New Jersey Resources Corporation (NJR) — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2022; unaudited. Fiscal Q2 is a seasonally important period for the gas utility. Comparisons below are with the corresponding 2021 periods. Dollar amounts are in millions unless stated otherwise.
Business context
NJR is a diversified energy-services holding company. Its businesses include regulated New Jersey Natural Gas (NJNG; approximately 568,100 customers), clean energy projects, wholesale and retail energy services, gas storage and transportation, and home services.
Financial performance and liquidity
| Metric | Three months ended Mar. 31, 2022 | Three months ended Mar. 31, 2021 | Six months ended Mar. 31, 2022 | Six months ended Mar. 31, 2021 |
|---|---|---|---|---|
| Operating revenue | $912.3 | $802.2 | $1,588.2 | $1,256.5 |
| Operating income | $138.9 | $201.2 | $295.8 | $312.7 |
| Net income | $96.0 | $149.8 | $207.3 | $230.9 |
| Diluted EPS | $1.00 | $1.55 | $2.15 | $2.39 |
| Net financial earnings (NFE, non-GAAP) | $130.2 | $170.6 | $196.0 | $215.3 |
| Basic NFE per share (non-GAAP) | $1.36 | $1.77 | $2.04 | $2.24 |
Six-month operating cash flow was $330.5, compared with $356.3 in 2021. Investing used $296.8, mainly for utility, solar, and storage and transportation projects; financing used $24.5. Cash and cash equivalents were $13.9 at March 31 (cash, cash equivalents and restricted cash totaled $15.2).
At March 31, long-term debt was $2,319.4, current maturities of long-term debt $24.5, and short-term debt $302.2. Common equity was $1,784.3. NJR reported $334.3 available under its revolving facility; NJNG reported $249.3 available under its credit facility. Management said the companies were in covenant compliance and expected available borrowing capacity, equity proceeds, and operating cash flows to cover needs for at least 12 months.
NJNG’s non-GAAP utility gross margin was $217.7 for the quarter and $351.2 for six months, up from $173.3 and $299.0, respectively. The filing does not provide a consolidated GAAP gross-margin measure that is directly comparable to these segment-specific non-GAAP margins.
Material changes and segment drivers
- Overall earnings declined: Six-month net income fell 10% and diluted EPS fell from $2.39 to $2.15. NFE declined about 9%. Management attributed the decrease primarily to Energy Services’ unusually strong results during the February 2021 cold-weather and market-volatility event, which did not recur to the same extent.
- Natural Gas Distribution: Six-month net income rose to $153.9 from $130.0, primarily reflecting higher base rates. The BPU-approved $79.0 annual base-rate increase took effect December 1, 2021. Utility gross margin also benefited from higher incentive-program contributions.
- Energy Services: Six-month GAAP net income fell to $62.7 from $114.5; NFE fell to $47.5 from $98.0. Quarter GAAP results were a $3.0 loss, compared with $75.7 income a year earlier. Results are exposed to commodity-price volatility and derivative accounting timing. The 2021 comparison benefited from extreme weather and market conditions.
- Clean Energy Ventures: Six-month net loss narrowed to $13.3 from $19.1 as solar electricity and SREC revenue increased.
- Storage and Transportation: Six-month net income decreased to $7.6 from $8.2, chiefly due to lower equity earnings, partly offset by higher Adelphia Gateway AFUDC and lower interest expense.
Reported revenue growth includes natural-gas commodity sales and derivative-related amounts; revenue therefore should not be read as a direct measure of underlying margin. NJR’s NFE adjusts for specified derivative and inventory timing effects and is non-GAAP.
Outlook, risks and unusual items
- NJR forecast FY2022 capital expenditures of $285–$335 for NJNG, $139–$157 for solar projects, and $115–$130 for the Adelphia Gateway project, plus $7–$11 for Leaf River. These are estimates and may change with regulatory, construction, permitting, interconnection, supply-chain, and financing conditions.
- NJNG expected to add approximately 28,000–30,000 customers over FY2022–FY2024. Management estimated this growth could add about $19.1 in annual utility gross margin under the CIP tariff.
- Energy Services’ asset-management agreements with an investment-grade utility began in November 2021. NJR expects approximately $260 in cash receipts during FY2022–FY2024 and $34 annually during FY2025–FY2031; $54.4 received in excess of recognized revenue was deferred at March 31, 2022.
- NJNG’s former manufactured-gas-plant remediation estimate ranges from $115.7 to $178.7; the recorded liability and corresponding regulatory asset were $121.6. Actual costs and recovery depend on remediation outcomes, regulation, other responsible parties, and insurance.
- PennEast development ceased; FERC dismissed its pending applications in December 2021. After a $4.0 distribution, NJR’s remaining investment was $1.5. A $92.0 impairment charge had been recorded in FY2021.
- Risks include natural-gas price increases and inflation, which could raise working-capital borrowing needs, slow customer collections, and increase bad debt; weather and market volatility; derivative and counterparty exposure; regulatory recovery; project execution; and access to capital. Management reported no material adverse COVID-19 impact on results as of March 31, 2022, but future effects remained uncertain.
- The filing provides no clear consolidated FY2022 earnings or EPS guidance. It notes seasonal results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether Energy Services’ lower earnings reflect continuing market conditions or primarily the nonrecurrence of FY2021’s exceptional weather-driven results; compare GAAP results with NFE and financial margin.
- Progress, spending, approvals, and funding for the stated utility, solar, and Adelphia Gateway capital plans.
- Timing and regulatory recovery of NJNG rate riders, infrastructure investments, and MGP remediation costs.
- Execution and cash-versus-revenue recognition under the utility asset-management agreements.
- Commodity-price, derivative, collateral, customer-collection, and credit-facility risks as natural-gas costs and market volatility change.