NW Natural Reports Third Quarter and Year-to-Date 2017 Results

Print
| Source: NW Natural
  • Recorded consolidated net loss of $8.5 million for the third quarter of 2017, compared to a loss of $8.0 million for 2016.
  • Increased consolidated net income by $3.9 million to $34.5 million or $1.20 per share for the first nine months of 2017 compared to the same period last year.
  • Increased dividends for the 62nd consecutive year with an annual indicated dividend rate of $1.89 per share.
  • Awarded the highest customer satisfaction score among large utilities in the West for the fifth year in a row (2017 J.D. Power Gas Utility Residential Customer Satisfaction study).
  • Reduced residential customer rates for the third consecutive year resulting in a cumulative decrease of 15% in Oregon and 18% in Washington over that time.
  • Connected nearly 12,700 new utility customers over the past 12 months equating to a customer growth rate of 1.8%.
  • Reaffirmed 2017 earnings guidance of $2.05 to $2.25 per share.

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 Results
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,
 2017 2016 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income (loss):        
Utility segment$(10,349)$(0.36) $(9,511)$(0.35) $(838)$(0.01)
Gas storage segment1,899 0.06  1,813 0.06  86  
Other(45)  (342)  297  
Consolidated net loss$(8,495)$(0.30) $(8,040)$(0.29) $(455)$(0.01)
Diluted shares28,678   27,554   1,124  

Utility Segment Results
Utility segment net loss increased $0.8 million due to the following offsetting items:

  • a $1.7 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount, general salary increases, and higher health care costs. In addition, non-payroll costs increased as we upgraded employee safety equipment; and
  • a $1.0 million increase in utility margin primarily reflecting strong customer growth.

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.

Year-to-Date Results
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 Results
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,
 2017 2016 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income (loss):        
Utility segment$31,980 $1.11  $26,848 $0.97  $5,132 $0.14 
Gas storage segment2,716 0.09  3,988 0.14  (1,272)(0.05)
Other(152)  (216)  64  
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 
Diluted shares28,734   27,629   1,105  

(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:

  • a $7.4 million increase in utility margin reflecting strong customer growth and the effects of a colder winter in 2017. Weather for the first nine months of 2017 was 42% colder than 2016 and 11% colder than average. Offsetting these factors were lower gains from our gas cost incentive sharing mechanism in Oregon;
  • a $3.4 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount, general salary increases, and higher health care costs. In addition, non-payroll costs increased as we upgraded employee safety equipment;
  • a $2.4 million increase in other income mainly due to the environmental interest disallowance in the first quarter of 2016 as a result of closing out the environmental docket and implementing the environmental recovery mechanism. Also contributing to the increase were higher earnings from the equity portion of allowance for funds used during construction (AFUDC); and
  • a $1.6 million increase in depreciation expense due to capital expenditures for customer growth, system reinforcement, facilities, and technology.

Gas Storage Segment Results
Gas storage segment net income decreased $1.3 million or $0.05 per share primarily due to the following factors:

  • a $1.2 million decrease in gas storage revenues reflecting lower asset management revenues from our Mist facility and transportation capacity; and
  • a $0.2 million increase in operating expenses from pipeline and compressor maintenance at our Gill Ranch facility.

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.

Dividend Declared
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
Canada:  1-855-669-9657
International:  1-412-902-4110

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.

Investor Contact:
Nikki Sparley
Phone: 503-721-2530
Email: n1s@nwnatural.com

Media Contact:
Melissa Moore
Phone: 503-220-2436
Email: msm@nwnatural.com

Forward-Looking Statements
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.

NORTHWEST NATURAL
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, 
2017 2016Change2017 2016Change2017 2016Change
Operating revenues$88,190  $87,727 1%$521,751  $442,439 18%$755,279  $673,157 12%
                   
Operating expenses:                  
 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 
 Environmental remediation 1,355   1,191 14  10,920   8,113 35  16,105   11,626 39 
 General taxes 7,901   7,211 10  24,490   23,333 5  31,695   30,461 4 
 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% 
 Long-term debt 46.6   33.8   46.6   33.8%  46.6   33.8% 
 Short-term debt (including amounts due in one year) 1.3   16.6   1.3   16.6%  1.3   16.6% 
 Total 100.0%  100.0%  100.0%  100.0%  100.0%  100.0% 
                    
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  
 Other revenues 606   619   3,149   3,132   3,829   3,858  
 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  
Degree days:                  
 Average (25-year average) 95   95   2,641   2,657   4,240   4,256  
 Actual 78   78 % 2,931   2,066 42% 4,416   3,456 28%
Percent (warmer) colder than average weather (18)%  (18)%  11%  (22)%  4%  (19)% 
                    
Gas storage segment operating statistics:                  
Operating revenues$7,006  $7,293  $17,635  $19,654  $23,247  $24,778  
Operating expenses 3,463   3,791   11,887   11,547   16,470   15,637  


NORTHWEST NATURAL      
Consolidated Balance Sheets (Unaudited)  September 30,
In thousands  2017  2016
Assets:      
Current assets:      
 Cash and cash equivalents $15,780  $6,230 
 Accounts receivable  23,450   25,506 
 Accrued unbilled revenue  15,974   15,537 
 Allowance for uncollectible accounts  (459)  (289)
 Regulatory assets  49,504   55,280 
 Derivative instruments  2,073   4,857 
 Inventories  59,549   67,470 
 Gas reserves  16,218   16,257 
 Income taxes receivable     2,257 
 Other current assets  17,457   17,480 
  Total current assets  199,546   210,585 
Non-current assets:      
 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 
 Gas reserves  87,876   103,976 
 Regulatory assets  345,352   341,188 
 Derivative instruments  1,555   1,151 
 Other investments  69,245   67,853 
 Other non-current assets  4,243   1,269 
  Total non-current assets  2,906,061   2,749,299 
  Total assets $3,105,607  $2,959,884 
Liabilities and equity:      
Current liabilities:      
 Short-term debt $  $194,900 
 Current maturities of long-term debt  21,995   64,994 
 Accounts payable  87,475   55,933 
 Taxes accrued  12,295   11,954 
 Interest accrued  9,854   9,671 
 Regulatory liabilities  34,659   27,921 
 Derivative instruments  8,968   5,334 
 Other current liabilities  27,705   31,997 
  Total current liabilities  202,951   402,704 
Long-term debt  757,429   530,219 
Deferred credits and other non-current liabilities:      
 Deferred tax liabilities  572,293   544,575 
 Regulatory liabilities  363,838   342,143 
 Pension and other postretirement benefit liabilities  212,259   216,909 
 Derivative instruments  3,926   1,682 
 Other non-current liabilities  146,229   142,450 
  Total deferred credits and other non-current liabilities  1,298,545   1,247,759 
Equity:      
 Common stock  447,129   389,834 
 Retained earnings  406,081   396,938 
 Accumulated other comprehensive loss  (6,528)  (7,570)
  Total equity  846,682   779,202 
  Total liabilities and equity $3,105,607  $2,959,884 


NORTHWEST NATURAL      
Consolidated Statements of Cash Flows (Unaudited)  Nine Months Ended September 30,
In thousands  2017  2016
Operating activities:      
 Net income $34,544  $30,620 
 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 
  Other  2,605   4,817 
  Changes in assets and liabilities:      
   Receivables, net  90,735   83,377 
   Inventories  (5,420)  3,226 
   Income taxes  146   7,170 
   Accounts payable  (29,726)  (17,612)
   Interest accrued  3,888   3,798 
   Deferred gas costs  13,419   (10,470)
   Other, net  443   14,988 
  Cash provided by operating activities  192,856   206,399 
Investing activities:      
 Capital expenditures  (145,441)  (98,111)
 Other  (1,131)  2,868 
  Cash used in investing activities  (146,572)  (95,243)
Financing activities:      
 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)
 Other  (2,012)  (278)
  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)