, representing a 22% increase year-over-year from $0.74 in 2023. This performance suggests that MDU beat its previous guidance.
For 2025, MDU Resources is providing earnings per share guidance in the range of $0.88 to $0.98. This guidance range reflects continued strong performance across MDU's segments, although it accounts for the absence of some non-recurring items experienced in 2024 as well as dissynergies from the Everus spin-off, which together are estimated to have a $0.04 per share impact.
Looking beyond 2025, MDU Resources is targeting long-term EPS growth of 6% to 8%, rebasing that from the 2025 guidance. The company anticipates 7% to 8% annual utility rate base growth and 1% to 2% customer growth over the next five years, supporting its long-term growth objectives. Additionally, MDU Resources is targeting a 60% to 70% annual dividend payout ratio, demonstrating its commitment to returning value to shareholders while maintaining financial flexibility for future investments.
Risks and Challenges
While MDU Resources has demonstrated its resilience and adaptability, the company is not immune to the various risks and challenges inherent in the utility industry. One of the key risks is the potential for increased regulatory scrutiny and the possibility of unfavorable rate determinations by state public service commissions. The company's ability to recover its investments and earn a reasonable return on those investments is crucial to its financial performance.
Another risk factor is the potential impact of severe weather events, such as storms, droughts, and wildfires, which can disrupt the company's operations and lead to increased maintenance and repair costs. MDU Resources has implemented measures to enhance the resilience of its infrastructure, but the unpredictable nature of these events remains a concern.
Additionally, the company's pipeline segment is exposed to commodity price fluctuations, which can affect the demand for its natural gas transportation and storage services. The company's ability to manage these price risks and maintain its competitive position in the marketplace is essential to its long-term success.
Conclusion
MDU Resources Group Inc. has a rich history of serving communities across the western United States, evolving from a small electric utility to a diversified utility giant. The company's strategic focus on its core regulated utility operations, coupled with its commitment to infrastructure investments and operational excellence, has positioned it for continued growth and success.
Despite the challenges faced by the utility industry, MDU Resources has demonstrated its resilience, adaptability, and ability to navigate through various market conditions. With a solid financial foundation, a diversified business model, and a focus on sustainable growth, the company is well-equipped to capitalize on the opportunities in the evolving utility landscape and deliver long-term value to its shareholders.
The company's strong performance in 2024, with a 22% increase in adjusted earnings per share from continuing operations, and its positive guidance for 2025 and beyond, reflect MDU Resources' confidence in its growth strategy and operational capabilities. As MDU Resources continues to invest in its infrastructure, expand its customer base, and pursue regulated growth opportunities, it remains well-positioned to meet the energy needs of its customers while delivering sustainable returns to its investors.