MDU Q2 Deep Dive: Margin Pressures Offset Revenue Growth, Outlook Hinges on Utility Expansion

Energy and construction materials company MDU Resources (NYSE:MDU) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 1.9% year on year to $351.2 million. Its GAAP profit of $0.07 per share decreased from $0.30 in the same quarter last year.

Is now the time to buy MDU? Find out in our full research report (it’s free).

StockStory’s Take

MDU Resources’ second quarter results were met with a negative market reaction, as investors responded to margin contraction and lower earnings compared to last year. Management attributed these outcomes to higher operating costs, unfavorable weather in its Natural Gas Distribution segment, and increased expenses related to planned maintenance. CEO Nicole Kivisto noted the impact of “warmer-than-normal temperatures” and “higher payroll-related costs,” particularly in the utility businesses. The company also cited increased operation and maintenance expenses across segments, which weighed on overall profitability.

Looking forward, MDU Resources’ guidance is built on the expectation of sustained customer demand in its pipeline and utility businesses and the potential for expansion projects. Management emphasized long-term growth opportunities from infrastructure investments, regulatory progress, and retail customer growth. Kivisto highlighted the company’s focus on a “capital-light business model” for serving new data center load, while also leaving open the possibility for larger capital investments if customer agreements materialize. The company aims to balance operational discipline with targeted capital deployment, believing this approach will support its goal of delivering 6% to 8% annual EPS growth.

Key Insights from Management’s Remarks

Management pointed to higher costs and utility customer growth as major themes in the quarter, while updating investors on regulatory moves and infrastructure initiatives.

• Operating cost headwinds: Across MDU’s businesses, higher payroll and insurance expenses, as well as costs from a planned outage at the Coyote generating station, reduced margins in the quarter. CFO Jason Vollmer described these as partly “pass-through” in nature but noted that inflationary pressures are persistent.
• Weather-driven utility softness: Unseasonably warm temperatures in certain service areas, especially Idaho, led to lower natural gas volumes. Vollmer quantified the weather impact at roughly $1 million for the quarter, and explained that not all states have weather normalization mechanisms for revenue recovery.
• Pipeline segment resilience: Despite the absence of last year’s one-time settlement benefit, the pipeline business posted solid earnings, supported by increased transportation demand, the Walton expansion, and new short-term contracts. Management sees this segment as critical to future growth.
• Retail customer growth within target: The utility segment posted 1.4% retail customer growth year-over-year, staying within the company’s targeted 1% to 2% annual range. This growth, according to Kivisto, underpins investment in regulated infrastructure.
• Regulatory and project updates: MDU made progress on multiple rate cases across its utility footprint and advanced several pipeline and storage projects, including the Minot expansion and discussions for the Bakken East pipeline. The company also continues to refine its wildfire mitigation plans in line with new state regulations.

Drivers of Future Performance

MDU’s outlook is shaped by continued infrastructure investment, evolving customer mix, and regulatory progress, balanced against ongoing cost pressures.

• Data center load growth: Management cited signed agreements for 580 megawatts of data center load, with 180 megawatts online and more expected in the next two years. The company is currently using a capital-light approach to serve this demand, but may invest in new generation and transmission assets if additional customer agreements are secured.
• Pipeline expansion opportunities: MDU is pursuing projects like the Minot expansion, which will add natural gas transportation capacity, and is evaluating the Bakken East pipeline to meet anticipated production growth in the region. These infrastructure projects could provide upside if customer commitments materialize, but timelines and regulatory approvals remain uncertain.
• Cost and weather risks: Management acknowledged ongoing risks from inflation-driven cost increases (such as payroll and insurance) and weather volatility, which can impact both operating expenses and utility segment volumes. While some costs are recoverable through rate cases, the timing and regulatory outcomes introduce uncertainty.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) progress on regulatory approvals and rate cases in multiple states, (2) execution and customer uptake of major infrastructure projects like the Minot expansion and potential Bakken East pipeline, and (3) signs of sustained customer growth in the utility segment, especially related to new data center load. The company’s ability to manage operating costs and weather-driven volume swings will also be key to tracking its performance.

MDU Resources currently trades at $16.47, down from $17.49 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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