NWN
$66.75
Northwest Natural Gas
($.30)
(.45%)
Earnings Details
3rd Quarter September 2017
Friday, November 3, 2017 6:00:12 AM
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Summary

Northwest Natural Gas Reaffirms

Northwest Natural Gas (NWN) reported a 3rd Quarter September 2017 loss of $0.30 per share on revenue of $88.2 million. The consensus estimate was a loss of $0.31 per share. Revenue grew 0.5% on a year-over-year basis.

The company said it continues to expect 2017 earnings of $2.05 to $2.25 per share. The current consensus earnings estimate is $2.17 per share for the year ending December 31, 2017.

Northwest Natural Gas along with its subsidiaries distributes natural gas in Oregon, Washington and California. The Company has two business segments: Utility segment and Gas Storage segment.

Results
Reported Earnings
($0.30)
Earnings Whisper
-
Consensus Estimate
($0.31)
Reported Revenue
$88.2 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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

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 62 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.

Northwest Natural Gas Company, dba NW Natural (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 chargeon 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 62 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 data Amount
Per Share
Amount
Per Share
Amount
Per Share
Net income (loss):
Utility segment
$
(10,349 )
$
(0.36 )
$
(9,511 )
$
(0.35 )
$
(838 )
$
(0.01 )
Gas storage segment
1,899
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 shares
28,678
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 data
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net income (loss):
Utility segment
$
31,980
$
1.11
$
26,848
$
0.97
$
5,132
$
0.14
Gas storage segment
2,716
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 --
--
1,996
0.07
(1,996
)
(0.07
)
Adjusted net income (non-GAAP)
$
34,544
$
1.20
$
32,616
$
1.18
$
1,928
$
0.02
Diluted shares
28,734
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 (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
2016
Change
2017
2016
Change
2017
2016
Change
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
)

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