MDU Resources Group, Inc. (NYSE:MDU) is a diversified utility and construction services company that has been providing essential products and services for over a century. With a strong focus on regulated energy delivery and a planned spinoff of its construction services business, the company is well-positioned to capitalize on the growing demand for reliable and sustainable energy infrastructure.

Financial Highlights

In the latest fiscal year, MDU Resources reported annual net income of $414,707,000 and annual revenue of $4,657,300,000. The company's annual operating cash flow stood at $332,600,000, while its annual free cash flow was -$187,126,000. These robust financial results demonstrate the company's ability to generate consistent earnings and cash flow, even in the face of challenging market conditions.

Quarterly Performance

For the first quarter of 2023, MDU Resources reported impressive results. The company's income from continuing operations was $100.9 million, or $0.49 per share, compared to $83.8 million, or $0.41 per share, in the same period of the previous year. This strong performance was driven by growth across all of the company's business segments.

Business Overview

MDU Resources operates through two primary business segments: Regulated Energy Delivery and Construction Services.

Regulated Energy Delivery

The Regulated Energy Delivery segment includes the company's electric, natural gas distribution, and pipeline businesses. These operations provide essential services to customers across eight states, including Montana, North Dakota, South Dakota, Wyoming, Idaho, Minnesota, Oregon, and Washington.

The electric utility business reported first-quarter earnings of $17.9 million, up from $16.6 million in the same period last year. This increase was largely due to higher retail sales revenue, driven by rate relief in North Dakota and Montana, as well as the addition of a new data center customer. The natural gas distribution business also saw a rise in earnings, from $38.9 million in the first quarter of 2022 to $40.1 million in the current quarter, primarily due to interim rate relief and increased transportation revenue.

The pipeline segment delivered record first-quarter earnings of $15.1 million, up from $8.3 million in the same period last year. This impressive performance was driven by increased transportation volumes, new rates, and higher storage-related revenue.

Construction Services

The Construction Services segment, which is expected to be spun off as Everus Construction Group later this year, provides a full spectrum of construction services, including electrical and mechanical, and transmission and distribution specialty contracting. This business reported first-quarter earnings of $28.2 million, compared to $26.1 million in the same period of 2022. The increase was primarily due to strong demand for institutional work, as well as improved project efficiencies.

Everus Construction Group has an all-time record backlog of $2.18 billion, up from $2.1 billion a year ago. The company is well-positioned to benefit from increased infrastructure spending and the growing demand for data center construction and renewable energy projects.

Growth Opportunities and Outlook

MDU Resources is poised for continued growth in its Regulated Energy Delivery segment. The company expects its utility rate base to grow by approximately 7% annually over the next five years, driven by investments in system upgrades and replacements to ensure safe and reliable service. Additionally, the company has filed several rate cases in its service territories, which, if approved, will provide further support for its growth initiatives.

In the pipeline segment, MDU Resources is undertaking several expansion projects, including the 2023 Line Section 27 expansion, the Line Section 28 expansion, and the Wahpeton expansion project. These projects are expected to add significant transportation capacity and drive continued volume growth.

The planned spinoff of Everus Construction Group is a strategic move that will allow MDU Resources to focus on its core regulated energy delivery business. The company remains confident in the long-term guidance ranges it provided at its Investor Day, including a 6% to 8% EPS growth rate, a 7% utility rate base growth, and a 1% to 2% customer growth rate.

Risks and Challenges

While MDU Resources' outlook remains positive, the company faces several risks and challenges that investors should be aware of. These include regulatory uncertainty, potential changes in environmental regulations, supply chain disruptions, and labor shortages. The company's ability to navigate these challenges and continue delivering strong financial performance will be crucial to its long-term success.

Liquidity and Financial Position

MDU Resources maintains a strong balance sheet and ample access to working capital to finance its operations. As of the latest reporting period, the company had cash, cash equivalents, and restricted cash of $89.3 million and available borrowing capacity of $456.2 million under its outstanding credit facilities.

Conclusion

MDU Resources Group, Inc. is a well-diversified utility and construction services company with a strong track record of financial performance and a clear path for future growth. The company's focus on regulated energy delivery, coupled with its planned spinoff of the construction services business, positions it well to capitalize on the growing demand for reliable and sustainable energy infrastructure. With a robust pipeline of growth projects, a solid financial position, and a commitment to operational excellence, MDU Resources is poised to continue delivering value to its shareholders.