Business Overview and Operational Highlights
New Jersey Resources Corporation (NJR) is a diversified energy company that provides safe and reliable natural gas distribution, clean energy solutions, and energy services to customers across the northeastern United States. With a history spanning over 70 years, NJR has evolved from a regional utility into a multi-faceted energy infrastructure provider, positioning itself as a leader in the transition towards a more sustainable energy future.
NJR was founded in 1952 as a local natural gas distribution utility serving customers in the state of New Jersey. Over the decades, the company has expanded its operations beyond natural gas distribution, diversifying its business model to adapt to changing energy markets and customer needs. NJR operates through five primary business segments: New Jersey Natural Gas (NJNG), NJR Clean Energy Ventures (CEV), NJR Energy Services (ES), NJR Storage and Transportation (ST), and Home Services and Other (HSO).
NJNG, the company's regulated natural gas distribution subsidiary, serves approximately 582,100 residential and commercial customers in central and northern New Jersey. Throughout its history, NJR has focused on improving the safety and reliability of its natural gas utility, making significant infrastructure investments to enhance its operations.
In the 1990s, NJR began investing in clean energy projects through its subsidiary NJR Clean Energy Ventures (CEV). This strategic move helped diversify the company's business beyond its core natural gas utility operations. CEV has since focused on developing commercial and residential solar projects, taking advantage of tax credits and renewable energy credits available at the time.
During the 2000s, NJR expanded its energy services business, NJR Energy Services (ES), which provides wholesale natural gas and related energy services. ES faced challenges during this period as it navigated volatility in natural gas prices and markets. In response, NJR worked to strengthen ES's risk management practices and improve its ability to navigate market conditions.
In the 2010s, NJR further diversified its asset base by making investments in natural gas storage and transportation infrastructure through its NJR Midstream segment, now known as NJR Storage and Transportation (ST). This expansion allowed the company to take advantage of opportunities in the midstream energy sector.
Throughout its history, NJR has demonstrated resilience in the face of various regulatory, operational, and market challenges, maintaining a commitment to serving its customers and growing its business in a sustainable manner. The company has successfully transformed from a local natural gas utility to a diversified energy company with regulated and unregulated operations across the natural gas value chain.
Financials
NJR's financial results have been consistently strong, with the company reporting annual net income of $264.72 million and revenue of $1.96 billion in the fiscal year ended September 30, 2023. The company's operating cash flow of $478.99 million and free cash flow of -$61.93 million during the same period demonstrate its ability to generate substantial cash flows to fund its capital expenditure needs and maintain a healthy balance sheet.
For the most recent quarter (Q3 2024), NJR reported revenue of $275.64 million, net income of -$11.57 million, operating cash flow of $24.29 million, and free cash flow of -$135.95 million. The decrease in net income and free cash flow in the most recent quarter was primarily due to increased operating expenses and capital expenditures.
NJR's capital expenditure plan is focused on infrastructure investments to enhance the reliability and safety of its natural gas distribution system, as well as the expansion of its clean energy portfolio. The company invested $540.92 million in capital expenditures during fiscal 2023, with a significant portion allocated to NJNG's infrastructure projects and CEV's solar investments. Looking ahead, NJR expects to invest between $1.2 billion and $1.5 billion in capital expenditures across the company over the next two years.
Liquidity
The company's financial position remains strong, with a debt-to-capitalization ratio of 54.1% as of September 30, 2023. NJR's credit ratings of A1 from Moody's and A- from Fitch reflect its stable financial profile and prudent risk management practices.
As of the most recent reporting period, NJR's liquidity position includes:
- Cash: $22.40 million - Debt-to-Equity Ratio: 1.51 - Current Ratio: 0.60 - Quick Ratio: 0.41
NJR has access to substantial credit facilities, including a $650 million unsecured revolving credit facility at the parent company level and a $250 million unsecured revolving credit facility for NJNG, both with ample remaining capacity.
For fiscal 2024, NJR projects its adjusted Funds From Operations (FFO) to adjusted debt ratio to be between 17% and 18%, further demonstrating its solid financial footing.
Diversified Business Model Driving Growth
NJR's diversified business model has been a key driver of its growth and resilience. The company's regulated utility operations, anchored by NJNG, provide a stable source of earnings and cash flows, while its unregulated segments, such as CEV and ES, offer opportunities for higher-margin growth.
NJNG continues to deliver consistent performance, with the segment contributing approximately 76% of NJR's net financial earnings (NFE) in fiscal 2023. The utility has experienced steady customer growth, adding 5,940 new customers during the fiscal year, and has made significant investments in its infrastructure to enhance reliability and safety.
CEV has been a standout performer, expanding its renewable energy portfolio and capitalizing on favorable regulatory incentives and customer demand for clean energy solutions. The segment added 214 megawatts of solar capacity during the nine months ended June 30, 2024, bringing its total installed capacity to 476.5 MW. CEV's success has been driven by a robust pipeline of commercial and residential solar projects, as well as the company's ability to monetize renewable energy credits and investment tax credits.
The ES segment has also contributed to NJR's diversified revenue stream, leveraging its expertise in natural gas marketing and asset management to capture opportunities in the volatile wholesale energy market. While performance in this segment can be variable, ES has demonstrated its ability to navigate market conditions and generate consistent earnings.
Navigating Challenges and Regulatory Landscape
NJR operates in a highly regulated industry, with its utility and midstream operations subject to oversight by various state and federal agencies. The company has navigated the regulatory landscape effectively, maintaining constructive relationships with regulators and securing favorable outcomes for key initiatives.
In May 2024, NJNG filed a base rate case with the New Jersey Board of Public Utilities (BPU), requesting a revenue increase of $219.6 million. The company expects to reach a resolution on the rate case by the end of 2024, which would allow it to recover infrastructure investments and earn a fair return on its assets.
Additionally, NJR has been proactive in addressing environmental concerns, such as the remediation of legacy manufactured gas plant sites. The company has accrued $153.8 million as of June 30, 2024, to cover the estimated future expenditures related to these projects, which are being recovered through a regulatory mechanism approved by the BPU.
The company's commitment to sustainability is further evident in its clean energy initiatives. NJR has been at the forefront of the transition to a low-carbon economy, with CEV playing a pivotal role in helping New Jersey achieve its renewable energy goals. The segment's pipeline of potential investment options now exceeds 870 megawatts, positioning NJR for continued growth in the clean energy space.
Shareholder Value Creation and Dividend Growth
NJR has a strong track record of delivering value to its shareholders. The company has increased its dividend for 28 consecutive years, reflecting its commitment to returning capital to investors. As of the most recent dividend announcement, NJR's dividend yield stands at approximately 4%.
The company's focus on prudent capital allocation and financial discipline has enabled it to maintain a strong balance sheet and investment-grade credit ratings. This, in turn, has allowed NJR to access capital markets at favorable terms, supporting its growth initiatives and enhancing shareholder returns.
Looking Ahead: Poised for Continued Growth
NJR is well-positioned to capitalize on the evolving energy landscape, with a diversified business model, robust investment pipeline, and strong financial foundation. The company's regulated utility operations provide a stable earnings base, while its unregulated segments offer growth opportunities in the clean energy and midstream sectors.
In terms of financial guidance, NJR has reiterated its fiscal 2024 Net Financial Earnings per Share (NFEPS) guidance of $2.85 to $3 per share. This represents an increase from the initial guidance range of $2.70 to $2.85 per share provided in November 2023, which was subsequently raised by $0.15 per share in February 2024 due to outperformance in the Energy Services segment. The company expects its fiscal 2024 NFEPS to exceed its long-term growth rate of 7% to 9%.
For fiscal 2024, NJR anticipates a higher percentage contribution to NFEPS from the Energy Services segment compared to prior years. However, the company expects the contribution breakdown to normalize in future years, with over 60% coming from the utility business.
NJR has also provided guidance on its cash flow from operations, projecting a range between $420 million and $450 million for fiscal 2024. This robust cash flow generation will support the company's ambitious capital expenditure plans and ongoing dividend growth.
As NJR continues to execute on its strategic priorities, the company is poised to deliver sustainable long-term value for its shareholders. With a strong track record of operational excellence, prudent risk management, and a commitment to environmental stewardship, NJR is a compelling investment proposition in the dynamic and rapidly transforming energy industry.