PORTLAND, Ore., Nov. 03, 2017 (GLOBE NEWSWIRE) -- Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported a consolidated net loss of $8.5 million, or $0.30 per share, for the third quarter of 2017, compared to a loss of $8.0 million, or $0.29 per share, for the same period in 2016. This reflects the seasonal nature of the utility's earnings with the majority of revenues generated during the winter heating season in the first and fourth quarters each year.
Consolidated net income was $34.5 million, or $1.20 per share, for the first nine months of 2017, compared to net income of $30.6 million, or $1.11 per share, for the same period of 2016. Results for the first nine months of 2016 included a non-cash disallowance related to the Company's environmental regulatory proceeding and the implementation of the environmental recovery mechanism. Excluding this charge(1) on a non-GAAP basis, EPS for the first nine months of 2016 was $1.18 on net income of $32.6 million.
Overall results for the first nine months of 2017 reflected higher utility segment earnings, partially offset by lower gas storage segment results. Utility earnings included additional margin from customer growth and cooler weather in 2017 compared to 2016, partially offset by higher operations and maintenance expense.
"I am proud of our achievements and progress this quarter," said David H. Anderson, President and CEO of NW Natural. "Once again we delivered strong customer growth, outstanding customer satisfaction, and lowered customers' rates. Looking forward, the North Mist Gas Storage Expansion Project continues on schedule, and we are very pleased to have announced our 62nd consecutive annual dividend increase. These achievements reflect our long-standing commitment to our customers, communities, employees, and investors."
Continued Constructing the North Mist Gas Storage Expansion Project
The North Mist Expansion Project is designed to provide long-term, no-notice underground gas storage service to support gas-fired electric generating facilities that are intended to facilitate the integration of more wind power into the region's electric generation mix. Natural gas storage enables electric generation to adjust quickly when renewable energy, such as wind and solar, rises and falls. Our no-notice service is designed to allow the local electric company to draw on our North Mist facility to meet its fueling needs and rapidly respond to natural variability in wind generation.
The project remains on track to be in-service during the fourth quarter of 2018 with the heaviest construction phase occurring this year. To date, we have completed all necessary wells for the project. Construction is nearly complete on the 13-mile pipeline connecting the North Mist facility to Portland General Electric's Port Westward electric generating facility. We expect to begin injecting gas into the reservoir early in 2018. The estimated cost of the expansion remains at $128 million. The expansion will be included in rate base under an established tariff when it is placed into service.
(1) Non-GAAP measure, see reconciliation below.
Third Quarter Results
The following financial comparisons are between the third quarter of 2017 and the third quarter of 2016, unless otherwise noted. Individual factors below are presented on an after-tax basis using a statutory tax rate of 39.5%.
Consolidated net loss increased $0.5 million, or $0.01 per share, primarily due to higher utility operation and maintenance expense partially offset by higher utility margin from customer growth.
The third quarter results are summarized by business segment in the table below:
|Three Months Ended September 30,|
|In thousands, except per share data||Amount||Per Share||Amount||Per Share||Amount||Per Share|
|Net income (loss):|
|Gas storage segment||1,899||0.06||1,813||0.06||86||—|
|Consolidated net loss||$||(8,495||)||$||(0.30||)||$||(8,040||)||$||(0.29||)||$||(455||)||$||(0.01||)|
Utility Segment Results
Utility segment net loss increased $0.8 million due to the following offsetting items:
Gas Storage Segment Results
Gas storage segment net income increased $0.1 million primarily due to slightly lower operating expenses partially offset by lower revenues.
The following financial comparisons are between the first nine months of 2017 and the same period of 2016, unless otherwise noted. Individual factors below are presented on an after-tax basis using a statutory tax rate of 39.5%.
Consolidated net income increased $3.9 million or $0.09 per share primarily due to higher utility segment results from customer growth and the effects of a colder winter in 2017 than 2016. In addition, 2016 results were negatively impacted by a non-cash disallowance recorded during the first quarter of 2016 related to the Company's environmental regulatory proceeding and the implementation of the environmental recovery mechanism. Offsetting these favorable variances were higher operations and maintenance expense from the utility and lower results from our gas storage segment.
The year-to-date results are summarized by business segment in the table below:
|Nine Months Ended September 30,|
|In thousands, except per share data||Amount||Per Share||Amount||Per Share||Amount||Per Share|
|Net income (loss):|
|Gas storage segment||2,716||0.09||3,988||0.14||(1,272||)||(0.05||)|
|Consolidated net income (GAAP)||$||34,544||$||1.20||$||30,620||$||1.11||$||3,924||$||0.09|
|Adjustment for regulatory environmental disallowance(1)||—||—||1,996||0.07||(1,996||)||(0.07||)|
|Adjusted net income (non-GAAP)(1)||$||34,544||$||1.20||$||32,616||$||1.18||$||1,928||$||0.02|
(1) The 2016 disallowance related to the Company's compliance filing under the environmental recovery mechanism with the total pre-tax charge of $3.3 million recorded in utility other income ($2.8 million) and utility operation and maintenance expense ($0.5 million). The income tax effect of the adjustment was $1.3 million and is calculated using the combined federal and state statutory tax rate of 39.5%.
Utility Segment Results
Utility segment net income increased $5.1 million or $0.14 per share primarily due to the following offsetting items:
Gas Storage Segment Results
Gas storage segment net income decreased $1.3 million or $0.05 per share primarily due to the following factors:
Balance Sheet and Cash Flows
During the first nine months of 2017, the Company generated $192.9 million in operating cash flow, invested $145.4 million in capital expenditures, and paid dividends of $40.4 million.
Cash provided by operations decreased $13.5 million from income tax refunds in 2016 as a result of the reenactment of bonus depreciation in 2015 and changes in working capital. Cash outflows from investing activities increased $51.3 million primarily due to higher capital expenditures from the North Mist Gas Storage Expansion Project. Cash outflows from financing activities decreased $75.1 million primarily due to a long-term debt issuance in September 2017 offset by short- and long-term debt repayments.
2017 Earnings Guidance
The Company reaffirms 2017 earnings guidance today in the range of $2.05 to $2.25 per share. This guidance assumes customer growth from our utility segment, average weather conditions, slow recovery of the gas storage market, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant laws or regulations.
The board of directors of NW Natural declared a quarterly dividend of 47.25 cents per share on the Company’s common stock. The dividend will be paid on November 15, 2017 to shareholders of record on October 31, 2017. The Company’s current indicated annual dividend rate is $1.89 per share.
Conference Call and Webcast
As previously reported, NW Natural will host a conference call and webcast today to discuss its third quarter and year-to-date 2017 financial and operating results.
|Date and Time:||Friday, November 3|
8 a.m. PT (11 a.m. ET)
|Phone Numbers:||United States: 1-866-267-6789|
The call will also be webcast in a listen-only format for the media and general public and can be accessed at nwnatural.com under the Investor Relations tab. A replay of the conference call will be available on our website and by dialing 1-877-344-7529 (U.S.), 1-855-669-9658 (Canada), and 1-412-317-0088 (international). The replay access code is (10112833).
About NW Natural
NW Natural (NYSE:NWN) is headquartered in Portland, Ore., and provides natural gas service to more than 730,000 residential, commercial, and industrial customers in western Oregon and southwestern Washington. NW Natural and its subsidiaries currently own and operate 31 Bcf of underground gas storage capacity in Oregon and California. Additional information is available at nwnatural.com.
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "assumes," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, investments, customer growth, weather, commodity and other costs, customer rates or rate recovery, customer preference, growth, adoption of renewable energy and our ability to provide effective supporting resources, environmental remediation cost recoveries, levels and pricing of gas storage contracts, gas storage development or costs or timing related thereto, financial positions, revenues, returns, and earnings and the timing thereof, dividends, performance, timing or effects of future regulatory proceedings or future regulatory approvals, regulatory prudence reviews, effects of regulatory mechanisms, including, but not limited to, SRRM, effects of changes in laws or regulations, and other statements that are other than statements of historical facts.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future operational, economic or financial performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.
All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.
Presentation of Non-GAAP Results
In addition to presenting the results of operations and earnings amounts in total, certain financial measures exclude the after-tax regulatory charge related to the regulatory order implementing the SRRM in 2016, which are non-GAAP financial measures. We present net income and EPS excluding the regulatory disallowance along with the GAAP measures to illustrate the magnitude of this disallowance on ongoing business and operational results. Although the excluded amounts are properly included in the determination of these items under GAAP, we believe the amount and nature of such disallowance make period to period comparisons of operations difficult or potentially confusing. Financial measures are expressed in cents per share as these amounts reflect factors that directly impact earnings, including income taxes. All references to EPS are on the basis of diluted shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations.
|Consolidated Income Statement and Financial Highlights (Unaudited)|
|Third Quarter 2017|
|Three Months Ended||Nine Months Ended||Twelve Months Ended|
|In thousands, except per share amounts, customer, and degree day data||September 30,||September 30,||September 30,|
|Cost of gas||27,239||28,264||(4||)||223,855||157,546||42||326,897||261,114||25|
|Operations and maintenance||36,867||34,870||6||115,833||109,771||6||156,036||145,834||7|
|Depreciation and amortization||21,484||20,628||4||63,924||61,435||4||84,778||81,675||4|
|Total operating expenses||94,846||92,164||3||439,022||360,198||22||615,511||530,710||16|
|Income (loss) from operations||(6,656||)||(4,437||)||50||82,729||82,241||1||139,768||142,447||(2||)|
|Other income (expense), net||1,493||652||129||3,332||(1,144||)||(391||)||3,933||(327||)||(1,303||)|
|Interest expense, net||9,451||9,729||(3||)||29,044||29,183||—||38,989||40,692||(4||)|
|Income (loss) before income taxes||(14,614||)||(13,514||)||8||57,017||51,914||10||104,712||101,428||3|
|Income tax expense (benefit)||(6,119||)||(5,474||)||12||22,473||21,294||6||41,893||41,103||2|
|Net income (loss)||$||(8,495||)||$||(8,040||)||6||$||34,544||$||30,620||13||$||62,819||$||60,325||4|
|Common shares outstanding:|
|Average diluted for period||28,678||27,554||28,734||27,629||28,595||27,590|
|End of period||28,713||27,558||28,713||27,558||28,713||27,558|
|Per share information:|
|Diluted earnings (loss) per share||$||(0.30||)||$||(0.29||)||$||1.20||$||1.11||$||2.20||$||2.19|
|Dividends declared per share of common stock||0.4700||0.4675||1.4100||1.4025||1.8800||1.8700|
|Book value per share, end of period||29.49||28.27||29.49||28.27||29.49||28.27|
|Market closing price, end of period||64.40||60.11||64.40||60.11||64.40||60.11|
|Capital structure, end of period:|
|Common stock equity||52.1||%||49.6||%||52.1||%||49.6||%||52.1||%||49.6||%|
|Short-term debt (including amounts due in one year)||1.3||16.6||1.3||16.6||%||1.3||16.6||%|
|Utility segment operating statistics:|
|Customers - end of period||730,824||718,139||1.8||%||730,824||718,139||1.8||%||730,824||718,139||1.8||%|
|Utility volumes - therms:|
|Residential and commercial sales||54,557||55,610||495,949||381,109||724,062||594,292|
|Industrial sales and transportation||109,064||106,595||369,954||346,578||499,150||469,480|
|Total utility volumes sold and delivered||163,621||162,205||865,903||727,687||1,223,212||1,063,772|
|Utility operating revenues:|
|Residential and commercial sales||$||69,294||$||68,508||$||466,867||$||388,689||$||682,568||$||601,457|
|Industrial sales and transportation||13,488||13,412||47,182||42,048||64,520||59,920|
|Less: Revenue taxes||2,262||2,161||13,251||11,252||19,110||17,080|
|Total utility operating revenues||81,126||80,378||503,947||422,617||731,807||648,155|
|Less: Cost of gas||27,239||28,264||223,855||157,546||326,897||261,114|
|Environmental remediation expense||1,355||1,191||10,920||8,113||16,105||11,626|
|Utility margin, net||$||52,532||$||50,923||$||269,172||$||256,958||$||388,805||$||375,415|
|Average (25-year average)||95||95||2,641||2,657||4,240||4,256|
|Percent (warmer) colder than average weather||(18||)%||(18||)%||11||%||(22||)%||4||%||(19||)%|
|Gas storage segment operating statistics:|
|Consolidated Balance Sheets (Unaudited)||September 30,|
|Cash and cash equivalents||$||15,780||$||6,230|
|Accrued unbilled revenue||15,974||15,537|
|Allowance for uncollectible accounts||(459||)||(289||)|
|Income taxes receivable||—||2,257|
|Other current assets||17,457||17,480|
|Total current assets||199,546||210,585|
|Property, plant, and equipment||3,384,122||3,177,196|
|Less: Accumulated depreciation||986,332||943,334|
|Total property, plant, and equipment, net||2,397,790||2,233,862|
|Other non-current assets||4,243||1,269|
|Total non-current assets||2,906,061||2,749,299|
|Liabilities and equity:|
|Current maturities of long-term debt||21,995||64,994|
|Other current liabilities||27,705||31,997|
|Total current liabilities||202,951||402,704|
|Deferred credits and other non-current liabilities:|
|Deferred tax liabilities||572,293||544,575|
|Pension and other postretirement benefit liabilities||212,259||216,909|
|Other non-current liabilities||146,229||142,450|
|Total deferred credits and other non-current liabilities||1,298,545||1,247,759|
|Accumulated other comprehensive loss||(6,528||)||(7,570||)|
|Total liabilities and equity||$||3,105,607||$||2,959,884|
|Consolidated Statements of Cash Flows (Unaudited)||Nine Months Ended September 30,|
|Adjustments to reconcile net income to cash provided by operations:|
|Depreciation and amortization||63,924||61,435|
|Regulatory amortization of gas reserves||12,036||11,403|
|Deferred income taxes||17,287||17,810|
|Qualified defined benefit pension plan expense||3,923||3,989|
|Contributions to qualified defined benefit pension plans||(15,400||)||(11,250||)|
|Deferred environmental expenditures, net||(10,468||)||(8,302||)|
|Regulatory disallowance of prior environmental cost deferrals||—||3,287|
|Amortization of environmental remediation||10,920||8,113|
|Changes in assets and liabilities:|
|Deferred gas costs||13,419||(10,470||)|
|Cash provided by operating activities||192,856||206,399|
|Cash used in investing activities||(146,572||)||(95,243||)|
|Repurchases related to stock-based compensation||(2,034||)||(1,042||)|
|Proceeds from stock options exercised||3,711||5,874|
|Long-term debt issued||100,000||—|
|Long-term debt retired||(40,000||)||—|
|Change in short-term debt||(53,300||)||(75,135||)|
|Cash dividend payments on common stock||(40,390||)||(38,556||)|
|Cash used in financing activities||(34,025||)||(109,137||)|
|Increase in cash and cash equivalents||12,259||2,019|
|Cash and cash equivalents, beginning of period||3,521||4,211|
|Cash and cash equivalents, end of period||$||15,780||$||6,230|
|Supplemental disclosure of cash flow information:|
|Interest paid, net of capitalization||$||22,859||$||23,271|
|Income taxes paid (refunded)||11,581||(6,900||)|