New Jersey Resources Corporation (NJR) is a diversified energy services holding company providing retail natural gas service in New Jersey and wholesale natural gas and related energy services to customers in the U.S. and Canada. The company also invests in clean energy projects, storage and transportation assets, and provides various repair, sales, and installation services.

Business Overview

NJR's operations are organized into four primary reporting segments: Natural Gas Distribution, Clean Energy Ventures, Energy Services, and Storage and Transportation. The company also has nonutility operations that provide corporate support services or do not meet the criteria to be treated as a separate reporting segment, which are included in the Home Services and Other (HSO) segment.

Financials

In the fiscal year ended September 30, 2023, NJR reported annual net income of $264,724,000, annual revenue of $1,962,994,000, annual operating cash flow of $478,993,000, and annual free cash flow of -$61,926,000. The company's performance in the latest quarter, the second quarter of fiscal 2024, showcases its ability to deliver consistent growth.

During the second quarter of fiscal 2024, NJR reported net financial earnings (NFE) of $138.6 million, or $1.41 per share, compared to $112.3 million, or $1.16 per share, in the same period of the prior year. This strong performance was driven by higher contributions from the Energy Services segment, which captured additional financial margin during brief periods of volatility in the winter, as well as a $3.8 million increase in earnings at the Clean Energy Ventures segment related to the recognition of investment tax credits associated with solar sale leaseback financing transactions.

The Natural Gas Distribution segment, which comprises the company's regulated natural gas utility operations, reported NFE in line with expectations as higher utility gross margin was partially offset by higher depreciation and operating expenses. The Storage and Transportation segment's NFE remained largely flat for the period.

NJR's management team is confident in the company's ability to continue delivering strong results, and has reaffirmed its fiscal 2024 NFE guidance range of $2.85 to $3.00 per share. This guidance assumes a higher interest rate environment for longer, and the company has substantial liquidity at both the NJR and NJNG levels to support its operations and growth initiatives.

Recent Developments

The Natural Gas Distribution segment, which serves approximately 581,600 customers throughout New Jersey, continues to see solid customer growth, adding 4,058 new customers in the first six months of fiscal 2024. These new customers are expected to contribute $3.4 million of incremental utility gross margin on an annualized basis. The segment has invested $211 million in fiscal 2024, with approximately 45% of that capital expenditure providing near real-time returns, including through the company's SAVEGREEN energy efficiency program.

In January 2024, NJR's Natural Gas Distribution segment filed a base rate case with the New Jersey Board of Public Utilities (BPU), requesting an increase of base rates of approximately $223 million, equivalent to an increase of $159 million in operating income. The rate case is progressing as expected, and the company plans to update its filing to include nine months of actual results later this month. NJR continues to work with the BPU towards a resolution that balances the interests of its customers and the company, with new rates expected to be in place for fiscal 2025.

The Clean Energy Ventures segment has continued to add new solar capacity during the fiscal year, with an additional 34 megawatts under construction. The segment's project pipeline now includes over 870 megawatts of potential investment options, with 51% of the pipeline located outside of New Jersey. The company's focus is on developing solar investment opportunities that provide high single-digit unlevered returns.

The Energy Services segment reported NFE of $37.6 million in the second quarter of fiscal 2024, compared to $21.1 million in the same period of the prior year. This outperformance was driven by the segment's ability to capture additional financial margin during brief periods of volatility in the winter. As the company looks to the remainder of fiscal 2024, it expects to recognize a significant portion of the asset management agreement's total revenues during the fourth quarter.

The Storage and Transportation segment continues to perform to the company's expectations, with NJR initiating a capital investment project at its Leaf River facility to expand the working capacity within its caverns by approximately 4 Bcf. The company recently initiated an open season to provide additional capacity to its customers in regions with considerable demand for reliable and affordable natural gas storage capabilities.

Outlook

NJR's diversified business model, with its complementary portfolio of regulated and unregulated operations, has proven to be a key strength, providing the company with dependable cash flows and supporting its peer-leading growth rate. The company's focus on organic expansion, innovation, and prudent capital allocation has positioned it well to continue delivering value to its shareholders.

Conclusion

Overall, NJR's strong performance in the second quarter of fiscal 2024, coupled with its reaffirmed guidance and long-term growth outlook, underscores the company's ability to navigate various market conditions and capitalize on opportunities across its business segments. With a solid financial foundation, a diversified asset base, and a commitment to sustainable growth, NJR remains well-positioned to deliver consistent value for its investors.