MDU Resources Announces 2017 Financial Results, Initiates Guidance for 2018

BISMARCK, N.D., Feb. 6, 2018 /PRNewswire/ -- MDU Resources Group, Inc. (NYSE: MDU) today reported 2017 earnings from continuing operations of $284.2 million, or $1.45 per share, compared to 2016 earnings from continuing operations of $232.4 million, or $1.19 per share. In the fourth quarter of 2017, earnings from continuing operations were $115.4 million, or 59 cents per share, compared to $66.3 million, or 33 cents per share, in 2016.

Including discontinued operations, MDU Resources reported 2017 earnings of $280.4 million, or $1.43 per share, compared to $63.7 million, or 33 cents per share, in 2016. In the fourth quarter of 2017, earnings including discontinued operations were $115.3 million, or 59 cents per share, compared to fourth quarter 2016 earnings of $65.5 million, or 33 cents per share.

"We are very pleased with our strong finish to the year, irrespective of the benefit we saw from federal tax reform," said David L. Goodin, president and CEO of MDU Resources. "We had a particularly strong fourth quarter, with our construction businesses successfully executing on projects under favorable weather conditions in October and November and our regulated energy delivery businesses benefiting from colder weather at the end of the quarter.

"In 2017, all our businesses performed very well, and we are optimistic about the momentum we have going into 2018 as we continue building a strong America. We are looking forward to completing the growth projects scheduled at our utility and pipeline businesses, and successfully executing on the strong combined backlog at our construction businesses."

In the fourth quarter, MDU Resources was recognized on the Thomson Reuters 2017 Top 25 Global Multiline Utilities list (http://www.thomsonreuters.com/en/products-services/energy/top-100/subsector-leaders.html). The list recognizes companies that have demonstrated a commitment to energy leadership in these areas: financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social sustainability, environmental impact, and reputation.

Tax Reform
In the fourth quarter, the company performed a one-time revaluation of its net deferred tax liabilities due to the reduction of the corporate tax rate from 35 percent to 21 percent effective Jan. 1, 2018, as indicated in the federal Tax Cuts and Jobs Act (TCJA), which was signed into law Dec. 22. The company recorded a benefit in the fourth quarter of $39.5 million, or 20 cents per share, to its 2017 earnings attributable to the TCJA. The earnings impacts to each business segment are:

• The electric and natural gas utility recognized a charge of $6.4 million.
• The pipeline and midstream business recognized a charge of $200,000.
• The construction services business recorded a benefit of $4.3 million.
• The construction materials business recorded a benefit of $41.9 million.

The revaluation of the company's regulated deferred tax assets and liabilities was not recognized in the income statement since the company continues to work with the various regulators on a plan for amounts expected to be returned to customers. This resulted in the creation of a regulatory liability as a net increase to taxes refundable to customers of $285.5 million.

Business Unit Highlights
Regulated Energy Delivery
The electric and natural gas utility earned $81.6 million in 2017, compared to $69.3 million in 2016. The 2017 results include a $6.4 million decrease related to an adjustment of net deferred tax assets resulting from the TCJA. In 2017, the company sold 2 percent more electricity and 13 percent more natural gas than the previous year, primarily because its customer base grew by 2 percent and its service areas experienced colder weather. Regulatory relief also contributed to earnings growth. The company expects, after receiving advance determination of prudence from the North Dakota Public Service Commission in the fourth quarter, that it will soon have a purchase agreement in place for the Thunder Spirit Wind farm expansion in southwestern North Dakota, with the purchase to be finalized when construction is complete in late 2018. When complete, the wind farm's total generation capacity will be approximately 155 megawatts and will expand the company's electric generation portfolio to approximately 27 percent renewables. During 2018, the company expects to complete a 21-mile, 12-inch natural gas pipeline to serve a manufacturing facility in Gwinner, North Dakota, and other nearby potential customers.

Reflecting the sale at the start of 2017 of the Pronghorn natural gas processing assets, the pipeline and midstream business earned $20.5 million for the year, compared to $23.4 million in 2016. The 2017 results include a $200,000 decrease related to an adjustment of net deferred tax assets resulting from the TCJA. The company transported a record volume of natural gas through its system in 2017, partly due to completing two expansion projects that increased pipeline capacity by 62 million cubic feet per day. The company expects in 2018 to complete the 38-mile, 16-inch Valley Expansion project and the 13-mile, 24-inch Line Section 27 expansion project, with construction on both projects expected to begin this spring. When completed, the company's natural gas transportation capacity will exceed 1.8 billion cubic feet per day. The company is evaluating additional growth projects to increase transportation capacity for the Bakken region, which is producing record volumes of natural gas.

Construction Materials and Services
The construction services business experienced record revenues in 2017 of $1.37 billion and earned $53.3 million, up from 2016's earnings of $33.9 million. The 2017 results include a benefit of $4.3 million from an adjustment to net deferred tax liabilities resulting from the TCJA. This business saw higher workloads and margins in inside specialty contracting work, particularly in the high-tech, manufacturing and retail areas, and in outside specialty contracting work, with an increase in equipment sales and rentals, several transmission projects, and storm-recovery work. This business is exploring acquisition opportunities. Its backlog of work at Dec. 31 was $708 million, which is 49 percent higher than the previous year.

The construction materials business earned $123.4 million in 2017, compared to $102.7 million in 2016. The 2017 results include a benefit of $41.9 million from an adjustment to net deferred tax liabilities resulting from the TCJA. This business was impacted early in 2017 by above-average precipitation in many markets and natural disasters in some areas, however favorable weather in western markets early in the fourth quarter allowed this business to successfully complete a number of projects. This business is evaluating acquisition opportunities in 2018. The construction materials year-end backlog of $486 million is the third best on record, although down from 2016.

Guidance
MDU Resources expects earnings per share in the range of $1.25 to $1.45 in 2018, based on these assumptions:

• Normal operating conditions and weather conditions, including precipitation and temperatures, across all service areas.
• No significant acquisitions or divestitures.
• Investing $628 million for capital projects.
• Construction services revenues in the range of $1.45 billion to $1.60 billion and construction materials revenues in the range of $1.8 billion to $1.9 billion, with margins comparable to 2017.

Corporate Strategy
MDU Resources' strategy is to increase market share and profitability in its regulated energy delivery and construction materials and services businesses, while enhancing value through organic growth opportunities and strategic acquisitions of well-managed companies and properties. The company, on a consolidated basis, anticipates 5 to 8 percent long-term compound annual growth on earnings per share.

Conference Call
MDU Resources will discuss 2017 earnings results and 2018 guidance on a webcast at 2 p.m. EST Feb. 7. The event can be accessed at www.mdu.com. Webcast and audio replays will be available through Feb. 21 at 855-859-2056, or 404-537-3406 for international callers, conference ID 3158659.

About MDU Resources
MDU Resources Group, Inc., a member of the S&P MidCap 400 index and the S&P High-Yield Dividend Aristocrats index, is Building a Strong America^® by providing essential products and services through its regulated energy delivery and construction materials and services businesses. For more information about MDU Resources, see the company's website at www.mdu.com or contact the Investor Relations Department at [email protected].

Media Contact: Laura Lueder, manager of communications and public relations, 701-530-1095
Financial Contact: Jason Vollmer, vice president, chief financial officer and treasurer, 701-530-1755

Forward-Looking Statements

The information contained in this press release highlights the key growth strategies, projections and certain assumptions for the company and its subsidiaries and other matters for each of the company's businesses. Many of these highlighted statements and other statements not historical in nature are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations are based on reasonable assumptions, there is no assurance that the company's projections, including estimates for growth and changes in earnings, will in fact be achieved. Please refer to assumptions contained in this section, as well as the various important factors listed in Part I, Item 1A - Risk Factors in the company's most recent Form 10-K. Changes in such assumptions and factors could cause actual future results to differ materially from our forward-looking projections. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update forward-looking statements, whether as a result of new information, future events or otherwise.

Throughout this press release, the company presents financial information prepared in accordance with GAAP, as well as EBITDA and EBITDA from continuing operations, which are considered non-GAAP financial measures. The use of these non-GAAP measures should not be construed as alternatives to earnings or operating cash flows. The company believes the use of these non-GAAP financial measures are beneficial in evaluating the company's financial performance due to its uniquely diverse operations. Please refer to the "Non-GAAP Financial Measures" section contained in this document for additional information.

Performance Summary and Future Outlook

Earnings