Business context and reporting period
New Jersey Resources Corporation (NJR) filed this unaudited Form 10-Q for the quarter and nine months ended June 30, 2015, its fiscal third quarter. Its businesses include regulated natural gas distribution, wholesale energy services, clean-energy projects, midstream investments, and home services. Utility and energy-services results are seasonal, so interim results may not indicate full-year performance. Financial amounts below are in millions unless otherwise noted.
Financial results and liquidity
| Metric | Quarter ended June 30, 2015 | Nine months ended June 30, 2015 |
|---|---|---|
| Operating revenue | $458.5, versus $688.3 in 2014 | $2,295.7, versus $3,146.2 |
| Operating income (loss) | $(9.3), versus $(29.2) | $242.2, versus $230.0 |
| Net income (loss) | $(7.5), or $(0.09) diluted EPS; prior-year loss $(14.3), or $(0.17) | $176.8, or $2.05 diluted EPS; prior-year $166.4, or $1.96 |
| Operating cash flow | $379.8 for nine months, versus $376.5 | |
| Investing cash flow | $(228.9) for nine months, primarily reflecting utility and renewable-energy investment | |
| Cash | $70.2 at June 30, versus $2.2 at September 30, 2014 |
- For nine months, NJNG utility gross margin, a non-GAAP measure, was $264.5 versus $254.7. NJRES financial margin, also non-GAAP, was $89.6 versus $171.2. Consolidated net financial earnings (NFE), a non-GAAP measure, fell to $156.7 from $196.3 despite higher GAAP net income.
- Long-term debt was $847.5, with $36.0 of current maturities; short-term debt was zero, down from $301.0 at September 30, 2014. Total capitalization was $1,970.8, including $1,123.3 of equity. NJR reported $412.3 available on its $425 million committed facility plus a $100 million uncommitted line; NJNG reported $249.3 available on its $250 million facility.
- Cash dividends declared were $0.23 per share for the quarter and $0.68 for nine months, compared with $0.21 and $0.63, respectively, in 2014. Share figures reflect the 2-for-1 split issued in March 2015.
Changes versus the prior comparable period
- Quarterly consolidated revenue declined 33% and nine-month revenue declined 27%, largely reflecting lower natural-gas prices and reduced energy-services sales values. The nine-month GAAP net-income increase was supported by NJNG and NJRES results; NFE declined, notably because the prior-year period benefited from unusually volatile, cold-weather energy markets.
- The quarter’s net loss narrowed year over year. NJNG earnings rose with customer growth and utility margin; NJRES’ quarterly loss narrowed as transportation and storage demand fees and realized losses decreased. Clean Energy Ventures’ quarterly result weakened, in part because 2014 included a one-time credit-support payment and current-period depreciation and operating costs increased.
- NJR issued $150 million of NJNG long-term notes in April 2015. Renewable-energy and utility investment increased: nine-month capital expenditures were $227.4 versus $201.3 in 2014.
Outlook, commentary, risks and contingencies
- Management said existing borrowing availability and operating cash flow should cover working capital, capital spending and dividends for the next 12 months; anticipated funding sources include short- and long-term debt, meter sale-leasebacks and the dividend reinvestment plan. Management reported compliance with debt covenants.
- NJNG expects customer growth of about 1.6% annually over the next two years and 15,000–17,000 customer additions during fiscal 2015–2016. Estimated capital expenditures are $202.6 for fiscal 2015 and $233.7 for fiscal 2016. A base-rate case is due by November 15, 2015; approval of the proposed Southern Reliability Link remains pending. The BPU approved an extension of SAVEGREEN through July 31, 2017, after quarter-end, with $75.2 of additional planned investment.
- NJNG’s June filing estimated customer bill credits of about $63.7 for November 2015–February 2016, an estimated 14.3% reduction to the average residential heating bill, subject to the regulatory process. Existing BGSS incentive programs were due to expire October 31, 2015; NJNG had requested continuation.
- NJNG recorded a $177.0 liability and corresponding regulatory asset for cleanup of five former manufactured-gas-plant sites. Estimated total future remediation costs range from $151.3 to $249.8; actual costs and recovery depend on remediation requirements, regulatory decisions, responsible-party recoveries and insurance.
- Key risks include weather and customer usage, commodity-price and derivative volatility, counterparty credit and collateral needs, regulatory cost recovery and project approvals, renewable tax-credit and SREC availability, capital-market access, and environmental remediation. The filing reports no material change in previously disclosed risk factors and no newly reportable legal proceedings during the quarter.
Important facts for investors to verify
- Whether NJR’s lower nine-month NFE and NJRES financial margin reflect persistent operating conditions or primarily market and timing differences; compare these non-GAAP measures with GAAP results.
- Regulatory outcomes and timing for NJNG’s base-rate case, BGSS incentive programs and Southern Reliability Link, and whether projected customer bill credits and capital spending proceed as expected.
- The eventual cost, schedule and recoverability of MGP remediation, and the completion, tax-credit eligibility and returns of solar and wind projects.
- Debt funding and liquidity through the seasonal gas-injection period, including facility availability, covenant headroom and the planned capital program.