MDU Resources Group, Inc. Q3 2026 Earnings Conference Call - MDU RESOURCES GROUP INC

Financial Performance:

• Q3 2026 reported earnings of $14 million ($0.07/share); adjusted earnings were $16.6 million ($0.08/share).
• Year-to-date earnings reached $116.1 million ($0.55/share); adjusted year-to-date earnings were $119.4 million ($0.57/share).
• Operating income increased 15% year-over-year to $211.2 million for the first nine months.
• Earnings were negatively impacted by lower returns on non-qualified benefit plan investments, reducing earnings by approximately 1.5 cents per share compared to Q3 2025.
• Segment breakdown: Electric ($26.5M), Natural Gas Distribution (seasonal loss of $20.7M, including a $2.1M after-tax loss from discontinued RNG project), Pipeline ($13.1M), and Other (net loss of $4.9M due to insurance claims and tax adjustments).

Guidance and Future Outlook:

• Reaffirmed 2026 EPS guidance range of $0.93 to $1.00.
• Long-term EPS growth objective remains 6% to 8%.
• The Bakken East Pipeline is designed to transport 1.4 Bcf/day with in-service dates of late 2029 and late 2030.
• Planning to file approximately three to five rate cases annually moving forward.
• Full five-year capital plan update expected in late November following the EEI conference.

Business Segments and Product Lines:

• Electric: Earnings driven by new rates in ND, MT, WY, $3.2M earnings from Badger Wind Farm, and 9.3% increase in retail sales volumes; data center sales volumes decreased 18.4%.
• Natural Gas Distribution: Discontinued the Oregon not-landfill renewable natural gas project due to rising costs and regulatory changes, resulting in a $2.1M after-tax loss.
• Pipeline: Recognized $13.1M earnings; incurred advisory costs for the Bakken East project and faced higher O&M expenses.
• Data Center Growth: Over 1 GW of data center load signed under ESAs, with ~280 MW currently online and more ramping up; $45.4M returned to ND customers since 2023 via cost causation principles.
• Bakken East Pipeline: Final Investment Decision (FID) secured; narrowed capital investment estimate to $2.8–$3.1 billion; finalized design includes 42, 36, and 30-inch pipes and four new compressor stations.

Market and Competitive Landscape:

• Strong development activity in service territories, particularly data centers and infrastructure demand.
• Competitors in non-utility generation are developing projects to serve data centers, prompting MDU to evaluate utility-owned generation investments on a case-by-case basis.
• Market trends show increased energy demand requiring significant infrastructure investment; MDU maintains a unique position to serve large loads via both pipeline and potential generation assets.

Risks and Challenges:

• Discontinued RNG project led to an immediate after-tax loss of $2.1 million.
• Higher O&M expenses across segments, including payroll and material costs.
• Lower returns on non-qualified benefit plan investments impacted all segments.
• Regulatory risks include pending rate case approvals and potential refunds on interim rates.
• Climate/weather impacts noted from the first quarter, though Q3 benefited from warmer weather.

Management Commentary and Tone:

• Management tone was confident and disciplined, emphasizing "disciplined capital allocation" and safety.
• Leadership expressed strong belief in the long-term economic opportunities of the Bakken East project for the region.
• Reiteration of the "cost causation" principle ensures growth projects do not burden existing customers.
• CFO highlighted the strategic importance of balancing external financing needs with internal capital plans.

Analyst Questions and Answers:

• Financing Structure: Management confirmed they will evaluate equity partnerships for the Bakken East project but aim to retain majority ownership and operational control; details expected in the Q4 call (February).
• Cost Range Narrowing: The $2.8–$3.1B range was tightened due to finalized designs, pipe sizing decisions, and reduced compressor requirements, which improves operational efficiency and lowers fuel costs for customers.
• 2027 Outlook: Management declined to provide specific 2027 guidance, stating they typically update long-term outlooks in Q4, though rate relief and growth projects are expected to support future performance.
• Generation Investment: MDU is not opposed to owning generation to serve data centers but will only proceed if cost causation is met and value is created for shareholders and customers.

Other Key Points:

• Q4 2026 FERC 7C filing for the Bakken East project is anticipated.
• Interim electric rates effective in ND ($26.3M) and MT ($10.4M) are subject to refund.
• Oregon natural gas rate case settlement approved a $12.2M annual revenue increase effective Oct 31.
• A Minnesota rate case was filed on Oct 30 requesting $4.5M annual revenue increase, with an interim request of $3.9M pending for Jan 1, 2027 implementation.
• Washington multi-year rate case remains pending.