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MDU Resources Reports Second Quarter Earnings; Affirms Earnings Guidance

08/04/2021

BISMARCK, N.D., Aug. 4, 2021 /PRNewswire/ -- MDU Resources Group, Inc. (NYSE: MDU) today reported second quarter earnings of $100.2 million, or 50 cents per share, compared to second quarter 2020 earnings of $99.7 million, or 50 cents per share. For the six months ended June 30, MDU Resources earned $152.3 million, or 76 cents per share, compared to $124.8 million, or 62 cents per share, in 2020.

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"All our business lines continue to see strong results," said David L. Goodin, president and CEO of MDU Resources. "We had record second quarter earnings at our construction services business and near-record results at our construction materials business. Our regulated energy delivery businesses also continue to see solid customer demand. Our second quarter results were impacted by higher stock-based compensation and increased health care costs totaling approximately $4.2 million, after tax. We continue to expect earnings per share to be in the range of $2.00 to $2.15 for 2021.

"We are excited to have construction underway on our North Bakken Expansion project and, with favorable weather, expect it to be in service by the end of the year. We just announced a natural gas pipeline expansion project in eastern North Dakota that will allow our utility company to fulfill higher customer demand in Wahpeton while also extending service to Kindred. We also are pleased to see Congress continue working toward an infrastructure funding package. All our operations, particularly our construction businesses, are well-positioned to capitalize on these opportunities and create superior shareholder value as we continue building a strong America."

Business Unit Highlights
Construction Materials and Services
The construction materials business earned $51.4 million in the second quarter, compared to last year's record second quarter earnings of $53.0 million. The decrease in earnings was largely from higher labor-related costs, including increased stock-based compensation and health care costs. The construction materials business continues to see strong pricing and demand for its materials and contracting services, particularly in the Northwest. The construction materials backlog of work at June 30 was $912 million, compared to $875 million at June 30, 2020.

The construction services business had record second quarter revenue and earnings. Revenue increased 6% and earnings were $28.9 million, following on last year's record second quarter earnings of $27.9 million. The increase in earnings was primarily from continued strong demand across the commercial and industrial space, particularly the manufacturing industry, as well as increased sales and rentals of the power line equipment the company manufactures. The construction services backlog of work at June 30 was a record $1.32 billion, compared to $1.31 billion at June 30, 2020.

Regulated Energy Delivery
The electric and natural gas utility earned $9.6 million in the second quarter, compared to $11.2 million in the second quarter of 2020. Earnings decreased because of higher operating expenses, particularly labor-related costs including increased stock-based compensation and health care expenses. Rate relief in several jurisdictions decreased the seasonal loss the company typically experiences from its natural gas utility operations. Electric retail sales volumes were 6.9% higher and natural gas retail sales volumes were 2.1% lower during the quarter compared to second quarter 2020.

The pipeline business earned $9.2 million in the second quarter, compared to $9.0 million in the second quarter last year. The increase in earnings was largely the result of higher non-regulated project revenues. The company started construction in mid-July on its North Bakken Expansion project, a pipeline extension in western North Dakota that will have capacity to transport 250 million cubic feet of natural gas per day. The project, which is expected to be in service by the end of 2021, is supported by long-term agreements with non-affiliated customers.

Additional Information
In the second quarter of 2020 MDU Resources' businesses recorded $9.2 million in gains on certain company benefit plans. These same benefit plans saw gains on investment of $3.8 million in the second quarter of 2021, therefore reflecting a negative impact of $5.4 million.

Guidance
MDU Resources expects earnings per share in the range of $2.00 to $2.15 in 2021, based on these assumptions:

  • Normal weather, including precipitation and temperatures, across all company markets.
  • Continued recognition as essential service providers across all company markets.
  • Electric and natural gas customer growth continuing at a rate of 1-2% annually.
  • Operating cash flows in the range of $625 million to $675 million.
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) in the range of $875 million to $925 million.
  • Construction materials revenues in the range of $2.1 billion to $2.3 billion, with margins comparable to 2020, and construction services revenues in the range of $2.1 billion to $2.3 billion, with margins comparable to or slightly higher than 2020.

The company plans to invest $806 million for capital projects in 2021; future acquisitions are not included in this amount and would be incremental to the capital program.

Corporate Strategy
MDU Resources' strategy is to deliver superior value with a two-platform model, regulated energy delivery and construction materials and services businesses, while also pursuing organic growth opportunities and using a disciplined approach to strategic acquisitions of well-managed companies and properties. The company, on a consolidated basis, anticipates 5-8% long-term compound annual growth on earnings per share.

Conference Call
MDU Resources will discuss second quarter results on a webcast at 2 p.m. EDT Aug. 5. The event can be accessed at www.mdu.com. Webcast and audio replays will be available through Aug. 19 at 855-859-2056, or 404-537-3406 for international callers, conference ID 5527896.

About MDU Resources
MDU Resources Group, Inc., a Fortune 500 company and a member of the S&P MidCap 400 and the S&P High-Yield Dividend Aristocrats indices, 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, visit www.mdu.com or contact the Investor Relations Department at investor@mduresources.com.

Media Contact: Laura Lueder, manager of communications and public relations, 701-530-1095
Financial Contact:
 Jason Vollmer, vice president and chief financial officer, 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 financial guidance, will in fact be achieved. Please refer to assumptions contained in this press release, as well as the various important factors listed in Part I, Item 1A - Risk Factors in the company's most recent Form 10-K and subsequent filings with the SEC.

Changes in such assumptions and factors could cause actual future results to differ materially from growth and financial guidance. All forward-looking statements in this press release are expressly qualified by such cautionary statements and by reference to the underlying assumptions. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. The company does 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, EBITDA from continuing operations, and adjusted gross margin, which are considered non-GAAP financial measures. The use of these non-GAAP financial measures should not be construed as alternatives to earnings, operating income 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 diverse operations. Please refer to the "Non-GAAP Financial Measures" section contained in this document for additional information.

 

Performance Summary

 

Business Line

Second
Quarter 2021
Earnings

Second
Quarter 2020
Earnings

YTD June 30,
2021
Earnings

YTD June 30,
2020
Earnings

 

(In millions, except per share amounts)

Regulated energy delivery

$

18.8

 

$

20.2

 

$

74.6

 

$

71.2

 

Construction materials and services

80.3

 

80.9

 

79.3

 

59.6

 

Other

1.1

 

(1.3)

 

(1.6)

 

(5.5)

 

Income from continuing operations

100.2

 

99.8

 

152.3

 

125.3

 

Loss from discontinued operations, net of tax

 

(.1)

 

 

(.5)

 

Net income

$

100.2

 

$

99.7

 

$

152.3

 

$

124.8

 

Earnings per share:

       

Income from continuing operations

$

.50

 

$

.50

 

$

.76

 

$

.62

 

Discontinued operations, net of tax

 

 

 

 

Earnings per share

$

.50

 

$

.50

 

$

.76

 

$

.62

 

 

 

 

Consolidated Statements of Income

   
 

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2021

 

2020

 

2021

 

2020

 

(In millions, except per share amounts)

Operating revenues:

(Unaudited)

Electric, natural gas distribution and regulated pipeline

$

260.6

 

$

241.3

 

$

703.0

 

$

660.0

 

Non-regulated pipeline, construction materials and contracting, construction services and other

1,163.1

 

1,121.6

 

1,948.6

 

1,900.3

 

Total operating revenues

1,423.7

 

1,362.9

 

2,651.6

 

2,560.3

 

Operating expenses:

       

Operation and maintenance:

       

Electric, natural gas distribution and regulated pipeline

89.4

 

83.1

 

183.7

 

170.7

 

Non-regulated pipeline, construction materials and contracting, construction services and other

988.4

 

946.0

 

1,705.7

 

1,679.5

 

Total operation and maintenance

1,077.8

 

1,029.1

 

1,889.4

 

1,850.2

 

Purchased natural gas sold

63.2

 

56.8

 

239.5

 

222.2

 

Depreciation, depletion and amortization

73.7

 

71.5

 

147.4

 

140.8

 

Taxes, other than income

53.2

 

52.6

 

115.7

 

116.7

 

Electric fuel and purchased power

18.1

 

14.6

 

36.7

 

35.1

 

Total operating expenses

1,286.0

 

1,224.6

 

2,428.7

 

2,365.0

 

Operating income

137.7

 

138.3

 

222.9

 

195.3

 

Other income

9.0

 

10.0

 

12.3

 

9.0

 

Interest expense

23.4

 

24.8

 

46.8

 

49.3

 

Income before taxes

123.3

 

123.5

 

188.4

 

155.0

 

Income tax expense

23.1

 

23.7

 

36.1

 

29.7

 

Income from continuing operations

100.2

 

99.8

 

152.3

 

125.3

 

Loss from discontinued operations, net of tax

 

(.1)

 

 

(.5)

 

Net income

$

100.2

 

$

99.7

 

$

152.3

 

$

124.8

 
         

Earnings per share – basic:

       

Income from continuing operations

$

.50

 

$

.50

 

$

.76

 

$

.62

 

Discontinued operations, net of tax

 

 

 

 

Earnings per share – basic

$

.50

 

$

.50

 

$

.76

 

$

.62

 

Earnings per share – diluted:

       

Income from continuing operations

$

.50

 

$

.50

 

$

.76

 

$

.62

 

Discontinued operations, net of tax

 

 

 

 

Earnings per share – diluted

$

.50

 

$

.50

 

$

.76

 

$

.62

 

Weighted average common shares outstanding – basic

201.3

 

200.5

 

201.0

 

200.5

 

Weighted average common shares outstanding – diluted

201.7

 

200.5

 

201.3

 

200.5

 

 

 

Selected Cash Flows Information

 

Six Months Ended

 

June 30,

 

2021

2020

 

(In millions)

Operating activities:

   

Net cash provided by continuing operations

$

182.9

 

$

261.8

 

Net cash used in discontinued operations

(.1)

 

(.4)

 

Net cash provided by operating activities

182.8

 

261.4

 

Investing activities:

   

Net cash used in continuing operations

(266.5)

 

(296.5)

 

Net cash provided by discontinued operations

 

 

Net cash used in investing activities

(266.5)

 

(296.5)

 

Financing activities:

   

Net cash provided by continuing operations

82.1

 

33.0

 

Net cash provided by discontinued operations

 

 

Net cash provided by financing activities

82.1

 

33.0

 

Decrease in cash and cash equivalents

(1.6)

 

(2.1)

 

Cash and cash equivalents - beginning of year

59.6

 

66.5

 

Cash and cash equivalents - end of period

$

58.0

 

$

64.4

 

 

 

Capital Expenditures

   
     

Business Line

2021
Estimated

2022
Estimated

2023
Estimated

2021 - 2025
Total
Estimated

 

(In millions)

Regulated energy delivery

       

Electric

$

110

 

$

182

 

$

109

 

$

600

 

Natural gas distribution

213

 

225

 

188

 

971

 

Pipeline

230

 

74

 

110

 

508

 
 

553

 

481

 

407

 

2,079

 

Construction materials and services

       

Construction services

46

 

34

 

35

 

187

 

Construction materials and contracting

202

 

154

 

150

 

742

 
 

248

 

188

 

185

 

929

 

Other

5

 

4

 

3

 

19

 

Total capital expenditures

$

806

 

$

673

 

$

595

 

$

3,027

 
         

Note: Total capital expenditures are presented on a gross basis.

Capital expenditures for 2021 include line-of-sight opportunities at the company's business segments. Future acquisitions would be incremental to the outlined capital program.

Non-GAAP Financial Measures
The company, in addition to presenting its earnings in conformity with GAAP, has provided non-GAAP financial measures of EBITDA by operating segment and EBITDA from continuing operations. The company defines EBITDA as net income (loss) attributable to the operating segment before interest; taxes; and depreciation, depletion and amortization; and EBITDA from continuing operations as income (loss) from continuing operations before interest; taxes; and depreciation, depletion and amortization.

The company presents EBITDA by operating segment and EBITDA from continuing operations on a consolidated basis in this news release. The company believes EBITDA and EBITDA from continuing operations are useful financial measures in providing meaningful information about operational efficiency compared to the company's peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. The presentation of EBITDA and EBITDA from continuing operations also is provided for investment professionals who use such metrics in their analyses. The investment community often uses these metrics to assess the operating performance of a company's business and to provide a consistent comparison of performance from period to period. The company's management uses the non-GAAP financial measures in conjunction with GAAP results when evaluating the company's operating results and calculating compensation packages. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies' non-GAAP financial measures having the same or similar names. The presentation of this additional information is not meant to be considered a substitution for financial measures prepared in accordance with GAAP. The company strongly encourages investors to review the consolidated financial statements in their entirety and to not rely on any single financial measure.

The following table provides a reconciliation of consolidated GAAP net income to EBITDA from continuing operations. The reconciliation for each operating segment's EBITDA is included within each operating segment's condensed income statement.

 

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2021

 

2020

 

2021

 

2020

 
 

(In millions)

Net income

$

100.2

 

$

99.7

 

$

152.3

 

$

124.8

 

Loss from discontinued operations, net of tax

 

.1

 

 

.5

 

Income from continuing operations

100.2

 

99.8

 

152.3

 

125.3

 

Adjustments:

       

Interest expense

23.4

 

24.8

 

46.8

 

49.3

 

Income taxes

23.1

 

23.7

 

36.1

 

29.7

 

Depreciation, depletion and amortization

73.7

 

71.5

 

147.4

 

140.8

 

EBITDA from continuing operations

$

220.4

 

$

219.8

 

$

382.6

 

$

345.1

 

The discussion that follows also includes adjusted gross margin, which is considered a non-GAAP financial measure as it relates to the company's electric and natural gas distribution segments. Adjusted gross margin can be used in addition to operating revenues and operating expenses when evaluating the results of operations for these segments. Adjusted gross margin for the electric and natural gas distribution segments is calculated by adding back adjustments to operating income (loss). These add-back adjustments include operation and maintenance expense; depreciation, depletion and amortization expense; and certain taxes, other than income.

The presentation of adjusted gross margin is intended to be a helpful supplemental financial measure for investors' understanding of the segments' operating performance. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, GAAP financial measures such as operating income (loss) or net income (loss). The company's adjusted gross margin may not be comparable to other companies' gross margin measures.

Adjusted gross margin includes operating revenues less the cost of electric fuel and purchased power, purchased natural gas sold and certain taxes, other than income. These taxes, other than income, included as a reduction to adjusted gross margin relate to revenue taxes. These segments pass on to their customers the increases and decreases in the wholesale cost of power purchases, natural gas and other fuel supply costs in accordance with regulatory requirements. As such, the segments' revenues are directly impacted by the fluctuations in such commodities. Revenue taxes, which are passed back to customers, fluctuate with revenues as they are calculated as a percentage of revenues. For these reasons, period over period, the segments' operating income (loss) is generally not impacted. The company's management believes the adjusted gross margin is a useful supplemental financial measure as these items are included in both operating revenues and operating expenses. The company's management also believes that adjusted gross margin and the remaining operating expenses that calculate operating income (loss) are useful in assessing the company's utility performance as management has the ability to influence control over the remaining operating expenses.

The following tables provide reconciliations of the company's electric and natural gas distribution segments' operating income to adjusted gross margin.

Electric

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2021

 

2020

 

2021

 

2020

 
 

(In millions)

Operating income

$

12.8

 

$

12.8

 

$

26.7

 

$

27.6

 

Adjustments:

       

Operating expenses:

       

Operation and maintenance

31.3

 

29.0

 

62.6

 

59.7

 

Depreciation, depletion and amortization

16.9

 

15.7

 

33.0

 

31.3

 

Taxes, other than income

4.5

 

4.4

 

9.2

 

8.7

 

Total adjustments

52.7

 

49.1

 

104.8

 

99.7

 

Adjusted gross margin

$

65.5

 

$

61.9

 

$

131.5

 

$

127.3

 

 

Natural Gas Distribution

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2021

 

2020

 

2021

 

2020

 
 

(In millions)

Operating income

$

3.6

 

$

.7

 

$

57.2

 

$

50.7

 

Adjustments:

       

Operating expenses:

       

Operation and maintenance

46.0

 

43.1

 

97.2

 

89.1

 

Depreciation, depletion and amortization

20.3

 

21.0

 

42.7

 

41.8

 

Taxes, other than income

6.7

 

6.0

 

13.8

 

12.1

 

Total adjustments

73.0

 

70.1

 

153.7

 

143.0

 

Adjusted gross margin

$

76.6

 

$

70.8

 

$

210.9

 

$

193.7

 

 

 

Regulated Energy Delivery

               

Electric

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

Operating revenues

$

83.8

 

$

76.6

 

9

%

 

$

168.6

 

$

162.7

 

4

%

Electric fuel and purchased power

18.1

 

14.6

 

24

%

 

36.7

 

35.1

 

5

%

Taxes, other than income

.2

 

.1

 

100

%

 

.4

 

.3

 

33

%

Adjusted gross margin

65.5

 

61.9

 

6

%

 

131.5

 

127.3

 

3

%

Operating expenses:

             

Operation and maintenance

31.3

 

29.0

 

8

%

 

62.6

 

59.7

 

5

%

Depreciation, depletion and amortization

16.9

 

15.7

 

8

%

 

33.0

 

31.3

 

5

%

Taxes, other than income

4.5

 

4.4

 

2

%

 

9.2

 

8.7

 

6

%

Total operating expenses

52.7

 

49.1

 

7

%

 

104.8

 

99.7

 

5

%

Operating income

12.8

 

12.8

 

%

 

26.7

 

27.6

 

(3)

%

Other income

1.6

 

2.5

 

(36)

%

 

2.2

 

2.1

 

5

%

Interest expense

6.6

 

6.8

 

(3)

%

 

13.2

 

13.6

 

(3)

%

Income before taxes

7.8

 

8.5

 

(8)

%

 

15.7

 

16.1

 

(2)

%

Income tax benefit

(2.5)

 

(3.7)

 

32

%

 

(5.3)

 

(7.4)

 

28

%

Net income

$

10.3

 

$

12.2

 

(15)

%

 

$

21.0

 

$

23.5

 

(11)

%

Adjustments:

             

Interest expense

6.6

 

6.8

 

(3)

%

 

13.2

 

13.6

 

(3)

%

Income tax benefit

(2.5)

 

(3.7)

 

32

%

 

(5.3)

 

(7.4)

 

28

%

Depreciation, depletion and amortization

16.9

 

15.7

 

8

%

 

33.0

 

31.3

 

5

%

EBITDA

$

31.3

 

$

31.0

 

1

%

 

$

61.9

 

$

61.0

 

1

%

 

Operating Statistics

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

2020

 

2021

2020

Retail sales (million kWh):

         

Residential

254.1

 

257.7

   

589.0

 

588.3

 

Commercial

347.1

 

323.7

   

708.9

 

699.5

 

Industrial

144.1

 

115.9

   

288.6

 

268.9

 

Other

22.1

 

20.4

   

41.3

 

40.8

 
 

767.4

 

717.7

   

1,627.8

 

1,597.5

 

Average cost of electric fuel and purchased power per kWh

$

.022

 

$

.019

   

$

.021

 

$

.020

 
                           

The electric business reported net income of $10.3 million in the second quarter of 2021, compared to $12.2 million for the same period in 2020. The decrease in net income was driven by higher operating expenses, primarily higher labor-related costs which includes increased stock-based compensation expense and health care costs, and higher generation station expenses. Lower investment returns on certain benefit plans further impacted net income. Partially offsetting the decrease was higher adjusted gross margin from a 6.9% increase in electric retail sales volumes. Higher industrial and commercial volumes were offset in part by lower residential volumes. Higher demand revenues and higher revenues associated with transmission interconnect upgrades also helped to offset the decrease in net income.

The electric business's EBITDA increased $300,000 in the second quarter of 2021, compared to 2020, primarily the result of higher adjusted gross margin partially offset by higher operating expenses, as previously discussed.

Natural Gas Distribution

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

Operating revenues

$

153.9

 

$

141.7

 

9

%

 

$

504.3

 

$

468.3

 

8

%

Purchased natural gas sold

70.9

 

64.6

 

10

%

 

273.1

 

255.2

 

7

%

Taxes, other than income

6.4

 

6.3

 

2

%

 

20.3

 

19.4

 

5

%

Adjusted gross margin

76.6

 

70.8

 

8

%

 

210.9

 

193.7

 

9

%

Operating expenses:

             

Operation and maintenance

46.0

 

43.1

 

7

%

 

97.2

 

89.1

 

9

%

Depreciation, depletion and amortization

20.3

 

21.0

 

(3)

%

 

42.7

 

41.8

 

2

%

Taxes, other than income

6.7

 

6.0

 

12

%

 

13.8

 

12.1

 

14

%

Total operating expenses

73.0

 

70.1

 

4

%

 

153.7

 

143.0

 

7

%

Operating income

3.6

 

.7

 

NM

   

57.2

 

50.7

 

13

%

Other income

2.4

 

4.1

 

(41)

%

 

4.0

 

4.4

 

(9)

%

Interest expense

9.1

 

9.0

 

1

%

 

18.2

 

18.1

 

1

%

Income (loss) before taxes

(3.1)

 

(4.2)

 

26

%

 

43.0

 

37.0

 

16

%

Income tax (benefit) expense

(2.4)

 

(3.2)

 

25

%

 

7.5

 

5.6

 

34

%

Net income (loss)

$

(.7)

 

$

(1.0)

 

26

%

 

$

35.5

 

$

31.4

 

13

%

Adjustments:

             

Interest expense

9.1

 

9.0

 

1

%

 

18.2

 

18.1

 

1

%

Income tax (benefit) expense

(2.4)

 

(3.2)

 

25

%

 

7.5

 

5.6

 

34

%

Depreciation, depletion and amortization

20.3

 

21.0

 

(3)

%

 

42.7

 

41.8

 

2

%

EBITDA

$

26.3

 

$

25.8

 

2

%

 

$

103.9

 

$

96.9

 

7

%

*  NM - not meaningful

 

 

 

Operating Statistics

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

   

2021

 

2020

 

Volumes (MMdk)

         

Retail sales:

         

Residential

9.0

 

9.7

   

37.8

 

37.4

 

Commercial

6.5

 

6.3

   

25.1

 

25.1

 

Industrial

1.1

 

1.0

   

2.6

 

2.5

 
 

16.6

 

17.0

   

65.5

 

65.0

 

Transportation sales:

         

Commercial

.4

 

.4

   

1.1

 

1.1

 

Industrial

38.9

 

30.2

   

82.8

 

75.8

 
 

39.3

 

30.6

   

83.9

 

76.9

 

Total throughput

55.9

 

47.6

   

149.4

 

141.9

 

Average cost of natural gas per dk

$

4.26

 

$

3.81

   

$

4.17

 

$

3.93

 
                           

The natural gas distribution business reported a seasonal loss of $700,000 in the second quarter of 2021, compared to a loss of $1.0 million for the same period in 2020. The decreased loss was primarily higher adjusted gross margin due to approved rate relief in certain jurisdictions and 2% customer growth. Natural gas transportation revenues also increased during the quarter. Partially offsetting the decreased loss was higher operation and maintenance expense, primarily higher labor-related costs, largely increased stock-based compensation expense and health care costs. Other income also decreased, the result of lower investment returns on certain benefit plans.

The natural gas distribution business's EBITDA increased $500,000 in the second quarter of 2021, compared to 2020, primarily the result of higher adjusted gross margin, partially offset by higher operation and maintenance expense, as previously discussed.

Pipeline

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

Operating revenues

$

35.6

 

$

35.7

 

%

 

$

71.8

 

$

71.5

 

%

Operating expenses:

             

Operation and maintenance

16.1

 

15.1

 

7

%

 

31.3

 

30.1

 

4

%

Depreciation, depletion and amortization

5.2

 

5.3

 

(2)

%

 

10.3

 

11.2

 

(8)

%

Taxes, other than income

3.2

 

3.1

 

3

%

 

6.6

 

6.6

 

%

Total operating expenses

24.5

 

23.5

 

4

%

 

48.2

 

47.9

 

1

%

Operating income

11.1

 

12.2

 

(9)

%

 

23.6

 

23.6

 

%

Other income

1.9

 

1.0

 

90

%

 

2.8

 

1.0

 

180

%

Interest expense

1.9

 

1.9

 

%

 

3.9

 

3.9

 

%

Income before taxes

11.1

 

11.3

 

(2)

%

 

22.5

 

20.7

 

9

%

Income tax expense

1.9

 

2.3

 

(17)

%

 

4.4

 

4.4

 

%

Net income

$

9.2

 

$

9.0

 

3

%

 

$

18.1

 

$

16.3

 

11

%

Adjustments:

             

Interest expense

1.9

 

1.9

 

%

 

3.9

 

3.9

 

%

Income tax expense

1.9

 

2.3

 

(17)

%

 

4.4

 

4.4

 

%

Depreciation, depletion and amortization

5.2

 

5.3

 

(2)

%

 

10.3

 

11.2

 

(8)

%

EBITDA

$

18.2

 

$

18.5

 

(2)

%

 

$

36.7

 

$

35.8

 

3

%

 

Operating Statistics

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

   

2021

 

2020

 

Transportation volumes (MMdk)

118.7

 

95.6

   

229.5

 

207.3

 

Natural gas gathering volumes (MMdk)

 

2.1

   

 

5.4

 
           

Customer natural gas storage balance (MMdk):

         

Beginning of period

5.2

 

3.8

   

25.5

 

16.2

 

Net injection (withdrawal)

10.8

 

15.3

   

(9.5)

 

2.9

 

End of period

16.0

 

19.1

   

16.0

 

19.1

 

The pipeline business reported net income of $9.2 million in the second quarter of 2021, compared to $9.0 million for the same period in 2020. The increase in net income was driven by higher non-regulated project revenues as well as increased other income, largely the result of higher allowance for funds used during construction. Partially offsetting the increase in net income was higher operation and maintenance expense, driven by the costs associated with the previously mentioned increase in non-regulated projects revenue.

The pipeline business's EBITDA decreased $300,000 in the second quarter of 2021, compared to 2020, primarily from increased operation and maintenance expense, as previously discussed.

Construction Materials and Services

 
               

Construction Services

Three Months Ended

 

Six Months Ended

 
 

June 30,

 

June 30,

 
 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

Operating revenues

$

525.6

 

$

497.2

 

6

%

 

$

1,044.1

 

$

1,011.9

 

3

%

Cost of sales:

             

Operation and maintenance

442.0

 

411.1

 

8

%

 

869.2

 

847.3

 

3

%

Depreciation, depletion and amortization

3.9

 

4.0

 

(3)

%

 

7.9

 

7.9

 

%

Taxes, other than income

16.3

 

17.2

 

(5)

%

 

35.7

 

40.6

 

(12)

%

Total cost of sales

462.2

 

432.3

 

7

%

 

912.8

 

895.8

 

2

%

Gross margin

63.4

 

64.9

 

(2)

%

 

131.3

 

116.1

 

13

%

Selling, general and administrative expense:

             

Operation and maintenance

23.6

 

23.5

 

%

 

48.2

 

47.4

 

2

%

Depreciation, depletion and amortization

1.0

 

2.4

 

(58)

%

 

2.3

 

4.2

 

(45)

%

Taxes, other than income

1.0

 

1.1

 

(9)

%

 

2.7

 

2.8

 

(4)

%

Total selling, general and administrative expense

25.6

 

27.0

 

(5)

%

 

53.2

 

54.4

 

(2)

%

Operating income

37.8

 

37.9

 

%

 

78.1

 

61.7

 

27

%

Other income

1.6

 

.5

 

NM

   

1.8

 

.7

 

NM

 

Interest expense

.9

 

1.1

 

(18)

%

 

1.8

 

2.3

 

(22)

%

Income before taxes

38.5

 

37.3

 

3

%

 

78.1

 

60.1

 

30

%

Income tax expense

9.6

 

9.4

 

2

%

 

19.4

 

15.3

 

27

%

Net income

$

28.9

 

$

27.9

 

3

%

 

$

58.7

 

$

44.8

 

31

%

Adjustments:

             

Interest expense

.9

 

1.1

 

(18)

%

 

1.8

 

2.3

 

(22)

%

Income tax expense

9.6

 

9.4

 

2

%

 

19.4

 

15.3

 

27

%

Depreciation, depletion and amortization

4.9

 

6.4

 

(23)

%

 

10.2

 

12.1

 

(16)

%

EBITDA

$

44.3

 

$

44.8

 

(1)

%

 

$

90.1

 

$

74.5

 

21

%

*  NM - not meaningful

The construction services business reported net income of $28.9 million in the second quarter of 2021, compared to $27.9 million for the same period in 2020. The increase in net income was driven by higher inside specialty contracting workloads from strong demand from commercial and industrial work, as well as higher outside specialty contracting workloads, and lower depreciation, depletion and amortization expense from decreased intangible amortization expense associated with previous acquisitions.

The construction services business's EBITDA decreased $500,000 in the second quarter of 2021, compared to 2020, primarily a result of lower gross margin.

Construction Materials and Contracting

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

 

Operating revenues

$

633.8

 

$

621.1

 

2

%

 

$

899.5

 

$

883.3

 

2

%

Cost of sales:

             

Operation and maintenance

497.0

 

487.9

 

2

%

 

740.2

 

738.7

 

%

Depreciation, depletion and amortization

24.3

 

21.2

 

15

%

 

46.7

 

40.8

 

14

%

Taxes, other than income

13.9

 

13.6

 

2

%

 

23.6

 

23.0

 

3

%

Total cost of sales

535.2

 

522.7

 

2

%

 

810.5

 

802.5

 

1

%

Gross margin

98.6

 

98.4

 

%

 

89.0

 

80.8

 

10

%

Selling, general and administrative expense:

             

Operation and maintenance

24.2

 

21.6

 

12

%

 

46.0

 

43.8

 

5

%

Depreciation, depletion and amortization

1.0

 

1.3

 

(23)

%

 

2.1

 

2.3

 

(9)

%

Taxes, other than income

1.0

 

.8

 

25

%

 

3.4

 

3.2

 

6

%

Total selling, general and administrative expense

26.2

 

23.7

 

11

%

 

51.5

 

49.3

 

4

%

Operating income

72.4

 

74.7

 

(3)

%

 

37.5

 

31.5

 

19

%

Other income

1.2

 

1.9

 

(37)

%

 

1.1

 

.7

 

57

%

Interest expense

4.8

 

5.7

 

(16)

%

 

9.5

 

10.9

 

(13)

%

Income before taxes

68.8

 

70.9

 

(3)

%

 

29.1

 

21.3

 

37

%

Income tax expense

17.4

 

17.9

 

(3)

%

 

8.5

 

6.5

 

31

%

Net income

$

51.4

 

$

53.0

 

(3)

%

 

$

20.6

 

$

14.8

 

39

%

Adjustments:

             

Interest expense

4.8

 

5.7

 

(16)

%

 

9.5

 

10.9

 

(13)

%

Income tax expense

17.4

 

17.9

 

(3)

%

 

8.5

 

6.5

 

31

%

Depreciation, depletion and amortization

25.3

 

22.5

 

12

%

 

48.8

 

43.1

 

13

%

EBITDA

$

98.9

 

$

99.1

 

%

 

$

87.4

 

$

75.3

 

16

%

 

Operating Statistics

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2021

 

2020

   

2021

 

2020

 

Sales (000's):

         

Aggregates (tons)

9,533

 

8,739

   

14,341

 

12,956

 

Asphalt (tons)

2,091

 

2,166

   

2,385

 

2,393

 

Ready-mixed concrete (cubic yards)

1,201

 

1,119

   

1,933

 

1,823

 

The construction materials and contracting business reported net income of $51.4 million in the second quarter of 2021, compared to $53.0 million in the same period in 2020. The decrease in net income was the result of higher selling, general and administrative expense, primarily labor-related costs which includes increased stock-based compensation expense and health care costs. Lower investment returns on certain benefit plans also impacted the quarter. Partially offsetting the decrease in net income was lower interest expense.

The construction materials and contracting business's EBITDA decreased $200,000 in the second quarter of 2021, compared to 2020. The decreased EBITDA was the result of higher selling, general and administrative expense, as previously discussed.

Other

 

Three Months Ended

 

Six Months Ended

 
 

June 30,

 

June 30,

 
 

2021

 

2020

 

% Change

 

2021

 

2020

 

% Change

 

(In millions)

Operating revenues

$

3.4

 

$

2.9

 

17

%

 

$

6.7

 

$

5.9

 

14

%

Operating expenses:

             

Operation and maintenance

2.3

 

2.3

 

%

 

4.5

 

4.4

 

2

%

Depreciation, depletion and amortization

1.1

 

.6

 

83

%

 

2.4

 

1.3

 

85

%

Total operating expenses

3.4

 

2.9

 

17

%

 

6.9

 

5.7

 

21

%

Operating income (loss)

 

 

NM

   

(.2)

 

.2

 

NM

 

Other income

.3

 

 

NM

   

.4

 

.2

 

100

%

Interest expense

.1

 

.3

 

(67)

%

 

.2

 

.6

 

(67)

%

Income (loss) before income taxes

.2

 

(.3)

 

NM

   

 

(.2)

 

NM

 

Income tax (benefit) expense

(.9)

 

1.0

 

NM

   

1.6

 

5.3

 

(70)

%

Net income (loss)

$

1.1

 

$

(1.3)

 

NM

   

$

(1.6)

 

$

(5.5)

 

70

%

*  NM - not meaningful

Net income for Other reflects income tax adjustments related to the consolidated company's annualized estimated tax rate and higher depreciation, depletion and amortization expense in 2021 for software placed in service. General and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income (loss) from discontinued operations also are included in Other.

Other Financial Data

   
 

June 30,

 

2021

 

2020

 

(In millions, except per share amounts)

 

(Unaudited)

Book value per common share

$

15.81

 

$

14.45

 

Market price per common share

$

31.34

 

$

22.18

 

Dividend yield (indicated annual rate)

2.7%

 

3.7%

 

Price/earnings from continuing operations ratio (12 months ended)

15.1x

 

12.5x

 

Market value as a percent of book value

198.2%

 

153.5%

 

Total assets

$

8,298

 

$

7,911

 

Total equity

$

3,199

 

$

2,898

 

Total debt

$

2,387

 

$

2,357

 

Capitalization ratios:

   

Total equity

57.3%

 

55.1%

 

Total debt

42.7

 

44.9

 
 

100.0%

 

100.0%

 

 

 

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SOURCE MDU Resources Group, Inc.

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