New Jersey Resources Reports Second-Quarter Fiscal 2019 Results

WALL, N.J.–(BUSINESS WIRE)–Today, New Jersey Resources (NYSE:NJR) reported results for the
second-quarter of fiscal 2019. Highlights include:

  • Consolidated net income of $73.6 million, compared with $140.3 million
    in the second-quarter of fiscal 2018
  • Consolidated net financial earnings (NFE), a non-GAAP financial
    measure, were $112.4 million, compared with NFE of $142.1 million in
    the second-quarter of fiscal 2018
  • Reaffirmed NFE guidance for fiscal 2019 of $1.95 to $2.05 per share
  • New Jersey Natural Gas (NJNG) filed a rate case with the New Jersey
    Board of Public Utilities (BPU), seeking a $128.2 million increase in
    delivery rates
  • NJNG submitted a filing to the BPU to invest $507 million over five
    years to upgrade its natural gas delivery and information technology
    systems
  • NJR Clean Energy Ventures (CEV) closed the sale of the remaining
    assets in its wind portfolio for total proceeds of $208.6 million

Second-quarter fiscal 2019 net income totaled $73.6 million, or $0.83
per share, compared with net income of $140.3 million, or $1.60 per
share, during the same period in fiscal 2018. Fiscal 2019 year-to-date
net income totaled $159.8 million, or $1.80 per share, compared with
$264 million, or $3.02 per share, during the same period in fiscal 2018.

Second-quarter fiscal 2019 NFE totaled $112.4 million, or $1.27 per
share, compared with NFE of $142.1 million, or $1.62 per share, during
the same period last year. Fiscal 2019 year-to-date NFE totaled $166.5
million, or $1.88 per share, compared with $277.4 million, or $3.18 per
share, during the same period in fiscal 2018.

Results during the first six months of fiscal 2018 included an income
tax benefit of $58.5 million, or $0.67 per share, due to the revaluation
of deferred taxes resulting from the reduction in the federal corporate
tax rate.

While our strong second-quarter results were lower than the same period
last year, due to the outsized performance of NJR Energy Services in
fiscal 2018, the quarter’s results put us on track to meet our fiscal
2019 NFE guidance target,” said Steve Westhoven, president and COO of
New Jersey Resources. “Results were driven by higher utility gross
margin, new customer growth and our regulated infrastructure
investments.”

A reconciliation of net income to NFE for the three and six months ended
March 31, 2019 and 2018, is provided below.

       
Three Months Ended Six Months Ended
March 31, March 31,
(Thousands)     2019     2018 2019     2018
Net income* $ 73,573     $ 140,266 $ 159,821     $ 263,965
Add:
Unrealized loss (gain) on derivative instruments and related
transactions
10,226 (11,608 ) (707 ) 23,246
Tax effect (2,435 ) 4,716 149 (3,343 )
Effects of economic hedging related to natural gas inventory 22,367 6,125 756 (19,262 )
Tax effect (5,316 ) (1,715 ) (180 ) 6,529
Net income to NFE tax adjustment 14,002   4,278   6,671   6,260  
Net financial earnings $ 112,417   $ 142,062   $ 166,510   $ 277,395  
 
Weighted Average Shares Outstanding
Basic 88,836 87,595 88,692 87,295
Diluted 89,228 87,989 89,093 87,690
 
Basic earnings per share $ 0.83 $ 1.60 $ 1.80 $ 3.02
Add:
Unrealized loss (gain) on derivative instruments and related
transactions
0.12 (0.13 ) (0.01 ) 0.27
Tax effect (0.03 ) 0.05 (0.04 )
Effects of economic hedging related to natural gas inventory 0.25 0.07 0.01 (0.22 )

Tax effect

(0.06 ) (0.02 ) 0.08
Net income to NFE tax adjustment 0.16   0.05   0.08   0.07  
Basic net financial earnings per share $1.27 $ 1.62   $ 1.88   $ 3.18  
 

*Results during the first six months of fiscal 2018 include an
estimated income tax benefit of $58.5 million, or $0.67 per share, due
to the revaluation of deferred income taxes resulting from the reduction
in the federal corporate tax rate that did not reoccur in fiscal 2019.

NFE is a financial measure not calculated in accordance with Generally
Accepted Accounting Principles (GAAP) of the United States. It is a
measure of earnings based on eliminating timing differences surrounding
the recognition of certain gains or losses, net of applicable tax
adjustments, to effectively match the earnings effects of the economic
hedges with the physical sale of natural gas, Solar Renewable Energy
Credits (SRECs) and foreign currency contracts. NFE eliminates the
impact of volatility to GAAP earnings associated with unrealized gains
and losses on derivative instruments in the current period. For further
discussion of this financial measure, please see the explanation below
under “Non-GAAP Financial Information.”

A table summarizing our key performance metrics for the three and six
months ended March 31, 2019 and 2018, is provided below.

       
Three Months Ended Six Months Ended
March 31, March 31,
($ in Thousands)     2019     2018 2019     2018
Net income $ 73,573     $ 140,266 $ 159,821     $ 263,965
Basic EPS $ 0.83 $ 1.60 $ 1.80 $ 3.02
NFE $ 112,417 $ 142,062 $ 166,510 $ 277,395
Basic NFE per share $ 1.27 $ 1.62 $ 1.88 $ 3.18
 

A table detailing NFE for the three and six months ended March 31, 2019,
and 2018, is provided below.

       
Three Months Ended Six Months Ended
March 31, March 31,
(Thousands)     2019     2018 2019     2018
Net financial earnings (loss)        
New Jersey Natural Gas $ 68,546 $ 60,442 $ 100,259 $ 94,551
Midstream 4,498   1,315   8,149   18,826  
Subtotal Regulated 73,044 61,757 108,408 113,377
Clean Energy Ventures 21,730 10,051 31,935 81,301
Energy Services 19,304 72,832 27,674 93,106
Home Services and Other (1,581 ) (2,488 ) (1,505 ) (10,204 )
Subtotal Non-Regulated 39,453   80,395   58,104   164,203  
Subtotal 112,497 142,152 166,512 277,580
Eliminations (80 ) (90 ) (2 ) (185 )
Total $ 112,417   $ 142,062   $ 166,510   $ 277,395  
 

NJR Reaffirms Fiscal 2019 NFE Guidance:

NJR reaffirmed fiscal 2019 NFE guidance of $1.95 to $2.05 per share,
subject to the risks and uncertainties identified below under
“Forward-Looking Statements.” NJR expects its regulated businesses to
generate between 50 to 65 percent of total NFE, with NJNG continuing to
be the largest contributor. The following chart represents NJR’s current
expected contributions from its subsidiaries for fiscal 2019 and beyond:

                 
Company      

Expected Fiscal 2019 Net Financial Earnings Contribution

      Expected Fiscal 2020 and Beyond Net Financial Earnings
Contribution
New Jersey Natural Gas       45 to 50 percent       50 to 60 percent
Midstream       5 to 15 percent       10 to 25 percent
Total Regulated       50 to 65 percent       60 to 85 percent
Clean Energy Ventures       25 to 35 percent       10 to 20 percent
Energy Services       5 to 10 percent       5 to 15 percent
Home Services and Other       0 to 2 percent       0 to 2 percent
Total Non-Regulated       30 to 47 percent       15 to 37 percent
           

In providing fiscal 2019 NFE guidance, management is aware there could
be differences between reported GAAP earnings and NFE due to matters
such as, but not limited to, the positions of our energy-related
derivatives. Management is not able to reasonably estimate the aggregate
impact or significance of these items on reported earnings and,
therefore, is not able to provide a reconciliation to the corresponding
GAAP equivalent for its operating earnings guidance without unreasonable
efforts.

Regulated Business Update:

New Jersey Natural Gas

NJNG reported second-quarter fiscal 2019 NFE of $68.5 million, compared
with $60.4 million during the same period in fiscal 2018. Fiscal 2019
year-to-date NFE at NJNG were $100.3 million, compared with $94.6
million during the same period last year. The increase in both periods
was due primarily to new customer growth and return on capital
expenditures related to BPU-approved infrastructure projects.

Customer Growth:

  • NJNG added 5,030 new customers during the first six months of fiscal
    2019, compared with 4,656 during the same period in fiscal 2018,
    primarily driven by the residential new construction market. In
    addition, 153 existing NJNG customers expanded their natural gas
    service during the first six months of fiscal 2019.
  • NJNG expects to add between 28,000 and 30,000 new customers through
    fiscal 2021, representing an average annual growth rate of 1.8 percent
    and a cumulative increase in utility gross margin of approximately $16
    million. For more information on utility gross margin, please see
    “Non-GAAP Financial Information” on page 8 of this release.

Base Rate Filing:

  • On March 29, 2019, NJNG filed a base rate case with the BPU, seeking a
    $128.2 million increase to its base rates. The filing is based on an
    overall return of 7.87 percent with a return on equity of 10.875
    percent. The proposed increase reflects a 56.5 percent common equity
    component.
  • NJNG is also seeking permission for a Phase II proceeding to request
    rate recovery for the Southern Reliability Link (SRL) upon completion
    of the project. If approved, NJNG currently estimates an increase of
    approximately $28.6 million in base rates associated with the
    completion of SRL.

NJNG Infrastructure Update:

  • NJNG’s Infrastructure Investment Program (IIP) was filed on
    February 28, 2019, with the BPU seeking approval to implement a
    five-year Infrastructure Investment Program (IIP) of $507 million. The
    IIP consists of two components, transmission and distribution
    investments and information technology replacement and enhancements.
    Pending BPU approval, these investments will be recovered through
    annual filings to adjust rates with recovery estimated to begin on
    October 1, 2020.
  • The Southern Reliability Link, which is designed to
    provide a secondary interstate feed into the southern end of NJNG’s
    delivery system, began construction in the first-quarter of fiscal
    2019. NJNG expects SRL to be in service during 2020, and has requested
    a Phase II proceeding in its current base rate case to recover its
    capital costs.
  • Safety Acceleration and Facilities Enhancement (SAFE) II is the
    five-year program approved by the BPU in September 2016 to replace the
    remaining 276 miles of unprotected steel main and associated services
    in NJNG’s distribution system. During the second-quarter of fiscal
    2019, NJNG invested $22.8 million to replace 15 miles of unprotected
    steel main and services.
  • The New Jersey Reinvestment in System Enhancement (NJ RISE) program
    is the five-year, $102.5 million investment that began in
    2014. During the second-quarter of fiscal 2019, NJNG began
    construction on the installation of a new distribution main into Long
    Beach Island.
  • The SAFE II and NJ RISE programs are eligible for annual base rate
    increases. On March 29, 2019, NJNG filed its annual petition with the
    BPU, requesting a base rate increase of approximately $8.7 million for
    the recovery of the related capital costs through June 30, 2019. The
    filing will be updated in July 2019 to reflect the actual results
    through June 30, 2019, with changes to base rates effective October 1,
    2019.

BGSS Incentive Programs:

BGSS incentive programs contributed $1.4 million to utility gross margin
in the second-quarter of fiscal 2019, compared with $2.4 million during
the same period in fiscal 2018. Fiscal 2019 year-to-date, these programs
contributed $3.4 million, compared with $6.8 million during the same
period in fiscal 2018. The lower results were due primarily to lower
volumes in the capacity release program, lower values and fewer
opportunities for off-system sales and storage incentives. Total savings
for NJNG customers through the BGSS incentive programs for the six
months ended March 31, 2019, were approximately $17.8 million.

Energy Efficiency Programs:

The SAVEGREEN Project®, NJNG’s energy-efficiency program,
invested $6 million during the second-quarter of fiscal 2019 in grants
and financing options designed to help customers with energy-efficiency
upgrades for their homes and businesses.

Midstream

Midstream reported second-quarter fiscal 2019 NFE of $4.5 million,
compared with $1.3 million during the same period in fiscal 2018, and
fiscal year-to-date NFE of $8.1 million, compared with $18.8 million
during the same period last year. The increase in second-quarter NFE
compared to last year is due primarily to the gains associated with the
sale of equity securities and certain tax effects recognized in fiscal
2018 that did not reoccur in fiscal 2019. The year-to-date decrease in
NFE was due primarily to the effects of tax reform, which resulted in a
tax benefit of $13.8 million recognized in the first-quarter of fiscal
2018 that did not reoccur in fiscal 2019.

Non-Regulated Businesses Update:

Energy Services

Energy Services reported second-quarter fiscal 2019 NFE of $19.3
million, compared with $72.8 million during fiscal 2018. Fiscal 2019
year-to-date NFE were $27.7 million, compared with $93.1 million during
the same period in fiscal 2018. The decrease in NFE was primarily due to
the lack of sustained cold weather and related pricing volatility this
year compared to fiscal 2018.

Clean Energy Ventures

CEV reported second-quarter fiscal 2019 NFE of $21.7 million, compared
with NFE of $10.1 million in the same period last year. The increase in
NFE during the quarter was due primarily to an increase in Investment
Tax Credits (ITCs) recognized and lower O&M expenses compared to last
year. Fiscal 2019 year-to-date NFE were $31.9 million, compared with
$81.3 million during the same period in fiscal 2018. The decrease in NFE
was due primarily to the effects of tax reform, which resulted in a tax
benefit of $62.7 million recognized in the first-quarter of fiscal 2018.

Second-quarter highlights:

  • Completed the sale of the remaining assets in the wind portfolio for
    total proceeds of $208.6 million.
  • The Sunlight Advantage®, CEV’s residential solar leasing
    program, added 189 residential customers and now serves over 7,600
    residential customers, representing an investment of $228.1 million.

Home Services and Other Operations

In the second-quarter of fiscal 2019, Home Services and Other Operations
reported net financial losses of $1.6 million, compared with net
financial losses of $2.5 million in fiscal 2018. Fiscal 2019
year-to-date net financial losses were $1.5 million, compared with net
financial losses of $10.2 million in fiscal 2018. The decrease in net
financial loss for both periods was due primarily to the revaluation of
deferred income taxes resulting from tax reform that did not repeat in
2019.

Capital Expenditures and Cash Flows:

NJR is committed to maintaining a strong financial profile while
continuing to invest capital in regulated and non-regulated projects.

  • During the second-quarter of fiscal 2019, NJR used operating cash
    flows of $171.8 million, compared with $312.5 million during the same
    period in fiscal 2018.
  • Second-quarter fiscal 2019 capital expenditures were $200.1 million,
    of which $148.8 million were related to regulated assets, compared
    with capital expenditures of $148.8 million, of which $95.1 million
    were related to regulated assets, during the same period in fiscal
    2018.

Webcast Information:

NJR will host a live webcast to discuss its financial results today at
10 a.m. ET. A few minutes prior to the webcast, go to njresources.com
and select “Investor Relations,” then scroll down to the “Events &
Presentations” section and click on the webcast link.

Forward-Looking Statements:

This release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of
the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. NJR cautions readers that the
assumptions forming the basis for forward-looking statements include
many factors that are beyond NJR’s ability to control or estimate
precisely, such as estimates of future market conditions and the
behavior of other market participants. Words such as “anticipates,”
“estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,”
“believes,” “should” and similar expressions may identify
forward-looking statements and such forward-looking statements are made
based upon management’s current expectations, assumptions and beliefs as
of this date concerning future developments and their potential effect
upon NJR. There can be no assurance that future developments will be in
accordance with management’s expectations, assumptions and beliefs or
that the effect of future developments on NJR will be those anticipated
by management. Forward-looking statements in this release include, but
are not limited to, certain statements regarding NJR’s NFE guidance for
fiscal 2019, forecasted contribution of business segments to fiscal 2019
NFE and beyond, future NJNG customer and utility gross margin growth,
future NJR capital expenditures, infrastructure investments, CEV’s
ITC-eligible projects and demand for residential solar, earnings and
dividend growth, NJNG’s base rate case, as well as the ability to close
and successfully implement the Adelphia Gateway acquisition, and
construct the SRL and PennEast Pipeline projects.

The factors that could cause actual results to differ materially from
NJR’s expectations include, but are not limited to, risks associated
with our investments in clean energy projects, including the
availability of regulatory and tax incentives, the availability of
viable projects, our eligibility for ITCs, the future market for SRECs
and electricity prices, and operational risks related to projects in
service; the ability to obtain governmental and regulatory approvals,
land-use rights, electric grid connection (in the case of clean energy
projects) and/or financing for the construction, development and
operation of our unregulated energy investments, pipeline transportation
systems and NJNG and Midstream infrastructure projects, including NJ
RISE, SRL, PennEast and Adelphia Gateway, in a timely manner; risks
associated with acquisitions and the related integration of acquired
assets with our current operations, including our planned Adelphia
Gateway acquisition; volatility of natural gas and other commodity
prices and their impact on NJNG customer usage, NJNG’s BGSS incentive
programs, our Energy Services segment operations and our risk management
efforts; the ability to comply with current and future regulatory
requirements; the level and rate at which NJNG’s costs and expenses are
incurred and the extent to which they are approved for recovery from
customers through the regulatory process, including through future base
rate case filings; the impact of a disallowance of recovery of
environmental-related expenditures and other regulatory changes; the
performance of our subsidiaries; operating risks incidental to handling,
storing, transporting and providing customers with natural gas; access
to adequate supplies of natural gas and dependence on third-party
storage and transportation facilities for natural gas supply; the
regulatory and pricing policies of federal and state regulatory
agencies; timing of qualifying for ITCs due to delays or failures to
complete planned solar projects and the resulting effect on our
effective tax rate and earnings; the results of legal or administrative
proceedings with respect to claims, rates, environmental issues, natural
gas cost prudence reviews and other matters; changes in rating agency
requirements and/or credit ratings and their effect on availability and
cost of capital to our company; risks related to cyber attack or failure
of information technology systems; the impact of volatility in the
equity and credit markets on our access to capital; the impact to the
asset values and resulting higher costs and funding obligations of our
pension and post-employment benefit plans as a result of potential
downturns in the financial markets, lower discount rates, revised
actuarial assumptions or impacts associated with the Patient Protection
and Affordable Care Act; commercial and wholesale credit risks,
including the availability of creditworthy customers and counterparties,
and liquidity in the wholesale energy trading market; accounting effects
and other risks associated with hedging activities and use of
derivatives contracts; the ability to optimize our physical assets;
weather and economic conditions; changes to tax laws and regulations;
any potential need to record a valuation allowance for our deferred tax
assets; the ability to comply with debt covenants; demographic changes
in NJR’s service territory and their effect on NJR’s customer growth;
the impact of natural disasters, terrorist activities and other extreme
events on our operations and customers; the costs of compliance with
present and future environmental laws, including potential climate
change-related legislation; environmental-related and other
uncertainties related to litigation or administrative proceedings; risks
related to our employee workforce; and risks associated with the
management of our joint ventures and partnerships. The aforementioned
factors are detailed in the “Risk Factors” sections of our Form
10-K that we filed with the Securities and Exchange Commission (SEC) on
November 20, 2018, which is available on the SEC’s Web site at sec.gov.
Information included in this release is representative as of today only,
and while NJR periodically reassesses material trends and uncertainties
affecting NJR’s results of operations and financial condition in
connection with its preparation of management’s discussion and analysis
of results of operations and financial condition contained in its
Quarterly and Annual Reports filed with the SEC, NJR does not, by
including this statement, assume any obligation to review or revise any
particular forward-looking statement referenced herein in light of
future events.

Non-GAAP Financial Information:

This release includes the non-GAAP financial measures NFE/net financial
losses, financial margin and utility gross margin. A reconciliation of
these non-GAAP financial measures to the most directly comparable
financial measures calculated and reported in accordance with GAAP can
be found below. As an indicator of NJR’s operating performance, these
measures should not be considered an alternative to, or more meaningful
than, net income or operating revenues as determined in accordance with
GAAP. This information has been provided pursuant to the requirements of
SEC Regulation G.

NFE/net financial loss and financial margin exclude unrealized gains or
losses on derivative instruments related to the company’s unregulated
subsidiaries and certain realized gains and losses on derivative
instruments related to natural gas that has been placed into storage at
Energy Services, net of applicable tax adjustments as described below.
Volatility associated with the change in value of these financial
instruments and physical commodity contracts is reported on the income
statement in the current period. In order to manage its business, NJR
views its results without the impacts of the unrealized gains and
losses, and certain realized gains and losses, caused by changes in
value of these financial instruments and physical commodity contracts
prior to the completion of the planned transaction because it shows
changes in value currently instead of when the planned transaction
ultimately is settled. An annual estimated effective tax rate is
calculated for NFE purposes and any necessary quarterly tax adjustment
is applied to Clean Energy Ventures, as such the adjustment is related
to tax credits generated by CEV.

NJNG’s utility gross margin represents the results of revenues less
natural gas costs, sales, expenses and other taxes and regulatory rider
expenses, which are key components of NJR’s operations. Natural gas
costs, sales, expenses and other taxes and regulatory rider expenses are
passed through to customers and, therefore, have no effect on utility
gross margin.

Contacts

Media:
Michael Kinney
732-938-1031
[email protected]

Investors:
Dennis
Puma
732-938-1229
[email protected]

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