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

  • Increased consolidated net income by $0.7 million to $2.7 million or $0.10 per share for the second quarter of 2017.
  • Increased consolidated net income by $4.4 million to $43.0 million or $1.50 per share for the first six months of 2017.
  • Connected over 12,700 utility customers during the past 12 months equating to a customer growth rate of 1.8%.
  • Continued construction on the $128 million North Mist Gas Storage Expansion Project.
  • Reaffirmed 2017 earnings guidance of $2.05 to $2.25 per share.

PORTLAND, Ore., Aug. 02, 2017 (GLOBE NEWSWIRE) -- Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported earnings per share (EPS) of $0.10 on net income of $2.7 million for the second quarter of 2017, compared to $0.07 per share on net income of $2.0 million for the same period in 2016.

Consolidated net income was $43.0 million, or $1.50 per share, for the first six months of 2017, compared to net income of $38.7 million, or $1.40 per share, for the same period of 2016. Results for the first six 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 six months of 2016 was $1.47 on net income of $40.7 million.

As a reminder, the utility's earnings are seasonal with the majority of its revenues generated during the winter heating season in the first and fourth quarters each year. Overall results for 2017 reflected higher utility segment earnings including additional margin from customer growth and cooler weather in 2017 compared to 2016. These favorable trends were offset by lower gas storage segment earnings primarily from decreased asset management revenues at Mist.

"Results for the quarter were solid. Customer growth continued to increase driven by a good economy, continued conversions, and increased success in the multifamily sector," said David H. Anderson, President and CEO of NW Natural. "We continued to make good progress on the construction of our North Mist Gas Storage Expansion Project — one of the largest projects in our Company's history and a very unique facility that will help facilitate the region's transition to a lower carbon future."

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 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 — like 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 for the winter of 2018 with the heaviest construction phase occurring this year. In July we completed drilling all wells, and the compressor station is currently being assembled and tested in preparation for installation later this fall. Finally, construction continues on the 13-mile pipeline connecting the North Mist facility to Portland General Electric's Port Westward electric generating facility with construction expected to be completed later this fall. The estimated cost of the expansion remains at $128 million. The expansion will be rate-based under an established tariff when it is placed into service.

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

Second Quarter Results
The following financial comparisons are between the second quarter of 2017 and second 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 $0.7 million or $0.03 per share primarily due to higher utility segment results from customer growth and cooler weather in 2017. Offsetting these favorable variances were lower results from our gas storage segment, which reported lower asset management revenues from Mist.

The second quarter results are summarized in the table below:

Three Months Ended June 30,
2017 2016 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income:
Utility segment$2,137 $0.07 $507 $0.02 $1,630 $0.05
Gas storage segment756 0.03 1,439 0.05 (683)(0.02)
Other(164) 73 (237)
Consolidated net income$2,729 $0.10 $2,019 $0.07 $710 $0.03
Diluted Shares28,717 27,632 1,085

Utility Segment Results
Utility segment net income increased $1.6 million or $0.05 per share due to the following offsetting items:

  • a $3.1 million increase in utility margin reflecting strong customer growth and cooler weather in 2017. Weather for the second quarter of 2017 was 1% warmer than average, compared to 42% warmer than average weather for the same period in 2016; offset by
  • a $1.2 million increase in operations and maintenance expense reflecting higher payroll and benefits due to increased headcount, general salary increases, and higher health care costs.

Gas Storage Segment Results
Gas storage segment net income decreased $0.7 million or $0.02 per share primarily due to the following factors:

  • a $0.5 million decrease in gas storage primarily from 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.

Year-to-Date Results
The following financial comparisons are between the first six 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 $4.4 million or $0.10 per share primarily due to higher utility segment results from customer growth and the effects of a colder winter in 2017. 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 lower results from our gas storage segment reflecting decreased asset management revenues from Mist.

The year-to-date results are summarized in the table below:

Six Months Ended June 30,
2017 2016 Change
In thousands, except per share dataAmountPer Share AmountPer Share AmountPer Share
Net income:
Utility segment$42,329 $1.47 $36,359 $1.32 $5,970 $0.15
Gas storage segment817 0.03 2,175 0.08 (1,358)(0.05)
Other(107) 126 (233)
Consolidated net income (GAAP)$43,039 $1.50 $38,660 $1.40 $4,379 $0.10
Adjustment for regulatory environmental disallowance(1) 1,996 0.07 (1,996)(0.07)
Adjusted net income (non-GAAP)(1)$43,039 $1.50 $40,656 $1.47 $2,383 $0.03
Diluted Shares28,722 27,591 1,131

(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 $6.0 million or $0.15 per share primarily due to the following offsetting items:

  • a $6.4 million increase in utility margin reflecting strong customer growth and the effects of a colder winter in 2017. Weather for the first six months of 2017 was 44% colder than 2016 and 12% colder than average. Offsetting these factors were lower gains from our gas cost incentive sharing mechanism in Oregon;
  • a $2.1 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 $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; and
  • a $1.1 million increase in depreciation expense due to planned capital expenditures for system reinforcement, facilities, and technology.

Gas Storage Segment Results
Gas storage segment net income decreased $1.4 million or $0.05 per share primarily due to the following factors:

  • a $1.0 million decrease in gas storage revenues reflecting lower asset management revenues from our Mist facility and transportation capacity; and
  • a $0.4 million increase in operating expenses from pipeline and compressor maintenance at our Gill Ranch facility.

Balance Sheet and Cash Flows
During the first six months of 2017, the Company generated $194.2 million in operating cash flow, invested $94.3 million in capital expenditures, reduced short-term debt by $53.3 million, and paid dividends of $26.9 million.

Cash provided by operations was enhanced by higher customer receipts due to the comparatively colder weather especially in the first quarter of 2017 offset by higher gas purchases. Cash outflows from investing activities increased $35.0 million in the first six months of 2017 compared to the same period in 2016 primarily due to higher capital expenditures from the North Mist Gas Storage Expansion Project. Cash outflows from financing activities decreased $56.4 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 dividend will be paid on August 15, 2017 to shareholders of record on July 31, 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 second quarter and year-to-date 2017 financial and operating results.

Date and Time:Wednesday, August 2
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 (10110143).

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)
Second Quarter 2017
Three Months Ended Six Months Ended Twelve Months Ended
In thousands, except per share amounts, customer, and degree day data June 30, June 30, June 30,
2017 2016Change2017 2016Change2017 2016Change
Operating revenues$136,238 $99,183 37%$433,561 $354,712 22%$754,816 $678,558 11%
Operating expenses:
Cost of gas 53,005 20,871 154 196,616 129,282 52 327,922 268,706 22
Operations and maintenance 38,546 35,962 7 78,966 74,901 5 154,039 142,995 8
Environmental remediation 2,611 1,893 38 9,565 6,922 38 15,941 10,435 53
General taxes 7,564 7,438 2 16,589 16,122 3 31,005 30,022 3
Depreciation and amortization 21,355 20,413 5 42,440 40,807 4 83,922 81,389 3
Total operating expenses 123,081 86,577 42 344,176 268,034 28 612,829 533,547 15
Income from operations 13,157 12,606 4 89,385 86,678 3 141,987 145,011 (2)
Other income (expense), net 958 513 87 1,839 (1,796)(202) 3,092 (233)(1,427)
Interest expense, net 9,717 9,718 19,593 19,454 1 39,267 41,074 (4)
Income before income taxes 4,398 3,401 29 71,631 65,428 9 105,812 103,704 2
Income tax expense 1,669 1,382 21 28,592 26,768 7 42,538 42,024 1
Net income$2,729 $2,019 35 $43,039 $38,660 11 $63,274 $61,680 3
Common shares outstanding:
Average diluted for period 28,717 27,632 28,722 27,591 28,322 27,519
End of period 28,662 27,550 28,662 27,550 28,662 27,550
Per share information:
Diluted earnings per share$0.10 $0.07 $1.50 $1.40 $2.23 $2.24
Dividends declared per share of common stock 0.47 0.4675 0.94 0.9350 1.8775 1.8675
Book value per share, end of period 30.19 29.04 30.19 29.04 30.19 29.04
Market closing price, end of period 59.85 64.82 59.85 64.82 59.85 64.82
Capital structure, end of period:
Common stock equity 54.6% 51.7% 54.6% 51.7% 54.6% 51.7%
Long-term debt 41.5 36.8 41.5 36.8% 41.5 36.8%
Short-term debt (including amounts due in one year) 3.9 11.5 3.9 11.5% 3.9 11.5%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Utility segment operating statistics:
Customers - end of period 730,968 718,191 1.8% 730,968 718,191 1.8% 730,968 718,191 1.8%
Utility volumes - therms:
Residential and commercial sales 113,869 82,625 441,392 325,499 725,115 592,344
Industrial sales and transportation 120,774 110,308 260,890 239,983 496,681 463,887
Total utility volumes sold and delivered 234,643 192,933 702,282 565,482 1,221,796 1,056,231
Utility operating revenues:
Residential and commercial sales$117,296 $82,509 $397,573 $320,181 $681,782 $606,185
Industrial sales and transportation 14,791 10,972 33,694 28,636 64,444 62,467
Other revenues 1,168 1,102 2,543 2,513 3,842 3,890
Less: Revenue taxes 3,160 2,448 10,989 9,091 19,009 17,290
Total utility operating revenues 130,095 92,135 422,821 342,239 731,059 655,252
Less: Cost of gas 53,005 20,871 196,616 129,282 327,922 268,706
Environmental remediation expense 2,611 1,893 9,565 6,922 15,941 10,435
Utility margin, net$74,479 $69,371 $216,640 $206,035 $387,196 $376,111
Degree days:
Average (25-year average) 691 691 2,546 2,562 4,240 4,256
Actual 684 403 70% 2,853 1,988 44% 4,416 3,453 28%
Percent (warmer) colder than average weather (1)% (42)% 12% (22)% 4% (19)%
Gas storage segment operating statistics:
Operating revenues$6,088 $6,992 $10,629 $12,361 $23,534 $23,081
Operating expenses 4,489 4,112 8,424 7,756 16,798 15,238


NORTHWEST NATURAL
Consolidated Balance Sheets (Unaudited) June 30,
In thousands 2017 2016
Assets:
Current assets:
Cash and cash equivalents $20,854 $5,463
Accounts receivable 31,908 23,353
Accrued unbilled revenue 13,896 14,175
Allowance for uncollectible accounts (845) (570)
Regulatory assets 37,504 49,004
Derivative instruments 1,530 7,445
Inventories 57,666 66,171
Gas reserves 16,072 15,707
Other current assets 13,419 21,312
Total current assets 192,004 202,060
Non-current assets:
Property, plant, and equipment 3,333,668 3,146,631
Less: Accumulated depreciation 973,084 932,179
Total property, plant, and equipment, net 2,360,584 2,214,452
Gas reserves 92,020 108,286
Regulatory assets 348,284 344,969
Derivative instruments 162 3,541
Other investments 68,885 67,868
Other non-current assets 3,215 1,968
Total non-current assets 2,873,150 2,741,084
Total assets $3,065,154 $2,943,144
Liabilities and equity:
Current liabilities:
Short-term debt $ $152,800
Current maturities of long-term debt 61,991 24,987
Accounts payable 95,761 57,756
Taxes accrued 6,906 6,237
Interest accrued 5,966 5,793
Regulatory liabilities 28,041 27,300
Derivative instruments 4,734 3,471
Other current liabilities 31,683 35,289
Total current liabilities 235,082 313,633
Long-term debt 658,118 570,045
Deferred credits and other non-current liabilities:
Deferred tax liabilities 577,176 554,400
Regulatory liabilities 359,205 341,259
Pension and other postretirement benefit liabilities 219,718 219,049
Derivative instruments 3,466 474
Other non-current liabilities 146,960 144,285
Total deferred credits and other non-current liabilities 1,306,525 1,259,467
Equity:
Common stock 444,058 388,967
Retained earnings 428,049 417,857
Accumulated other comprehensive loss (6,678) (6,825)
Total equity 865,429 799,999
Total liabilities and equity $3,065,154 $2,943,144


NORTHWEST NATURAL
Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30,
In thousands 2017 2016
Operating activities:
Net income $43,039 $38,660
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 42,440 40,807
Regulatory amortization of gas reserves 8,031 7,647
Deferred income taxes 22,170 27,022
Qualified defined benefit pension plan expense 2,615 2,737
Contributions to qualified defined benefit pension plans (7,250) (6,120)
Deferred environmental (expenditures) recoveries, net (6,817) (5,521)
Regulatory disallowance of prior environmental cost deferrals 3,273
Amortization of environmental remediation 9,565 6,922
Other 1,268 2,121
Changes in assets and liabilities:
Receivables, net 86,065 87,271
Inventories (3,537) 4,525
Income taxes (5,243) 3,710
Accounts payable (22,063) (17,141)
Interest accrued (80)
Deferred gas costs 15,325 (9,295)
Other, net 8,623 13,022
Cash provided by operating activities 194,231 199,560
Investing activities:
Capital expenditures (94,318) (62,153)
Other (404) 2,453
Cash used in investing activities (94,722) (59,700)
Financing activities:
Repurchases related to stock-based compensation (2,034) (1,042)
Proceeds from stock options exercised 1,309 5,374
Change in short-term debt (53,300) (117,235)
Cash dividend payments on common stock (26,919) (25,677)
Other (1,232) (28)
Cash used in financing activities (82,176) (138,608)
Increase in cash and cash equivalents 17,333 1,252
Cash and cash equivalents, beginning of period 3,521 4,211
Cash and cash equivalents, end of period $20,854 $5,463
Supplemental disclosure of cash flow information:
Interest paid, net of capitalization $18,011 $18,124
Income taxes paid (refunded) 9,081 (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