New Jersey Resources Corporation — Q1 FY2015 Form 10-Q
Business context and reporting period. The filing covers the three months ended December 31, 2014, the first quarter of fiscal 2015. NJR operates a regulated New Jersey gas utility and businesses in wholesale energy services, clean energy, midstream investments, and home services. The statements are unaudited; management cautions that seasonal interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Operating revenue | $824.1 million | $878.4 million |
| Operating income | $168.7 million | $12.2 million |
| Net income | $123.3 million | $7.7 million |
| Diluted EPS | $2.88 | $0.18 |
| Dividends declared per share | $0.45 | $0.42 |
| Operating cash flow | $40.8 million | $(68.8) million |
| Investing cash flow | $(92.2) million | $(54.0) million |
| Financing cash flow | $60.9 million | $129.9 million |
- Net income surged primarily because NJR Energy Services recorded derivative-related gains in the quarter, versus losses a year earlier, and Clean Energy Ventures recognized higher forecasted tax credits and SREC sales. NJR reported $88.7 million of unrealized derivative gains in Q1 FY2015; these accounting timing effects can make GAAP earnings volatile.
- Management’s non-GAAP net financial earnings (NFE) were $55.1 million, up from $39.9 million. NFE adjusts for specified derivative and hedge timing effects and is not a substitute for GAAP earnings.
- At December 31, 2014, cash was $11.7 million; current assets were $900.1 million and current liabilities $815.9 million. Long-term debt was $702.9 million, current maturities $35.4 million, and short-term debt $254.2 million. NJR reported $327.3 million available under its committed facility and a separate $100 million uncommitted facility; NJNG reported $75.1 million available under its facility.
- Capital expenditures were $92.1 million, versus $60.5 million. NJR issued $100 million of 3.48% senior notes due 2024. Management said available borrowing capacity and operating cash flows should meet working capital, capital expenditure, and dividend needs for the next 12 months, and stated that the companies were in compliance with debt covenants.
Material changes and segment results
- Natural Gas Distribution net income increased modestly to $28.2 million from $27.6 million. Utility gross margin rose to $87.2 million from $83.5 million, supported by customer growth and higher BGSS incentive margins; warmer weather and lower gas prices reduced reported revenue and gas purchases.
- Energy Services reported net income of $78.9 million versus a $19.4 million loss. Its financial margin, a non-GAAP measure, increased to $30.0 million from $16.2 million. Management attributed the improvement partly to market volatility increasing the value of pipeline and storage capacity and to derivative settlement timing.
- Clean Energy Ventures reported net income of $15.6 million versus a $1.5 million loss, chiefly reflecting forecast tax credits and increased SREC revenue. Midstream net income was $2.1 million versus $1.4 million; Home Services and Other recorded a $0.6 million loss versus a $0.2 million loss.
- Total assets increased to $3.44 billion from $3.16 billion, including increased utility, solar, and wind investment and higher Energy Services receivables.
Outlook, risks, and contingencies
- NJR expected NJNG customer growth of approximately 1.6% annually over the next two years, or 15,000–17,000 new customers in FY2015–FY2016. Estimated NJNG capital expenditures were $182.3 million in FY2015 and $233.7 million in FY2016. Solar capital expenditures placed in service in FY2015 were estimated at $100–$110 million; wind-related FY2015 expenditures were estimated at $90–$110 million.
- NJNG’s BPU base-rate case was due no later than November 15, 2015. The BPU approved recovery of $15.2 million of Superstorm Sandy deferred operating costs in the next base-rate case. NJNG also petitioned to extend SAVEGREEN through June 30, 2018.
- NJNG recorded a $177 million liability and matching regulatory asset for manufactured-gas-plant remediation. Estimated total future remediation and monitoring costs ranged from $151.3 million to $249.8 million; recovery depends on regulatory approval, and unrecoverable costs could materially affect results.
- Key risks include natural-gas price and weather volatility, derivative mark-to-market and collateral requirements, counterparty credit and market liquidity, regulatory recovery and approvals, environmental remediation, and execution, permitting, interconnection, and tax-credit eligibility for clean-energy projects. Solar or wind project delays or changes in incentive and SREC markets could adversely affect earnings.
- The filing provides no clear consolidated earnings guidance. Management notes that clean-energy tax-credit estimates and project timing are subject to change. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of the GAAP earnings increase reflects unrealized derivative gains and timing effects, and how realized margins develop as hedged gas is sold.
- Whether forecast solar and wind projects meet in-service, interconnection, and tax-credit requirements, and whether estimated spending and returns remain achievable.
- The ultimate cost and regulatory recovery of MGP remediation, including the pending recovery request and the range of estimated obligations.
- Seasonal working-capital and collateral needs, short-term borrowing availability, and continued covenant compliance.
- Progress on the NJNG base-rate case, infrastructure spending, and customer-growth expectations.