MDU Resources (MDU) Q4 2025 earnings review
Pure-Play Transition Complete; Rate Relief Lifts Q4
In its first full year as a pure-play regulated energy delivery business following the Everus spinoff, MDU Resources delivered solid growth in continuing operations. Q4 Net Income surged 38% YoY to $76.3M, primarily driven by aggressive rate relief in the Natural Gas segment and higher Electric retail sales from data centers. However, operating efficiency remains a challenge; O&M expenses rose across all segments due to payroll and insurance costs, dampening the revenue flow-through. The Pipeline segment, despite a record year, stumbled in Q4 with an 8.3% earnings decline.
🐂 Bull Case
The Natural Gas segment proved the value of regulated moats, with Q4 earnings jumping 26% YoY to $37.0M. This was directly fueled by finalized rate increases in Washington, Montana, South Dakota, and Wyoming, demonstrating management's effectiveness in recovering costs.
Electric utility retail sales revenue grew 11.1% in Q4. Management explicitly cited contributions from a data center near Ellendale, ND, validating the thesis that MDU is a beneficiary of the localized tech infrastructure boom.
🐻 Bear Case
Despite revenue growing 4.8% in Q4, Pipeline segment net income fell 8.3% to $18.8M. Higher depreciation from new projects and rising O&M costs are eating into the top-line gains, signaling potential returns diminishing on recent capex.
O&M expenses persist as a headwind. In the Electric segment, while revenue rose 11%, O&M expenses rose 7.2% and Interest Expense rose 11.7%, restricting Net Income growth to just 5.3%.
⚖️ Verdict: 🟢
Constructive. The core regulated thesis is working, evidenced by strong gas earnings and data center load. However, the flat-at-the-low-end 2026 guidance ($0.93-$1.00) vs 2025 actuals ($0.93) suggests that cost inflation is successfully offsetting much of the projected growth.
Key Themes
Natural Gas Rate Relief
Regulatory wins are the primary earnings driver this quarter. Natural Gas Distribution earnings grew from $29.4M in 24Q4 to $37.0M in 25Q4 (+26%). This disconnect from revenue (which actually fell 3.3% due to lower volumes/gas costs) highlights the power of the base rate increases implemented in WA, MT, and WY.
Operating Expense Inflation
Across all three major segments, 'higher payroll-related costs' and 'insurance expense' were cited as detractors. In the Electric segment, O&M expenses increased $1.8M YoY. In Pipeline, despite the revenue bump, O&M and Depreciation combined rose $2.1M, contributing to the segment's earnings decline. This structural cost inflation is the main threat to 2026 margin expansion.
Data Center & Commercial Load
Commercial electric sales volumes were flat to slightly up (+0.6%) while Residential fell (-1.4%), yet Commercial Revenue jumped significantly. Management attributed retail sales volume strength to 'a data center near Ellendale.' This confirms the transition from 'potential' to 'actual' revenue contribution from high-load tech customers.
Pipeline Segment Deceleration
The Pipeline segment is Reversing trend in the short term. While FY25 was a record, Q4 earnings dropped 8.3% YoY. The driver was a mix of higher depreciation (non-cash, but hits EPS) and property taxes. The loss of one-time 2024 benefits (tax rate changes) also created a difficult comp, obscuring the 4.8% underlying revenue growth.
Badger Wind Farm Integration
The company placed the 49% ownership of Badger Wind Farm into service on Dec 31, 2025. While this didn't materially impact Q4 2025 earnings, the inclusion in the rate base (approved in ND and SD) sets up a guaranteed regulated return stream for FY26.
Other KPIs
Accelerating. Up 5.7% from $181.1 million in FY24. EPS of $0.93 landed near the upper end of the prior guidance range ($0.88-$0.95), reflecting strong execution in the regulated businesses.
Accelerating. Improved significantly from 11.8% in 24Q4. Operating income rose 23.2% while revenue fell 3.3%, demonstrating excellent pass-through mechanics and the impact of rate hikes outpacing volume declines.
Stable. Up 6.1% YoY from $26.4M. However, Net Income was down due to taxes and interest. The core operational profitability remains intact despite the bottom-line miss.
Guidance
Stable. The midpoint ($0.965) implies ~3.8% growth over 2025's $0.93. This is below the company's long-term stated target of 6-8% growth, suggesting a year of consolidation or higher cost pressures. The low end of guidance implies zero growth.
Decelerating. Down from $792 million deployed in 2025 (which included the significant Badger Wind acquisition). The breakdown includes $342M for Natural Gas and $158M for Electric, signaling a shift in investment focus toward the gas distribution network.
Stable. Consistent with historical performance (FY25 saw 1.6% growth in gas customers). This metric underpins the 'slow and steady' regulated growth thesis.
Key Questions
Cost Containment vs. Growth
With 2026 guidance midpoint suggesting ~4% growth (below the 6-8% long-term target), is the drag primarily from the persistent O&M inflation cited in Q4, or are there regulatory lags expected in 2026?
Pipeline Project Pipeline
Pipeline earnings dropped in Q4 despite new projects coming online. With the Minot Expansion now in service, when should investors expect the operating leverage to turn positive again and overcome the higher depreciation hurdles?
Data Center Capital Intensity
Given the 'capital light' strategy for data centers previously mentioned, does the $158M Electric capex budget for 2026 fully accommodate the infrastructure needed for the Ellendale center and potential new load, or will customer contributions offset this?