Allete earnings don't reflect pandemic — yet
Minnesota Power could face significant loss of revenue if mine closures last beyond August.
Allete, the parent company of Minnesota Power, said its first-quarter earnings met expectations, but warned of greater uncertainty going forward due to the COVID-19 pandemic and suspended its 2020 financial guidance.
The Duluth-based company reported profits of $66.3 million in the first quarter of 2020, or $1.28 per share, down from a profit of $70.5 million, or $1.37 per share, in the first quarter of 2019. But, Allete noted in a news release Wednesday, the first quarter of 2019 results included a 19-cent-per-share gain from the sale of U.S. Water Services offset by 2 cents per share of its operating results prior to the sale.
“Although results from the first quarter of the year were in line with our expectations, these results may not be indicative of the remainder of the year, as we cannot predict at this time the extent and duration of the effects of COVID-19 on our results of operations for the rest of 2020,” Bethany Owen, president and CEO of Allete, said in a news release Wednesday morning.
The uncertainty led the company to suspend its earnings guidance as company officials said it might be able to better assess the impacts of the pandemic in the second half of the year.
"Because of the broad economic uncertainties related to COVID-19 and the potential financial impact, especially on our regulated business segment, at this time, we are unable to provide a sufficiently reliable update to our 2020 earning guidance, and accordingly we are temporarily suspending our 2020 guidance," Bob Adams, senior vice president and chief financial officer of Allete, said in the release.
Industrial customers make up about half of Minnesota Power's revenue, and last month, some of the company's largest customers — three of the six mining operations in Northeastern Minnesota and UPM's Blandin paper mill in Grand Rapids — announced idlings as the demand for steel and paper products fell.
But Owen said in a conference call with investors Wednesday that she doesn't expect that will amount to a "material financial impact" on earnings — yet.
In March, Minnesota Power's large industrial customers made large-load nominations based on projected production through August and paid minimum megawatt demand payments.
"As a result, we don't expect a significant financial impact on our second quarter results, even though some of these customers have announced idlings of their facilities during that time frame," Adams said.
However, the companies will make nominations again in August based on projected production for the rest of 2020, which will give Minnesota Power a clearer idea of whether it will see dramatic declines in revenue from its industrial customers.
Mining companies have said they expect to be operating again by then.
Cliffs said Northshore Mining could resume operations in mid-August, and ArcelorMittal said Hibbing Taconite will remain idle until at least early July. U.S. Steel's Keetac has been idled indefinitely while its Minntac mine and plant in Mountain Iron has curbed production and laid off some employees.
And with those idlings, about 40% of taconite production is now offline, Frank Frederickson, Minnesota Power vice president of customer experience, said in the call.
If production doesn't fully restart by the end of the year, Allete will have to adjust its guidance accordingly.
"To the extent that this production does not materialize in the fourth quarter, and we see added weakness in the commercial municipal sector of our utilities, it's distinctly possible our results could fall outside our original guidance range," Frederickson said
If all mine idlings last beyond August and through the end of 2020, earnings per share could drop by 20 cents, Frederickson said.
Shares of Allete fell $4.32 to close at $52.23 Wednesday. The stock has traded as high as $88.60 and as low as $50.01 in the past 52 weeks.