Today, New Jersey Resources Corporation (NYSE: NJR) reported results for the third quarter of fiscal 2023. Highlights include:
- Consolidated net income of $1.5 million, compared with net income of $13.1 million in the third quarter of fiscal 2022
- Consolidated net financial earnings (NFE), a non-GAAP financial measure, of $9.7 million, or $0.10 per share, compared to a net financial loss of $(3.6) million, or $(0.04) per share, in the third quarter of fiscal 2022
- Re-affirmed fiscal 2023 net financial earnings per share (NFEPS) guidance range of $2.62 to $2.72
- Maintains long-term projected NFEPS growth rate of 7 to 9 percent(1)
Third-quarter fiscal 2023 net income totaled $1.5 million, or $0.02 per share, compared with net income of $13.1 million, or $0.14 per share, during the same period in fiscal 2022. Fiscal 2023 year-to-date net income totaled $227.7 million, or $2.35 per share, compared with $220.4 million, or $2.29 per share, for the same period in fiscal 2022.
Third-quarter fiscal 2023 NFE totaled $9.7 million, or $0.10 per share, compared to a net financial loss of $(3.6) million, or $(0.04) per share, during the same period in fiscal 2022. Fiscal 2023 year-to-date NFE totaled $232.3 million, or $2.40 per share, compared with $192.4 million, or $2.00 per share, for the same period in fiscal 2022.
Steve Westhoven, President and CEO, stated, "We are on track to achieve net financial earnings within our fiscal 2023 guidance range, which was increased by $0.20 earlier this year, reflecting the strength of our diversified business model. We have continued our momentum at CEV, increasing our in-service capacity and growing our pipeline, with fiscal 2023 representing the largest year of capacity growth in CEV's history."
Key Performance Metrics
Three Months Ended | Nine Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
($ in Thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||
Net income | $ | 1,532 | $ | 13,053 | $ | 227,700 | $ | 220,400 | ||||
Basic EPS | $ | 0.02 | $ | 0.14 | $ | 2.35 | $ | 2.29 | ||||
Net financial earnings (loss) | $ | 9,670 | $ | (3,551 | ) | $ | 232,264 | $ | 192,425 | |||
Basic net financial earnings (loss) per share | $ | 0.10 | $ | (0.04 | ) | $ | 2.40 | $ | 2.00 | |||
(1) NFEPS long-term annual growth projections are based on the midpoint of the $2.20 - $2.30 initial guidance range for fiscal 2022, provided on February 1, 2021 | ||||||||||||
A reconciliation of net income to NFE for the three and nine months ended June 30, 2023 and 2022, is provided below.
Three Months Ended | Nine Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(Thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||
Net income | $ | 1,532 | $ | 13,053 | $ | 227,700 | $ | 220,400 | |||||||
Add: | |||||||||||||||
Unrealized gain on derivative instruments and related transactions | (12,970 | ) | (17,891 | ) | (30,502 | ) | (58,060 | ) | |||||||
Tax effect | 3,083 | 4,253 | 7,250 | 13,809 | |||||||||||
Effects of economic hedging related to natural gas inventory | 24,116 | 428 | 36,885 | 25,160 | |||||||||||
Tax effect | (5,731 | ) | (102 | ) | (8,766 | ) | (5,979 | ) | |||||||
Gain on equity method investment | (100 | ) | (4,021 | ) | (300 | ) | (4,021 | ) | |||||||
Tax effect | 24 | 1,003 | 74 | 1,003 | |||||||||||
NFE tax adjustment | (284 | ) | (274 | ) | (77 | ) | 113 | ||||||||
Net financial earnings (loss) | $ | 9,670 | $ | (3,551 | ) | $ | 232,264 | $ | 192,425 | ||||||
Weighted Average Shares Outstanding | |||||||||||||||
Basic | 97,168 | 96,154 | 96,849 | 96,055 | |||||||||||
Diluted | 97,886 | 96,620 | 97,538 | 96,527 | |||||||||||
Basic earnings per share | $ | 0.02 | $ | 0.14 | $ | 2.35 | $ | 2.29 | |||||||
Add: | |||||||||||||||
Unrealized gain on derivative instruments and related transactions | (0.14 | ) | (0.19 | ) | (0.31 | ) | (0.60 | ) | |||||||
Tax effect | 0.03 | 0.04 | 0.07 | 0.14 | |||||||||||
Effects of economic hedging related to natural gas inventory | 0.25 | — | 0.38 | 0.26 | |||||||||||
Tax effect | (0.06 | ) | — | (0.09 | ) | (0.06 | ) | ||||||||
Gain on equity method investment | — | (0.04 | ) | — | (0.04 | ) | |||||||||
Tax effect | — | 0.01 | — | 0.01 | |||||||||||
Basic net financial earnings (loss) per share | $ | 0.10 | $ | (0.04 | ) | $ | 2.40 | $ | 2.00 | ||||||
NFE is a measure of earnings based on the elimination of timing differences to effectively match the earnings effects of the economic hedges with the physical sale of natural gas, Solar Renewable Energy Certificates (SRECs) and foreign currency contracts. Consequently, to reconcile net income and NFE, current-period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Realized derivative gains and losses are also included in current-period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical natural gas flows. NFE also excludes certain transactions associated with equity method investments, including impairment charges, which are non-cash charges, and return of capital in excess of the carrying value of our investment. These are not indicative of the Company's performance for its ongoing operations. Included in the tax effects are current and deferred income tax expense corresponding with the components of NFE.
A table detailing NFE for the three and nine months ended June 30, 2023 and 2022, is provided below.
Net financial earnings (loss) by Business Unit
Three Months Ended | Nine Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(Thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||
New Jersey Natural Gas | $ | 891 | $ | 2,648 | $ | 156,252 | $ | 156,511 | |||||||
Clean Energy Ventures | 7,267 | (5,098 | ) | (5,694 | ) | (18,410 | ) | ||||||||
Storage and Transportation | 2,358 | 3,526 | 11,051 | 11,113 | |||||||||||
Energy Services | (1,604 | ) | (5,003 | ) | 72,054 | 42,504 | |||||||||
Home Services and Other | 523 | 215 | 1,307 | 1,113 | |||||||||||
Subtotal | 9,435 | (3,712 | ) | 234,970 | 192,831 | ||||||||||
Eliminations | 235 | 161 | (2,706 | ) | (406 | ) | |||||||||
Total | $ | 9,670 | $ | (3,551 | ) | $ | 232,264 | $ | 192,425 | ||||||
Fiscal 2023 NFE Guidance:
NJR re-affirmed its fiscal 2023 NFE guidance range of $2.62 to $2.72, which was increased by $0.20 per share in the first quarter of fiscal 2023, subject to the risks and uncertainties identified below under "Forward-Looking Statements." The following chart represents NJR’s current expected contributions from its business segments for fiscal 2023:
Company | Expected Fiscal 2023 Net Financial Earnings Contribution |
New Jersey Natural Gas | 48 to 53 percent |
Clean Energy Ventures | 18 to 20 percent |
Storage and Transportation | 4 to 8 percent |
Energy Services | 20 to 25 percent |
Home Services and Other | 0 to 1 percent |
In providing fiscal 2023 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.
New Jersey Natural Gas
NJNG reported third-quarter fiscal 2023 NFE of $0.9 million, compared to NFE of $2.6 million during the same period in fiscal 2022. The decrease in NFE for the quarter was due primarily to higher depreciation and operating expenses, partially offset by higher utility gross margin. Fiscal 2023 year-to-date NFE were $156.3 million, which was flat compared to NFE of $156.5 million during the same period in fiscal 2022.
Customer Growth:
- NJNG added 5,892 new customers during the first nine months of fiscal 2023, compared with 5,274 during the same period in fiscal 2022. NJNG expects these new customers to contribute approximately $5.0 million of incremental utility gross margin on an annualized basis.
Infrastructure Update:
- NJNG's Infrastructure Investment Program (IIP) is a five-year, $150 million accelerated recovery program that began in fiscal 2021. IIP consists of a series of infrastructure projects designed to enhance the safety and reliability of NJNG's natural gas distribution system. During the first nine months of fiscal 2023, NJNG has spent $33.5 million under the program on various distribution system reinforcement projects. On March 30, 2023, NJNG submitted its annual IIP filing to the BPU requesting a rate increase for capital expenditures of $31.4 million through June 30, 2023, resulting in a $3.2 million revenue increase, with a proposed effective date of October 1, 2023.
Basic Gas Supply Service (BGSS) Incentive Programs:
BGSS incentive programs contributed $2.9 million to utility gross margin in the third quarter of fiscal 2023, compared with $1.9 million during the same period in fiscal 2022. Fiscal 2023 year-to-date, these programs contributed $17.4 million to utility gross margin, compared with $12.1 million during the same period in fiscal 2022. The increase in NFE for the fiscal 2023 quarter and year-to-date period was due primarily to an increase in storage incentive margin.
For more information on utility gross margin, please see "Non-GAAP Financial Information" below.
Energy-Efficiency Programs:
SAVEGREEN invested $39.7 million during the first nine months of fiscal 2023 in energy-efficiency upgrades for customers' homes and businesses. NJNG recovered $15.9 million of its outstanding investments during the first nine months of fiscal 2023 through its energy efficiency rate.
Clean Energy Ventures (CEV)
CEV reported third-quarter fiscal 2023 net financial earnings of $7.3 million, compared with net financial loss of $(5.1) million during the same period in fiscal 2022. Fiscal 2023 year-to-date net financial loss was $(5.7) million, compared with net financial loss of $(18.4) million during the same period in fiscal 2022. The increase in NFE for the quarter was due primarily to a reversal of a valuation allowance on certain deferred tax assets during June 2023, which was determined to be no longer required. The increase in fiscal 2023 year-to-date NFE was due to the aforementioned reversal.
Solar Investment Update:
- During the first nine months of fiscal 2023, CEV placed 6 commercial projects into service, adding approximately 51 MW to total installed capacity.
- As of June 30, 2023, CEV had approximately 441MW of solar capacity (including residential) in service in New Jersey, Rhode Island, New York and Connecticut.
- Subsequent to quarter end, CEV acquired two operational assets, adding approximately 21MW of installed capacity for a total of approximately 462MW (including residential) currently in service.
Storage and Transportation
Storage and Transportation reported third-quarter fiscal 2023 NFE of $2.4 million, compared with NFE of $3.5 million during the same period in fiscal 2022. Fiscal 2023 year-to-date NFE were $11.1 million, compared with NFE of $11.1 million during the same period in fiscal 2022. NFE for both periods decreased due to increased depreciation and interest expenses; partially offset by increased revenue.
Energy Services
Energy Services reported third-quarter fiscal 2023 net financial loss of $(1.6) million compared with net financial loss of $(5.0) million for the same period in fiscal 2022. Fiscal 2023 year-to-date NFE were $72.1 million, compared with NFE of $42.5 million during the same period in fiscal 2022. The improvement in NFE for the third quarter compared to the prior year period was due to higher financial margin and lower operating expenses. The increase in fiscal 2023 year-to-date NFE were due to higher natural gas price volatility during periods of colder than expected weather in December 2022 and February 2023, allowing Energy Services to capture additional margin.
Home Services and Other Operations
Home Services and Other Operations reported third-quarter fiscal 2023 NFE of $0.5 million compared with NFE of $0.2 million for the same period in fiscal 2022. Fiscal 2023 year-to-date NFE were $1.3 million, compared with NFE of $1.1 million during the same period in fiscal 2022. The increase in NFE for the quarter and year-to-date period was due primarily to increased installation and service contract revenue.
Capital Expenditures and Cash Flows:
NJR is committed to maintaining a strong financial profile:
- During the first nine months of fiscal 2023, capital expenditures were $370.0 million, including accruals, of which $274.9 million were related to NJNG, compared with $419.4 million, of which $194.8 million were related to NJNG, during the same period in fiscal 2022. The decrease in capital expenditures was primarily due to the completion of the Adelphia Gateway Pipeline project, which was placed into service in September 2022.
- During the first nine months o
