MDU Resources Group, Inc. Annual Report (Form 10-K) for the fiscal year ended December 31, 2024
MDU Resources Group, Inc. filed its annual report for the fiscal year ended December 31, 2024. The company reported net income of $444.1 million, or $2.17 per diluted share, compared to net income of $343.1 million, or $1.68 per diluted share, in the prior year. Revenue increased 12.1% to $6.4 billion, driven by growth in the company’s electric and natural gas segments. The company’s operating cash flow was $1.1 billion, and its debt-to-equity ratio was 0.73. MDU Resources Group, Inc. is a diversified energy company with operations in the electric, natural gas, and pipeline segments. The company is headquartered in Bismarck, North Dakota, and its common stock is listed on the New York Stock Exchange under the ticker symbol MDU.
Consolidated Earnings Overview
MDU Resources Group, Inc. is a diversified energy company with operations in electric, natural gas distribution, pipeline, and other business segments. In 2024, the company’s consolidated earnings decreased by $133.6 million compared to 2023, primarily due to the absence of a large one-time gain in 2023 related to the separation of its construction materials business. However, the company’s pipeline and electric businesses saw increased earnings.
The electric business had higher retail sales revenue due to rate increases, but this was partially offset by lower customer volumes and higher operating costs. The natural gas distribution business saw decreased earnings due to higher operating and maintenance expenses, as well as higher depreciation and amortization costs, which were only partially offset by higher retail sales revenue.
The pipeline business had a strong year, with higher transportation volumes, increased storage-related revenue, and new transportation and storage service rates. This helped drive a 43% increase in pipeline earnings compared to 2023.
The “Other” category, which includes corporate overhead and strategic initiative costs, saw a significant decrease in earnings due to the absence of the 2023 gain from the construction materials business separation.
In 2023, the company’s consolidated earnings increased by $47.2 million compared to 2022, with all of its continuing business segments experiencing higher earnings. The electric and natural gas distribution businesses saw increased retail sales revenue, while the pipeline business benefited from higher transportation volumes and new rates.
Business Segment Performance
The electric and natural gas distribution segments focus on providing safe, reliable, and affordable energy to customers, while also pursuing growth opportunities. These segments face challenges from regulation, cybersecurity threats, and changing customer conservation patterns.
The electric segment saw a 4% increase in earnings in 2024, driven by higher retail sales revenue from rate relief and an electric service agreement with a new data center customer. However, this was partially offset by lower customer volumes and higher operating costs.
The natural gas distribution segment’s earnings decreased by 3% in 2024, primarily due to higher operating and maintenance expenses, as well as higher depreciation and amortization costs. This was only partially offset by higher retail sales revenue from rate relief.
The pipeline segment had a strong year, with a 43% increase in earnings in 2024. This was driven by higher transportation volumes from growth projects, increased storage-related revenue, and new transportation and storage service rates. The segment also benefited from a customer settlement and a lower state income tax rate.
Outlook and Challenges
The utility businesses are expected to see continued rate base growth of around 7-8% annually over the next five years, driven by customer growth and system upgrades. The company is also pursuing opportunities related to the Bipartisan Infrastructure Law and the Inflation Reduction Act, which provide funding and incentives for clean energy projects.
However, the company faces several challenges, including:
- Potential new environmental regulations on coal-fired and natural gas-fired power plants, which could require significant new investments
- Ongoing supply chain issues and inflationary pressures affecting the cost and availability of materials and equipment
- Cybersecurity threats to its electric and natural gas utility systems
- Uncertainty around the impact of state-level clean energy legislation, such as in Oregon and Washington
The company is actively monitoring these issues and working to mitigate the potential impacts on its operations and financial performance.
Liquidity and Capital Resources
The company has access to various sources of liquidity, including cash, credit facilities, and the ability to issue debt and equity securities. As of the end of 2024, the company had $66.9 million in cash and $484.6 million in available borrowing capacity under its credit facilities.
The company’s capital expenditures are expected to total around $533 million in 2025, $811 million in 2026, and $593 million in 2027. These investments will focus on upgrading and expanding the company’s electric and natural gas utility infrastructure, as well as growth projects in the pipeline segment.
The company’s debt levels and financing activities are closely managed, with the goal of maintaining a strong balance sheet and investment-grade credit ratings. As of the end of 2024, the company’s total equity as a percentage of total capitalization was 54%.
Critical Accounting Estimates
The company’s financial statements rely on several critical accounting estimates, including:
Goodwill: The company performs annual impairment testing on its goodwill, which totaled $345.7 million for the natural gas distribution segment as of the end of 2024. The estimated fair value of this segment significantly exceeded its carrying value, indicating no impairment.
Regulatory Accounting: As a regulated utility, the company defers certain costs and revenues as regulatory assets and liabilities, which are expected to be recovered from or refunded to customers in future rates. Management continuously assesses the likelihood of recovery or refund of these deferred items.
Revenue Recognition: The company recognizes revenue from its construction contracts over time using the cost-to-cost method, which requires estimates of total project costs. Changes in these estimates can have a material impact on the company’s financial results.
Pension and Other Postretirement Benefits: The company makes various assumptions, such as discount rates and expected returns on plan assets, when calculating the costs and liabilities associated with its defined benefit pension and other postretirement benefit plans. Changes in these assumptions can affect the company’s future expense and obligations.
Income Taxes: The company must make judgments regarding the potential tax effects of various transactions and operations, which can impact its overall tax obligation and the recognition of deferred tax assets and liabilities.
Overall, MDU Resources Group’s financial performance in 2024 was mixed, with its pipeline and electric businesses providing growth, but offset by the absence of a large one-time gain in 2023. The company faces a variety of operational, regulatory, and financial challenges, but appears to have a solid liquidity position and is actively managing its capital expenditures and financing activities. The critical accounting estimates highlight the importance of management’s judgments and assumptions in the preparation of the company’s financial statements.
