MDU Resources Group Inc. reported second quarter earnings of $70.7 million, or 35 cents per share, compared to second quarter 2021 earnings of $100.2 million, or 50 cents per share. For the six months ended June 30, MDU Resources earned $102.4 million, or 50 cents per share, compared to $152.3 million, or 76 cents per share, in 2021.
“Both our construction businesses had record revenues in the quarter, however ongoing inflationary impacts and supply chain challenges continue to create headwinds. Weather impacts and negative market returns on nonqualified benefit plan investments also contributed to lower-than-expected earnings. With our combined construction backlog of work up 37% to an all-time record of $3.1 billion, we expect to recover some momentum in the third quarter as our record level of more than 16,500 skilled employees continues building a strong America,” said David L. Goodin, president and CEO of MDU Resources.
“Above-average precipitation in the Northwest and late-season blizzards in the north central United States delayed construction activity in the second quarter. Our electric utility also was impacted by the blizzards, which caused unprecedented damage to our distribution system. Our utility team received a national award for its outstanding effort to restore power quickly and safely to our customers,” Goodin said. “Due to our slower start to the year and ongoing inflationary and supply chain challenges, we now expect earnings per share to be in the range of $1.75 to $1.90 for 2022.”
The construction materials business had record second quarter revenues, up 12% from second quarter 2021, and earned $32.6 million, compared to $51.4 million in the second quarter of 2021. While pricing increases drove revenue growth, higher fuel, material and labor costs outpaced these increases.
Construction work was delayed by late-season blizzards in the north central U.S. and above-average precipitation in the northwestern and north central U.S. Demand remains strong for construction materials and contracting work, with an all-time record backlog of $1.13 billion at June 30, up 24% compared to $912 million at June 30, 2021.
The construction services business had all-time record quarterly revenues, up 30% from second quarter 2021, and record second quarter earnings of $34.5 million, compared to $28.9 million in the second quarter of 2021. Electrical and mechanical services workload was strong during the quarter, particularly for data center, hospitality and commercial facilities.
Demand remains strong for construction services work, with an all-time record backlog of $1.92 billion at June 30, up 46% compared to $1.32 billion at June 30, 2021. As a result of the strong start to the year, the company has increased the 2022 revenue guidance range by $200 million for the construction services business.
The pipeline business earned $7.1 million in the second quarter, compared to $9.2 million in the second quarter of 2021. Lower investment returns on nonqualified benefit plans contributed to the earnings decrease. The pipeline business benefited from increased transportation revenues primarily from the North Bakken Expansion project that was placed in service earlier this year, partly offset by higher depreciation and the absence of income allowed by the Federal Energy Regulatory Commission for funds used during construction on the project.
The company continues work on a number of additional expansion projects across its system, which are expected to add incremental natural gas transportation capacity of more than 300 million cubic feet per day as they are completed throughout 2022-24. Some of these projects are dependent on regulatory approvals.
The electric and natural gas utility had a loss of $2.9 million in the second quarter, compared to earnings of $9.6 million in the second quarter of 2021. Lower investment returns on nonqualified benefit plans had the biggest impact on this business’s results, with a variance of $6.5 million. With late-season blizzards and overall cooler temperatures impacting the utility’s service territory, electricity use for cooling decreased, resulting in 3.4% lower electric sales volumes.
Natural gas use for heating increased, with sales volumes 27.2% higher, however weather normalization mechanisms mitigated a large portion of the earnings benefit. Costs for contract services were higher during the quarter, primarily related to a planned outage at Coyote Station, which is an electric generating facility co-owned by the utility. The utility filed a request May 16 with the North Dakota Public Service Commission for a 12.3% electric rate increase, and the NDPSC approved a 5.3% interim rate increase effective mid-July until a final decision is made.
The Washington Utilities and Transportation Commission is expected to make a decision by Sept. 1 on the utility’s pending request for a natural gas rate increase, which could result in an approximate 4% increase based on a proposed multi-party settlement.
MDU Resources also announced its plan to separate Knife River Corporation, its aggregates-based construction materials and contracting business, from the company through a tax-free spinoff to MDU Resources shareholders. This separation will result in two independent, publicly traded and well-capitalized companies. The MDU Resources board believes this transaction will leave each company positioned for durable growth and shareholder value creation.