New Jersey Resources Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2020. The filing is unaudited. NJR operates a regulated New Jersey natural gas utility alongside clean energy, wholesale energy, midstream, and home services businesses.
Financial performance
| Metric | Three months ended March 31, 2020 | Six months ended March 31, 2020 | Prior-year comparison |
|---|---|---|---|
| Operating revenue | $639.6 million | $1,254.7 million | Down 26.2% and 25.2%, respectively |
| Operating income | $95.2 million | $196.7 million | Up from $77.0 million and $165.7 million |
| Net income | $88.5 million | $177.9 million | Up from $73.6 million and $159.8 million |
| Diluted EPS | $0.92 | $1.89 | Up from $0.82 and $1.79 |
| Operating cash flow | $179.1 million for six months | Up from $171.8 million |
Revenue declined mainly because Energy Services reported lower natural gas revenues as prices, demand, and wholesale market volatility fell; these gross commodity revenues are accompanied by substantial gas purchase costs. Utility revenue for the six months increased. Earnings growth was led by Natural Gas Distribution, benefiting from a $62.2 million annual base-rate increase effective November 2019. Lower Clean Energy Ventures and Energy Services earnings partly offset the utility improvement.
Utility gross margin, a company-defined non-GAAP measure, was $167.6 million for the quarter and $279.7 million for six months, versus $140.9 million and $236.0 million. Energy Services financial margin was $6.3 million and $7.9 million, versus $32.6 million and $50.6 million. Consolidated net financial earnings, also non-GAAP, declined to $106.9 million for the quarter and $147.3 million for six months, from $112.4 million and $166.5 million. The difference from GAAP net income reflects derivative and inventory-hedging timing adjustments.
Cash used in investing was $751.1 million, chiefly for the Leaf River and Adelphia acquisitions and capital spending. Financing provided $596.3 million, including short-term borrowing and $212.9 million of net proceeds from a December 2019 equity offering. Cash, cash equivalents, and restricted cash ended the period at $28.4 million.
Liquidity, debt, and capital
At March 31, 2020, NJR reported $466.6 million of short-term debt, $1,576.7 million of long-term debt, and $22.0 million of current maturities. Current assets were $500.9 million against current liabilities of $824.3 million; liquidity also depends on committed credit facilities and seasonal operating cash flows. NJR had $240.3 million available under its revolving facilities and $137.1 million outstanding under a $350 million bridge facility. NJNG had $249.3 million available on its credit facility and no commercial paper outstanding. Management said available borrowing capacity, equity proceeds, and operating cash flow should cover obligations for the next 12 months, while noting COVID-19-related market uncertainty.
After quarter-end, NJR entered a $250 million 364-day revolving facility, and the company and NJNG priced additional long-term debt of $260 million and $125 million, respectively; the filing expected these debt transactions to close during fiscal 2020. NJR’s capital structure was 48% common equity, 40% long-term debt, and 12% short-term debt, compared with 50%, 49%, and 1% at September 30, 2019.
Material changes, outlook, and risks
- Acquisitions: NJR acquired Leaf River, a Mississippi gas storage facility, in October 2019 for $367.5 million, and Adelphia, an 84-mile Pennsylvania pipeline, in January 2020 for a $166 million base price. The acquisitions materially expanded Midstream assets and contributed to increased debt and interest expense.
- Utility rates and investment: NJNG’s $62.2 million annual base-rate increase took effect November 15, 2019. NJNG filed for an approximately $7.4 million base-rate increase tied to NJ RISE and SAFE II investments, with rates anticipated to take effect October 1, 2020, subject to regulatory review.
- Capital expenditure expectations: NJNG projected fiscal 2020 and 2021 capital expenditures of $386 million and $396 million. Fiscal 2020 estimates included $135–$145 million for solar and $225–$250 million for Adelphia; PennEast investment was estimated at $7–$8 million. Estimates may change.
- COVID-19: Management reported no material adverse impact on results through March 31, 2020 and said operations remained fundamentally unchanged. The company identified potential effects on collections, demand, construction, supply chains, counterparties, financing, liquidity, and pension costs; the duration and financial consequences were uncertain.
- Market and project exposure: Energy Services earnings depend on gas-market volatility, weather, demand, and counterparty credit. PennEast faced permitting and eminent-domain litigation; NJR recorded no impairment but warned that delays, adverse legal outcomes, or higher costs could lead to one. NJNG’s manufactured-gas-plant remediation estimate ranged from $115.9 million to $186.2 million; the recorded liability was $128.9 million, with recovery through regulatory mechanisms subject to approval.
- Other noteworthy items: NJNG’s Moody’s secured rating was lowered from Aa3 to A1 and its commercial paper rating from P-1 to P-2 in March; the outlook became stable. The filing says this did not then affect borrowing rates or facility pricing. NJR reported compliance with debt covenants. Its quarterly declared dividend was $0.3125 per share.
Important facts for investors to verify
- Whether COVID-19 affects customer collections, energy demand, construction schedules, or access to capital beyond the quarter reported.
- Final regulatory decisions and timing for NJNG rate filings and recovery of infrastructure and remediation costs.
- Performance, financing, and integration of Leaf River and Adelphia, including Adelphia’s additional contingent consideration of up to $23 million.
- PennEast’s legal, permitting, and phased-construction prospects and any resulting impairment risk.
- Energy Services’ underlying margins versus derivative-driven GAAP volatility, and the liquidity required for trading and collateral.
- Completion and terms of the post-quarter debt transactions, and NJR’s ongoing short-term borrowing and refinancing needs.