MDU Resources (MDU)

Energy and construction materials company MDU Resources (NYSE:MDU) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 44.4% year on year to $674.8 million. Its GAAP profit of $0.40 per share was in line with analysts’ consensus estimates.

Company Overview

Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE:MDU) provides products and services in the utilities and construction materials industries.

Areas like the energy transition and emission reduction are thematic and front of mind today. This can be a double-edged sword for the energy products and services industry. Those who innovate and build new expertise can jolt demand while those who cling to legacy technologies or fall behind in the trending areas could see their market shares diminish. Bigger picture, energy products and services companies are still at the whim of construction and infrastructure project volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

MDU’s top competitors include Xcel Energy (NYSE:XEL), CenterPoint Energy (NYSE:CNP), and Black Hills (NYSE:BKH).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. MDU Resources’s demand was weak over the last five years as its sales fell at a 25.9% annual rate. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. MDU Resources’s recent performance shows its demand remained suppressed as its revenue has declined by 49.4% annually over the last two years.

This quarter, MDU Resources’s revenue fell by 44.4% year on year to $674.8 million but beat Wall Street’s estimates by 3.3%.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

MDU Resources has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 21.4% gross margin over the last five years. Said differently, MDU Resources had to pay a chunky $78.57 to its suppliers for every $100 in revenue.

MDU Resources produced a 36.5% gross profit margin in Q1, up 15.9 percentage points year on year. MDU Resources’s full-year margin has also been trending up over the past 12 months, increasing by 13.1 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

MDU Resources has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, MDU Resources’s operating margin rose by 9.7 percentage points over the last five years, showing its efficiency has meaningfully improved.

This quarter, MDU Resources generated an operating profit margin of 16.7%, up 5.4 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for MDU Resources, its EPS and revenue declined by 4.3% and 25.9% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, MDU Resources’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For MDU Resources, its two-year annual EPS declines of 16.4% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, MDU Resources reported EPS at $0.40, down from $0.49 in the same quarter last year. This print was close to analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

MDU Resources broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders. The divergence from its good operating margin stems from its capital-intensive business model, which requires MDU Resources to make large cash investments in working capital and capital expenditures.

Taking a step back, an encouraging sign is that MDU Resources’s margin expanded by 76.7 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

MDU Resources’s free cash flow clocked in at $217.5 million in Q1, equivalent to a 32.2% margin. This result was good as its margin was 29 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

MDU Resources historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.4%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, MDU Resources’s ROIC decreased by 3.9 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

MDU Resources’s $2.19 billion of debt exceeds the $59.5 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $377.8 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. MDU Resources could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope MDU Resources can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We enjoyed seeing MDU Resources beat analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance and EBITDA fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $17.49 immediately after reporting.

Updated: May 10, 2025 at 11:28 PM EDT

When considering an investment in MDU Resources, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies making their customers lives easier, but in the case of MDU Resources, we’ll be cheering from the sidelines. First off, its revenue has declined over the last five years. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

MDU Resources’s P/E ratio based on the next 12 months is 16.9x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $19.75 on the company (compared to the current share price of $17.37).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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