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 total revenues of $6.4 billion, a 10% increase from the previous year. Net income was $343 million, a 15% increase from the previous year. The company’s operating cash flow was $1.1 billion, a 12% increase from the previous year. MDU Resources Group, Inc. also reported a significant increase in its dividend payments, with a 10% increase from the previous year. The company’s financial performance was driven by strong demand for its energy and utility services, as well as its construction and pipeline services.
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 $186.6 million gain related to the tax-free exchange of its retained shares in the former construction materials and contracting segment, Knife River.
The electric business saw higher retail sales revenue due to rate relief, but this was offset by lower volumes and higher operating costs. The natural gas distribution business had decreased earnings due to higher operating and maintenance expenses, as well as higher depreciation and amortization. The pipeline segment experienced increased earnings driven by higher transportation volumes, new rates, and other revenue increases, partially offset by higher costs.
In 2023, the company’s consolidated earnings increased by $47.2 million compared to 2022, with improved performance across all of its continuing business segments. The electric and natural gas distribution businesses saw higher retail sales revenue, while the pipeline segment benefited from increased transportation volumes and new rates.
Business Segment Performance
The electric and natural gas distribution segments focus on providing safe, reliable, and affordable energy services to customers, while pursuing growth opportunities. These segments face challenges related to regulatory oversight, environmental compliance, and cybersecurity. They are also impacted by weather, customer growth, and energy efficiency trends.
In 2024, the electric segment’s earnings increased by $3.2 million, driven by higher retail sales revenue from rate relief, partially offset by lower volumes and higher operating costs. The natural gas distribution segment’s earnings decreased by $1.6 million, primarily due to higher operating and maintenance expenses, as well as higher depreciation and amortization.
The pipeline segment concentrates on utilizing its expertise to increase market share and profitability through organic growth and investments in energy infrastructure. In 2024, the pipeline segment’s earnings increased by $21.1 million, benefiting from higher transportation volumes, new rates, and other revenue increases, partially offset by higher costs.
Outlook and Strategies
The company expects its utility businesses to grow rate base by approximately 7% to 8% annually over the next five years, driven by customer growth and system upgrades. The pipeline segment continues to pursue organic growth projects to expand natural gas transmission capacity.
The company is monitoring legislative and regulatory developments related to clean energy standards, which could impact its operations. It is also actively managing supply chain challenges and inflationary pressures affecting its businesses.
The company completed the separations of its former construction materials and contracting segment, Knife River, and its former construction services segment, Everus, into new independent publicly-traded companies. The historical results of these discontinued operations are reported separately from the company’s continuing operations.
Financial Position and Liquidity
At the end of 2024, the company had cash, cash equivalents, and restricted cash of $66.9 million, as well as $484.6 million in available borrowing capacity under its credit facilities. The company expects to meet its obligations and fund its operations and capital requirements from various sources, including internally generated funds, credit facilities, and the issuance of debt and equity securities.
The company’s capital expenditures, excluding discontinued operations, are expected to total approximately $533 million in 2025, $811 million in 2026, and $593 million in 2027. These investments will focus on electric and natural gas utility infrastructure, as well as pipeline system growth.
The company’s debt instruments contain certain restrictive covenants, and it maintains investment-grade credit ratings at all entities issuing public debt. Total equity as a percentage of total capitalization was 54% at the end of 2024, indicating a strong financial position.
Critical Accounting Estimates
The company’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP), which require management to make estimates and assumptions that affect the reported amounts. The company’s critical accounting estimates include:
Goodwill: The company performs annual goodwill impairment testing, using a combination of income and market approaches to determine the fair value of its reporting units. As of the end of 2024, the natural gas distribution segment was the only operating segment with goodwill, and its estimated fair value substantially exceeded the carrying value.
Regulatory Accounting: The company is subject to rate regulation, and it recognizes regulatory assets and liabilities based on the expected recovery or refund in future rates. Management continuously assesses the likelihood of recovery or refund of these deferred items.
Revenue Recognition: The company recognizes revenue from construction contracts over time using the cost-to-cost method, which requires estimates of total costs to complete projects. Changes in these estimates can have a material impact on the company’s results.
Pension and Other Postretirement Benefits: The company makes various assumptions, such as discount rates and expected returns on plan assets, when determining the costs and liabilities associated with its pension and other postretirement benefit plans. Changes in these assumptions can affect the company’s future expenses and obligations.
Income Taxes: The company must make judgments regarding the potential tax effects of various transactions and operations, which can result in favorable or unfavorable impacts on its financial statements.
Conclusion
MDU Resources Group, Inc. is a diversified energy company that has experienced mixed financial performance in recent years. While its electric and pipeline segments have seen improved earnings, the natural gas distribution business has faced higher operating costs. The company continues to focus on growth opportunities, regulatory compliance, and managing market risks, all while maintaining a strong financial position to fund its operations and capital investments.
