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NW Natural Reports First Quarter 2017 Results

  • Increased consolidated net income by $3.7 million to $40.3 million for the first quarter of 2017.
  • Increased utility margin by $3.3 million, after-tax, and added 12,000 utility customers during the past 12 months.
  • Continued construction on the North Mist Gas Storage Expansion Project, which is on track and on budget.
  • Reaffirmed earnings guidance for 2017, which is expected to range from $2.05 to $2.25 per share.

PORTLAND, Ore., May 08, 2017 (GLOBE NEWSWIRE) -- Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported earnings per share (EPS) of $1.40 on net income of $40.3 million for the first quarter of 2017, compared to $1.33 per share on net income of $36.6 million for the same period in 2016. Results for the first quarter of 2016 included a non-cash disallowance related to the Company's environmental regulatory proceeding and the implementation of the environmental mechanism. Excluding this charge(1) on a non-GAAP basis, EPS for 2016 was $1.40 on net income of $38.6 million. Results for 2017 reflect higher utility segment earnings including additional margin from customer growth and the effects of colder weather, offset by lower gas storage segment earnings primarily from lower asset management revenues.

"The first quarter financial results were solid with the utility continuing to grow organically and providing stable returns," said David H. Anderson, President and CEO of NW Natural. "Operationally our distribution system performed very well through some periods of exceptionally cold weather this past winter. I'm proud of all our dedicated employees that provided outstanding customer service and kept the natural gas system running smoothly."

Mr. Anderson continued, "In 2017, we are focused on continuing to operate our system safely and reliably, and effectively positioning our Company for a low-carbon future. The benefits of clean-burning natural gas - its reliability, flexibility, and affordability - make it a vital energy resource to the communities we serve. That is why we are working hard on projects like our North Mist Expansion Project that will enable the integration of more wind power in the grid and our new innovative project with the city of Portland to put Renewable Natural Gas (RNG) from their wastewater treatment plant through NW Natural's pipeline and into vehicles."

Construction Continues on 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, which are intended to facilitate the integration of more wind power into the electric generation mix. Natural gas storage enables electric generation to adjust quickly when renewable energy - like wind and solar - rise and fall with natural variability. 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 changing conditions in wind generation.

The facility continues to be on track to be in-service for the winter of 2018 with the heaviest construction phase in 2017. During the first quarter, we completed construction of the primary well pad and continued working on the compressor station and pipeline. We also completed our caprock reservoir analysis and received a critical approval that allows us to store the necessary amount of natural gas in the reservoir for service. The estimated cost of the expansion continues to be $128 million with a targeted in-service date for the winter of 2018. The expansion will be rate-based under an established tariff when it is placed into service.

(1) Non-GAAP measure, see reconciliation below.

First Quarter Results
The following financial comparisons are between the first quarter of 2017 and first 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 income increased $3.7 million or $0.07 per share primarily due to higher utility segment results from customer growth and the effects of colder weather. Results for the first quarter of 2016 included a non-cash disallowance related to the Company's environmental regulatory proceeding and the implementation of the environmental mechanism. Our gas storage segment reported lower results reflecting lower asset management revenues.

The first quarter results are summarized in the table below:

Three Months Ended March 31,
2017 2016 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income:
Utility segment$40,192 $1.40 $35,852 $1.30 $4,340 $0.10
Gas storage segment61 736 0.03 (675)(0.03)
Other57 53 4
Consolidated net income (GAAP)$40,310 $1.40 $36,641 $1.33 $3,669 $0.07
Adjustment for regulatory environmental disallowance(1) 1,996 0.07 (1,996)(0.07)
Adjusted net income (non-GAAP)$40,310 $1.40 $38,637 $1.40 $1,673 $
Diluted Shares28,723 27,560 1,163
(1) The 2016 disallowance related to the Company's compliance filing under the environmental 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
The utility segment net income increased $4.3 million or $0.10 per share primarily due to the following offsetting items:

  • a $3.3 million increase in utility margin reflecting customer growth and the effects of colder than average weather in 2017 compared to a warmer than average winter in 2016. Weather affects our Washington customer base where we do not have a weather normalization mechanism in place and our Oregon customers who opted out of weather normalization. Offsetting these factors were lower gains from our gas cost incentive sharing mechanism;
  • a $1.8 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; offset by
  • a $0.5 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount as we resumed sustainable operating levels over the past year and higher non-payroll expenses related to system integrity maintenance.

For the first quarter of 2017 weather was 37% colder compared to the same period in 2016. Temperatures for the first quarter of 2017 were colder than average by 17%, compared to 15% warmer than average for the first quarter of 2016.

Gas Storage Segment Results
The gas storage segment net income decreased $0.7 million or $0.03 per share primarily due to the following factors:

  • a $0.5 million decrease in gas storage revenues primarily from lower asset management revenues from our Mist facility and transportation capacity offset by slightly higher firm prices at our Gill Ranch facility for the 2016-17 storage year; and
  • a $0.2 million increase in operating expenses from routine pipeline and compressor maintenance at our Gill Ranch facility.

We have contracted both our Mist and Gill Ranch facilities for the 2017-18 gas storage year, which began on April 1, 2017. Our Mist facility remains under long-term contracts at similar prices to prior periods. Our Gill Ranch facility is contracted with approximately half of the capacity in firm contracts at slightly higher prices than the prior gas storage year, but prices continue to remain low relative to our historic long-term contracts. The remaining capacity at the Gill facility is under asset management agreements with a third-party and will be subject to market pricing.

Balance Sheet and Cash Flows
During the first quarter of 2017, the Company generated $145.2 million in operating cash flow, invested $38.9 million in capital expenditures, reduced short-term debt by $53.3 million, and paid dividends of $13.5 million.

Cash provided by operations was enhanced by higher customer receipts due to the comparatively colder weather offset by higher gas purchases and income tax payments. Cash outflows from investing activities increased $8.8 million primarily due to higher capital expenditures primarily from the North Mist Expansion Project. Cash outflows from financing activities decreased $46.8 million primarily due to lower short-term debt and commercial paper balances and repayments.

2017 Earnings Guidance
The Company reaffirmed 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 cents per share on the Company’s common stock. The dividends will be paid on May 15, 2017 to shareholders of record on April 28, 2017. The Company’s indicated annual dividend rate is $1.88 per share.

Conference Call and Webcast
As previously reported, NW Natural will host a conference call and webcast today to discuss its first quarter 2017 financial and operating results.

Date and Time: Monday, May 8
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 (10104580).

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.

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 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)
First Quarter 2017
Three Months Ended Twelve Months Ended
In thousands, except per share amounts, customer, and degree day data March 31, March 31,
2017 2016Change2017 2016Change
Operating revenues$297,323 $255,529 16%$717,761 $717,655 —%
Operating expenses:
Cost of gas 143,611 108,411 32 295,788 310,011 (5)
Operations and maintenance 40,420 38,939 4 151,455 142,344 6
Environmental remediation 6,954 5,029 38 15,223 8,542 78
General taxes 9,025 8,684 4 30,879 30,233 2
Depreciation and amortization 21,085 20,394 3 82,980 81,206 2
Total operating expenses 221,095 181,457 22 576,325 572,336 1
Income from operations 76,228 74,072 3 141,436 145,319 (3)
Other income (expense), net 881 (2,309)(138) 2,647 389 580
Interest expense, net 9,876 9,736 1 39,268 41,794 (6)
Income before income taxes 67,233 62,027 8 104,815 103,914 1
Income tax expense 26,923 25,386 6 42,251 42,056
Net income$40,310 $36,641 10 $62,564 $61,858 1
Common shares outstanding:
Average diluted for period 28,723 27,560 28,046 27,453
End of period 28,644 27,493 28,644 27,493
Per share information:
Diluted earnings per share$1.40 $1.33 $2.23 $2.25
Dividends declared per share of common stock 0.4700 0.4675 1.87 1.87
Book value per share, end of period 30.53 29.35 30.53 29.35
Market closing price, end of period 59.10 53.85 59.10 53.85
Capital structure, end of period:
Common stock equity 54.8% 51.5% 54.8% 51.5%
Long-term debt 41.3 36.4 41.3 36.4
Short-term debt (including amounts due in one year) 3.9 12.1 3.9 12.1
Total 100.0% 100.0% 100.0% 100.0%
Utility segment operating statistics:
Customers - end of period 730,067 718,009 1.7% 730,067 718,009 1.7%
Utility volumes - therms:
Residential and commercial sales 327,523 242,874 693,871 606,785
Industrial sales and transportation 140,116 129,675 486,215 464,399
Total utility volumes sold and delivered 467,639 372,549 1,180,086 1,071,184
Utility operating revenues:
Residential and commercial sales$280,277 $237,672 $646,995 $641,595
Industrial sales and transportation 18,903 17,664 60,625 68,633
Other revenues 1,375 1,411 3,776 3,919
Less: Revenue taxes 7,829 6,643 18,297 18,139
Total utility operating revenues 292,726 250,104 693,099 696,008
Less: Cost of gas 143,611 108,411 295,788 310,011
Environmental remediation expense 6,954 5,029 15,223 8,542
Utility margin, net$142,161 $136,664 $382,088 $377,455
Degree days:
Average (25-year average) 1,855 1,871 4,240 4,240
Actual 2,169 1,585 37% 4,135 3,562 16%
Percent (warmer) colder than average weather 17% (15)% (2)% (16)%
Gas storage segment operating statistics:
Operating revenues$4,541 $5,369 $24,438 $21,422
Operating expenses 3,935 3,644 16,422 15,721


NORTHWEST NATURAL
Consolidated Balance Sheets (Unaudited) March 31,
In thousands 2017 2016
Assets:
Current assets:
Cash and cash equivalents $40,639 $4,321
Accounts receivable 70,429 69,066
Accrued unbilled revenue 38,017 36,393
Allowance for uncollectible accounts (1,668) (1,376)
Regulatory assets 34,874 61,524
Derivative instruments 2,908 1,960
Inventories 48,484 60,581
Gas reserves 15,378 16,420
Other current assets 16,832 23,311
Total current assets 265,893 272,200
Non-current assets:
Property, plant, and equipment 3,247,177 3,115,854
Less: Accumulated depreciation 960,336 919,187
Total property, plant, and equipment, net 2,286,841 2,196,667
Gas reserves 96,630 111,145
Regulatory assets 349,057 351,390
Derivative instruments 46 452
Other investments 68,729 67,490
Other non-current assets 3,460 2,689
Total non-current assets 2,804,763 2,729,833
Total assets $3,070,656 $3,002,033
Liabilities and equity:
Current liabilities:
Short-term debt $ $164,900
Current maturities of long-term debt 61,994 24,980
Accounts payable 73,245 57,407
Taxes accrued 16,653 10,256
Interest accrued 10,581 9,671
Regulatory liabilities 33,211 35,596
Derivative instruments 1,638 17,313
Other current liabilities 37,697 42,100
Total current liabilities 235,019 362,223
Long-term debt 657,716 569,745
Deferred credits and other non-current liabilities:
Deferred tax liabilities 575,451 550,731
Regulatory liabilities 357,587 346,761
Pension and other postretirement benefit liabilities 223,253 221,291
Derivative instruments 2,546 1,237
Other non-current liabilities 144,469 143,090
Total deferred credits and other non-current liabilities 1,303,306 1,263,110
Equity:
Common stock 442,647 385,232
Retained earnings 438,783 428,691
Accumulated other comprehensive loss (6,815) (6,968)
Total equity 874,615 806,955
Total liabilities and equity $3,070,656 $3,002,033


NORTHWEST NATURAL
Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31,
In thousands 2017 2016
Operating activities:
Net income $40,310 $36,641
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 21,085 20,394
Regulatory amortization of gas reserves 4,107 4,075
Deferred income taxes 20,445 23,353
Qualified defined benefit pension plan expense 1,316 1,311
Contributions to qualified defined benefit pension plans (3,220) (2,900)
Deferred environmental (expenditures) recoveries, net (3,432) (2,665)
Regulatory disallowance of prior environmental cost deferrals 3,273
Amortization of environmental remediation 6,954 5,029
Other 1,695 1,169
Changes in assets and liabilities:
Receivables, net 23,147 22,242
Inventories 5,645 10,115
Income taxes 4,504 7,729
Accounts payable (13,437) (14,537)
Interest accrued 4,615 3,798
Deferred gas costs 13,454 8,519
Other, net 17,978 18,592
Cash provided by operating activities 145,166 146,138
Investing activities:
Capital expenditures (38,924) (30,054)
Other 98 24
Cash used in investing activities (38,826) (30,030)
Financing activities:
Repurchases related to stock-based compensation (1,943) (996)
Proceeds from stock options exercised 686 2,995
Change in short-term debt (53,300) (105,135)
Cash dividend payments on common stock (13,456) (12,823)
Other (1,209) (39)
Cash used in financing activities (69,222) (115,998)
Increase in cash and cash equivalents 37,118 110
Cash and cash equivalents, beginning of period 3,521 4,211
Cash and cash equivalents, end of period $40,639 $4,321
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $4,394 $5,232
Income taxes paid (refunded) 3,040 (7,900)

Investor Contact: Nikki Sparley Phone: 503-721-2530 Email: n1s@nwnatural.com Media Contact: Melissa Moore Phone: 503-220-2436 Email: msm@nwnatural.com

Source: NW Natural