Earnings call transcript: NWN Q2 2025 reveals earnings miss, stock dips

Northwest Natural Gas Co. (NWN), a utility company with a 54-year track record of consecutive dividend increases and current yield of 4.88%, reported its second-quarter earnings for 2025, revealing an earnings per share (EPS) of -$0.13, missing the forecast of -$0.11. The company also reported revenue of $236.19 million, falling short of the expected $247.25 million. Following the announcement, NWN’s stock decreased by 1.47%, trading at $40.2, reflecting investor disappointment.

According to InvestingPro, NWN has 6 additional key investment tips available for subscribers, offering deeper insights into the company’s financial health and growth prospects.

Key Takeaways

• NWN missed both EPS and revenue forecasts for Q2 2025.
• The company reaffirmed its annual earnings guidance, maintaining a positive long-term outlook.
• Customer growth remains robust, particularly in the Texas market.
• Stock price dropped 1.47% post-earnings announcement.

Company Performance

Northwest Natural Gas Co. experienced a challenging second quarter, with both EPS and revenue falling short of expectations. Despite these setbacks, the company maintained its annual earnings guidance, signaling confidence in its long-term strategy. The acquisition of Hughes Gas Resources has been successfully integrated, contributing to overall growth.

Financial Highlights

• Revenue: $236.19 million, down from the forecast of $247.25 million.
• Earnings per share: -$0.13, compared to a forecast of -$0.11.
• Year-to-date adjusted net income: $92.1 million.

Earnings vs. Forecast

NWN reported an EPS of -$0.13, missing the forecast of -$0.11 by 18.18%. Revenue also fell short at $236.19 million against a forecast of $247.25 million, a negative surprise of 4.47%.

Market Reaction

Following the earnings announcement, NWN’s stock price declined by 1.47% to $40.2. Trading near its 52-week low of $37.41, the stock currently sits well below its high of $44.38, with analyst targets suggesting potential upside of 23%. Based on InvestingPro’s Fair Value analysis, the stock appears to be overvalued at current levels. For more insights on overvalued stocks, visit our Most Overvalued Stocks list.

Outlook & Guidance

Despite the Q2 miss, NWN reaffirmed its annual earnings guidance of $2.75 to $2.95 per share. The company anticipates continued growth from its renewable natural gas projects and customer expansion in key markets.

Executive Commentary

CFO Ray Kusuba stated, "We continue to expect Sea Energy and Northwest Natural Water to each provide approximately $0.25 to $0.30 of adjusted earnings per share this year." CEO Justin Palfreman added, "Sea Energy continues to produce strong customer growth and is hitting its financial targets."

Risks and Challenges

• Economic pressures could impact future earnings.
• Rate increases may not significantly boost revenue.
• Potential supply chain disruptions could affect operations.
• Market saturation in certain regions could limit growth.
• Regulatory changes may pose additional challenges.

Q&A

During the Q&A session, analysts focused on the growth potential of Sea Energy and the integration of Hughes Gas Resources. The company addressed concerns over rate increases and their impact on customer satisfaction.

Full transcript - Northwest Natural Gas Co (NWN) Q2 2025:

Breeka, Moderator, North West Natural Holdings: Good morning, and thank you all for attending the North West Natural Holdings Company Second Quarter twenty My ’25 Earnings name is Breeka, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations. Thank you. You may proceed, Nikki.

Nikki Sparley, Head of Investor Relations, North West Natural Holdings: Thank you. Good morning, and welcome to our second quarter twenty twenty five earnings call. A presentation for today’s call is available on our Investor Relations website at irnwnaturalholdings.com. And following this call, a recording will also be available on our website. Turning to Slide two.

As a reminder, some things that will be said this morning contain forward looking statements. They are based on management’s assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10 Q and 10 ks filings. We will also refer to certain non GAAP financial measures.

For additional disclosures about these non GAAP measures, including reconciliations to comparable GAAP results, please see the slides that accompany today’s call, which are available on the Investor Relations page of our website. Please note our guidance assumes continued customer growth, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or assumed outcomes significant changes in local, state, or federal laws, legislation, or regulations. For context, we have three business segments: our Northwest Natural Gas Utility, our Sea Energy Gas Utility, and our Northwest Natural Water Utility. Our Other category includes our Interstate Storage Services and Asset Management Services, Northwest Natural Renewables, and Holding Company expenses. As a reminder, our gas utility earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.

We expect to file our 10 Q later today. Please note these calls are designed for the financial community. If you are an investor and have additional questions after the call, please contact me directly at (503) 721-2530. News Media may contact David Roy at (503) 610-7157. Moving to slide three.

With us today are Justin Palfreman, President and Chief Executive Officer and Ray Kusuba, Senior Vice President and Chief Financial Officer. Justin will provide an update on each of our businesses, and Ray will walk through our financial results, liquidity and financing, and guidance. After Justin and Ray’s prepared remarks, they will be available along with other members of our executive team to answer your questions. With that, I will turn it over to Justin on Slide four.

Justin Palfreman, President and Chief Executive Officer, North West Natural Holdings: Thanks, Nikki. Good morning, and welcome, everyone. I am pleased to report that Northwest Natural Holdings had a solid second quarter and 2025. We continue to execute well on initiatives across all of our businesses, and we remain confident that our financial results are on track for the year. We reported adjusted net income of $2.28 per share in the first six months of twenty twenty five compared to net income of $1.6 per share for the same period last year.

Our combined utility customer growth rate was 10.6% for the twelve months ended 06/30/2025. This substantial growth was driven by our gas utilities in Texas. Northwest Natural Water also contributed incremental meter growth posting a 5.8% increase. We reaffirmed our annual 2025 adjusted earnings guidance today and continue to expect our long term earnings per share growth rate to be 4% to 6%. While our growth and financial metrics are strong, the real momentum lies in how we’re executing against our strategic priorities for 2025.

Moving to Slide five. Our key initiatives are translating into tangible outcomes, and we’re progressing well toward our full year targets. Turning first to our Northwest Natural Gas Utility. After careful consideration, we filed an Oregon general rate case in December 2024 to recover our critical investments in gas infrastructure and expenses related to providing safe and reliable service to customers. Northwest Natural and parties have been working collaboratively and constructively.

Last month, parties filed a settlement resolving Northwest Natural’s revenue requirement components of the case. That included a revenue requirement increase of $21,300,000 The settlement also included a fifty-fifty capital structure, an ROE of 9.5%, an increase from the previous 9.4% and a cost of capital of approximately 7.12%. In addition, rate base would increase $144,000,000 since the last case for a total of $2,200,000,000 We expect an order from the commission on the full rate case this fall with rates effective October 31. We carefully consider the effect on customer bills and broader affordability concerns and the ending result of the case is expected to be a relatively modest 2.5% rate increase. Taking into account this rate increase and preliminary gas cost estimates, we expect Northwest Natural residential customers this fall will be paying about the same as they did twenty years ago for their gas service.

Turning to our Sea Energy gas utility in Texas. Sea Energy continues to produce strong customer growth and is hitting its financial targets. Perhaps most importantly, Sea Energy posted a sizable increase to its customer backlog and now has signed contracts representing over 217,000 future meters. That backlog includes meters from the acquisition of Hughes Gas Resources, which we have rebranded as Pines Holdings, another fast growing Texas gas utility. Pines added approximately 7,000 connections Northeast Of Houston with a contracted backlog of 12,000 meters.

The integration has gone smoothly. On a combined basis, Sea Energy and Pines served approximately 83,000 customers at 06/30/2025. While Sea Energy is about 10% of our business today, its high growth potential makes us optimistic about its future, and we anticipate Sea Energy to be an increasing portion of our business mix moving forward. Turning now to Northwest Natural Water. Collectively, our water and wastewater utility customer base grew 5.8% over the last twelve months, including three acquisitions.

Our CapEx plan for 2025 continues to be robust as our utilities replace end of life infrastructure, improve our wastewater treatment facilities and support clean water and continued growth in our communities. To recover on water investments, in 2025, we are working hard on rate cases at multiple water utilities, including in Idaho, Washington and Oregon. We remain confident in the long term earnings prospects of Northwest Natural Water. The business is making great progress on its customer growth, CapEx and rate case goals for 2025. Now a brief update on Northwest Natural Renewables.

Both of our renewable natural gas projects continue to run smoothly with current production levels meeting our expectations. These projects and our related fixed price offtake contracts with investment grade counterparties provided solid earnings and cash flows during the 2025. We expect this to continue going forward. Importantly, our renewable gas business has no meaningful exposure to the RIN or LCFS markets. In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth.

With that, let me turn it over to Ray to cover the financials in more detail.

Ray Kusuba, Senior Vice President and Chief Financial Officer, North West Natural Holdings: Thank you, Justin, and good morning, everyone. Turning to Slide six. We reported adjusted net income of $315,000 or $01 per share for the 2025 compared to a loss of 2,800,000 or $07 per share for the same period in 2024. Adjusted net income excludes the effects of transaction and business development costs. The improvement in net income reflected higher margin from new rates at our Oregon gas utility, partially offset by higher O and M expense, depreciation and interest expense.

For our Northwest Natural Gas segment, net income increased $4,500,000 or $0.12 per share. Margin increased $16,900,000 mainly due to new rates in Oregon effective 11/01/2024. O and M increased $6,300,000 mainly reflecting higher payroll and benefits expense. Depreciation and general taxes increased $4,800,000 due to continued investment in our system. Sea Energy provided net income of $1,000,000 or $03 per share for the second quarter of twenty twenty five.

In our first year after the acquisition, margin and net income are trending well and aligned with our expectations. Our Water segment net income increased $1,800,000 or $04 per share. The key drivers were new rates at our largest water and wastewater utility in Arizona and additional revenues from the ICH utilities after the acquisition in September 2024. Finally, the adjusted net loss from our other businesses increased $4,200,000 or $0.11 per share compared to the same period last year. This increase was primarily due to higher interest expense at the holding company.

On slide seven, we’ve outlined our year to date results. Adjusted net income was $92,100,000 or $2.28 per share for 2025 compared to $61,000,000 or $1.6 per share for the same period of 2024. The year to date increase in net income reflected themes similar to the second quarter, namely strong net income across all business segments, including new rates at our gas utility in Oregon, contributions from Sea Energy, higher net income from our water utilities and earnings contribution from renewables. These items were partially offset by higher operations and maintenance costs, depreciation and interest expense. Turning to our growth outlook and guidance on Slide eight.

We reaffirmed annual 2025 adjusted earnings guidance today in the range of $2.75 per share to $2.95 per share. Results for the 2025 were in line with our expectations, and we remain confident in our full year guidance. As a reminder, we expect quarterly earnings cadence for 2025 of the consolidated companies to be roughly similar to the past couple of years. We continue to expect Sea Energy and Northwest Natural Water to each provide approximately $0.25 to $0.30 of adjusted earnings per share this year. Collective organic customer growth was 1.9% during the 2025 on an annualized basis.

For 2025, we continue to project 2% to 2.5% consolidated organic customer growth across our utilities. Turning to our capital expenditures. For the year, consolidated capital expenditures are expected to be in the range of $450,000,000 to $500,000,000 anchored by significant projects at our Northwest Natural Gas Utility related to modernizing end of life meters, system reinforcement and gas storage upgrades. Our CapEx projections only include line of sight projects that have been specifically identified and estimated. It does not include CapEx related to any pending or future acquisitions.

Longer term, we continue to expect an earnings per share growth rate of 4% to 6% compounded annually from 2025 adjusted EPS. Moving to Slide 11. Regarding capital structure, our objective remains to keep our balance sheet strong with ample liquidity. At 06/30/2025, we had liquidity of approximately $550,000,000 with significant availability on our gas utility line of credit and cash on hand. We continue to see modest regular common equity financing needs in 2025 with equity issuances expected to be in the range of $65,000,000 to $75,000,000 In 2025, we have no material debt maturities, although we do expect to refinance the existing Sea Energy debt this year of approximately $148,000,000 In summary, we are pleased with our performance for the 2025 and remain confident in achieving our financial targets for the full year.

Thanks for joining us this morning. With that, we will open it up for questions.

Breeka, Moderator, North West Natural Holdings: Thank you, you can do so by pressing star followed by 2. And again, to ask a question, please press star one. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. The first question we have comes from Akhil with Stifel. You may proceed.

Tim, Analyst, Stifel: Hi, guys. Good morning. This is Tim on for Salman. Congrats on the quarter. Just wanted to start off with Sea Energy.

It’s been under your belt for a couple of quarters, and now you guys have added Pines. So just wondering if you could talk about the growth you’re seeing there now maybe versus a quarter or two ago when you first kind of acquired it. I know you guys mentioned the impressive backlog, but just curious if you could expand a bit on that.

Justin Palfreman, President and Chief Executive Officer, North West Natural Holdings: Yes. Thanks, Ken. This is Justin Pellefremen. I appreciate the question. So things are progressing well down in Texas.

And Sea Energy, I would say, is performing as expected for us this year. As you’ve probably seen, there’s been a lot of discussion about housing slowing down a bit in Texas. And in some of our communities, we’ve seen signs of that. But overall, there continues to be strong growth down there, a lot of new meter sets in addition to extremely strong backlog growth, as we mentioned on the call. And to give you a little more color on that, we had an annual goal of a certain amount of meters to add to our backlog this year and the business development team has already exceeded that goal by midyear.

And so there’s just a lot of interest down there, a lot of ongoing growth, and Pines just enhances that for us as well.

Tim, Analyst, Stifel: Got it. That’s nice to hear. And then just one last one for me. You guys kind of mentioned a couple upcoming water rate cases. Just wondering kind of the scale of those or how big we should expect those to be?

Justin Palfreman, President and Chief Executive Officer, North West Natural Holdings: Yes. For the most part, the water rate cases, because we have a combination of multiple subsidiaries across our water company, For the most part, the individual water rate cases themselves are relatively small. So in some cases, we’re talking less than $1,000,000 of revenue requirement. In some cases, it’s more than that, which is why you typically see us executing somewhere between three and five rate cases a year right now, and you saw that last year as well.

Tim, Analyst, Stifel: Okay. Got it. Thank you guys for the time.

Justin Palfreman, President and Chief Executive Officer, North West Natural Holdings: Thank you.

Breeka, Moderator, North West Natural Holdings: As a reminder, if you would like to ask any questions, please press star followed by one on your telephone keypads now. And I can confirm that does conclude the Q and A session today. And I would like to hand it back to Justin for some closing comments.

Justin Palfreman, President and Chief Executive Officer, North West Natural Holdings: Well, thanks everybody for joining. It was a pretty straightforward quarter. As always, if you have additional questions, please do not hesitate to reach out to Nikki. And thanks again for joining everybody.

Breeka, Moderator, North West Natural Holdings: Thank you all for dialing in. I can confirm that does conclude the NorthWest Natural Holdings Company second quarter twenty twenty five earnings call. Thank you for your participation. You may now disconnect, and please enjoy the rest of your day.

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