OTTR Otter Tail Corporation

Otter Tail Corporation (Nasdaq: OTTR) today announced financial results for the quarter ended March 31, 2024.

SUMMARY

• Diluted earnings per share increased 19% to $1.77 per share compared to the first quarter of 2023.
• Midpoint of 2024 earnings guidance increased 21% to $6.38 per share.
• Return on equity of 22% over the trailing twelve months.

CEO OVERVIEW

“We are pleased with our overall first quarter financial results,” said President and CEO Chuck MacFarlane, “as our team members navigate changing market conditions and we continue to benefit from our diversified business model. Plastics segment earnings increased 39 percent as compared to the first quarter of 2023 due to higher sales volumes driven by customer sales volume growth and strong distributor and end market demand. Electric segment earnings decreased modestly, primarily driven by weather related headwinds as our service territories experienced a much warmer than normal start to the year. Manufacturing segment earnings decreased 23 percent due to lower sales volumes.

“Otter Tail Power continues to execute on its key regulatory priorities, including an ongoing general rate case in North Dakota and our Integrated Resource Plan. In April, Otter Tail Power, the Minnesota Department of Commerce and three labor organizations entered into a settlement agreement for our Integrated Resource Plan, recommending the Minnesota Public Utilities Commission approve directly assigning new solar and wind generation resources to Minnesota customers, adding on-site liquefied natural gas storage at Astoria Station and limiting the dispatch of the Minnesota portion of Coyote Station to emergency events. We anticipate the Minnesota Commission scheduling a hearing to decide the outcome of our Integrated Resource Plan in the second quarter of 2024.

“Our Manufacturing segment continues to navigate changing market conditions amid mixed end market demand and normalizing customer inventory levels. In response to the decline in sales volumes, we are taking action to manage costs and drive operational efficiencies.

“Our Plastics segment continues to capitalize on favorable market conditions. Sales volumes are returning to more normal levels following distributor destocking efforts throughout much of last year. Our team continues to effectively manage construction of our expansion project in Arizona and looks forward to bringing the first phase of additional capacity online in the latter half of 2024.

“We are increasing our 2024 diluted earnings per share guidance to a range of $6.23 to $6.53 from our initial range of $5.13 to $5.43 due primarily to stronger than expected Plastics segment performance.”

QUARTERLY DIVIDEND

On May 3, 2024, the corporation’s Board of Directors declared a quarterly common stock dividend of $0.4675 per share. This dividend is payable June 10, 2024 to shareholders of record on May 15, 2024.

CASH FLOWS AND LIQUIDITY

Our consolidated cash provided by operating activities for the three months ended March 31, 2024 was $71.9 million compared to $55.6 million for the three months ended March 31, 2023, with the increase primarily due to increased earnings from our Plastics segment.

Investing activities for the three months ended March 31, 2024 included capital expenditures of $74.0 million, primarily related to capital investments within our Electric segment, including investments in our wind repowering projects, and continued investments in our facility expansion projects in Arizona and Georgia. Financing activities for the three months ended March 31, 2024 included the issuance of $120.0 million of long-term debt at Otter Tail Power; the proceeds of which were used to repay short-term borrowings of $81.4 million, fund construction expenditures, and support operating activities. Financing activities for the three months ended March 31, 2024 also included dividend payments of $19.6 million.

As of March 31, 2024, we had $170.0 million and $160.9 million of available liquidity under our Otter Tail Corporation and Otter Tail Power Credit Agreements, respectively, along with $238.2 million of available cash and cash equivalents, for total available liquidity of $569.1 million.

SEGMENT PERFORMANCE

Electric Segment

 

Three Months Ended March 31,

 

 

 

 

($ in thousands)

2024

 

2023

 

Change

 

% Change

Operating Revenues

$

141,488

 

$

151,909

 

$

(10,421

)

 

(6.9

)%

Net Income

 

22,470

 

 

23,221

 

 

(751

)

 

(3.2

)

 

 

 

 

 

 

 

 

Retail MWh Sales

 

1,580,851

 

 

1,635,246

 

 

(54,395

)

 

(3.3

)%

Heating Degree Days

 

2,913

 

 

3,732

 

 

(819

)

 

(21.9

)

The following table shows heating degree days (HDDs) as a percent of normal.

 

Three Months Ended March 31,

 

2024

 

2023

HDDs

84.4 %

 

108.2 %

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kilowatt-hour (kwh) sales under actual weather conditions and expected retail kwh sales under normal weather conditions in 2024 and 2023.

 

2024 vs Normal

 

2024 vs 2023

 

2023 vs Normal

Effect on Diluted Earnings Per Share

$

(0.06

)

 

$

(0.09

)

 

$

0.03

Operating Revenues decreased $10.4 million primarily due to a $14.3 million decrease in fuel recovery revenues and a $5.5 million decrease in retail revenue due to the impact of unfavorable weather, partially offset by increased rider revenue, the impact of an interim rate increase in North Dakota, increased wholesale revenue, and higher commercial and industrial sales. The decrease in fuel recovery revenues was primarily due to lower purchased power volumes driven by increased company generation and the unseasonably warm weather in much of our service territory. Increases in rider revenue included the recovery of costs related to our wind repowering projects and other rate base investments. An interim rate increase went into effect for North Dakota customers on January 1, 2024 in connection with our current rate case filed in November 2023.

Net Income decreased $0.8 million primarily due to the impact of unfavorable weather, increased operating and maintenance expenses, driven by higher labor costs, and increased depreciation expense, partially offset by increased rider revenue, the interim rate increase in North Dakota, and increased commercial and industrial sales.

Manufacturing Segment

 

Three Months Ended March 31,

 

 

 

 

(in thousands)

2024

 

2023

 

$ Change

 

% Change

Operating Revenues

$

99,380

 

$

106,782

 

$

(7,402

)

 

(6.9

)%

Net Income

 

5,261

 

 

6,862

 

 

(1,601

)

 

(23.3

)

Operating Revenues decreased $7.4 million primarily due to decreased sales volumes at both of our manufacturing businesses. T.O. Plastics, our plastics thermoforming manufacturer, experienced a 35% decrease in sales volumes compared to the same period last year, primarily attributable to decreased sales of horticulture products as customers continue to reduce inventory levels and aim to return to more normal seasonal inventory stocking levels. BTD Manufacturing, our contract metal fabricator, experienced a 5% decrease in sales volumes compared to the same period last year. Sales volumes declined primarily in the lawn and garden and energy end markets, while demand remained relatively strong in other segments, including the recreational vehicle, agriculture, and industrial end markets.

Net Income decreased $1.6 million primarily due to decreased sales volumes, as described above, as well as decreased profit margins at T.O. Plastics driven by reduced leverage of fixed manufacturing costs resulting from decreased production and sales volumes.

Plastics Segment

 

Three Months Ended March 31,

 

 

 

 

(in thousands)

2024

 

2023

 

$ Change

 

% Change

Operating Revenues

$

106,200

 

$

80,390

 

$

25,810

 

32.1

%

Net Income

 

46,740

 

 

33,686

 

 

13,054

 

38.8

 

Operating Revenues increased $25.8 million primarily due to a 56% increase in sales volumes driven by customer sales volume growth and strong distributor and end market demand. Sales volumes in the first quarter of 2023 were significantly impacted by distributor destocking efforts as distributors managed inventory levels amid uncertain market conditions. Increased sales volumes in the first quarter of 2024 were partially offset by a 15% decrease in sales prices compared to the same period last year. As market dynamics have begun to normalize, sales prices have declined at a modest pace after peaking in mid-2022.

Net Income increased $13.1 million primarily due to increased sales volumes, as described above, and decreased material costs. Resin and other input material costs decreased 27% compared to the same period last year as supply conditions improved.

Corporate

 

Three Months Ended March 31,

 

 

 

 

(in thousands)

 

2024

 

 

 

2023

 

 

$ Change

 

% Change

Net Loss

$

(133

)

 

$

(1,288

)

 

$

1,155

 

(89.7

)%

Net Loss at our corporate cost center decreased primarily due to increased investment income earned on our short-term cash equivalent investments due to an increase in the cash available for investment and an increase in interest rates.

2024 BUSINESS OUTLOOK

We are increasing our 2024 diluted earnings per share range to $6.23 to $6.53. We expect our earnings mix in 2024, based on our updated guidance, to be approximately 34% from our Electric segment and 66% from our Manufacturing and Plastics segments, net of corporate costs.

The segment components of our 2024 diluted earnings per share guidance compared with actual earnings for 2023 are as follows:

 

 

 

 

 

2024 EPS Guidance

 

2024 EPS Guidance

 

 

 

2023 EPS

by Segment

 

February 12, 2024

 

May 6, 2024

 

 

 

Low

 

High

 

Low

 

High

Electric

 

 

$

2.01

 

 

$

2.13

 

 

$

2.17

 

 

$

2.13

 

 

$

2.17

 

Manufacturing

 

 

 

0.51

 

 

 

0.51

 

 

 

0.55

 

 

 

0.45

 

 

 

0.49

 

Plastics

 

 

 

4.47

 

 

 

2.62

 

 

 

2.81

 

 

 

3.78

 

 

 

3.97

 

Corporate

 

 

 

0.01

 

 

 

(0.13

)

 

 

(0.10

)

 

 

(0.13

)

 

 

(0.10

)

Total

 

 

$

7.00

 

 

$

5.13

 

 

$

5.43

 

 

$

6.23

 

 

$

6.53

 

Return on Equity

 

 

 

22.1

%

 

 

14.3

%

 

 

15.1

%

 

 

17.1

%

 

 

17.8

%

The following items contribute to our revised 2024 earnings guidance:

Electric Segment - We are maintaining our guidance, expecting earnings to increase 7% over 2023.

Manufacturing Segment - We are decreasing our segment earnings guidance based on:

• Anticipated lower sales volumes within certain end markets, including horticulture, lawn and garden, recreational vehicle and agriculture, as distributor inventory levels normalize and end market demand softens.
• Declining operating margins as lower production and sales volumes negatively impact leverage of our fixed manufacturing costs.
• Reduced research and development tax credits from a reduction in associated cost.

Plastics Segment - We are increasing our segment earnings guidance based on:

• Continued strength in product sales prices as the rate of decline continues to be slower than our previous expectations.
• Increased sales volumes as end market demand has strengthened and distributors are rebuilding depleted inventories.

Corporate Costs - We are maintaining our corporate cost guidance.

CONFERENCE CALL AND WEBCAST

The corporation will host a live webcast on Tuesday, May 7, 2024, at 10:00 a.m. CT to discuss its financial and operating performance.

The presentation will be posted on our website before the webcast. To access the live webcast, go to www.ottertail.com/presentations and select “Webcast.” Please allow time prior to the call to visit the site and download any software needed to listen in. An archived copy of the webcast will be available on our website shortly after the call.

If you are interested in asking a question during the live webcast, visit and follow the link provided in the press release announcing the upcoming conference call.

FORWARD-LOOKING STATEMENTS

Except for historical information contained here, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,” “probable,” “projected,” “should,” “target,” “will,” “would” and similar words and expressions are intended to identify forward-looking statements. Such statements are based upon the current beliefs and expectations of management. Forward-looking statements made herein, which may include statements regarding 2024 earnings and earnings per share, long-term earnings, earnings per share growth and earnings mix, anticipated levels of energy generation from renewable resources, anticipated reductions in carbon dioxide emissions, future investments and capital expenditures, rate base levels and rate base growth, future raw materials costs, future raw materials availability and supply constraints, future operating revenues and operating results, and expectations regarding regulatory proceedings, as well as other assumptions and statements, involve known and unknown risks and uncertainties that may cause our actual results in current or future periods to differ materially from the forecasted assumptions and expected results. The Company’s risks and uncertainties include, among other things, uncertainty of future investments and capital expenditures, rate base levels and rate base growth, risks associated with energy markets, the availability and pricing of resource materials, inflationary cost pressures, attracting and maintaining a qualified and stable workforce, changing macroeconomic and industry conditions that impact the demand for our products, pricing and margin, long-term investment risk, seasonal weather patterns and extreme weather events, counterparty credit risk, future business volumes with key customers, reductions in our credit ratings, our ability to access capital markets on favorable terms, assumptions and costs relating to funding our employee benefit plans, our subsidiaries’ ability to make dividend payments, cybersecurity threats or data breaches, the impact of government legislation and regulation including foreign trade policy and environmental, health and safety laws and regulations, changes in tax laws and regulations, the impact of climate change including compliance with legislative and regulatory changes to address climate change, expectations regarding regulatory proceedings, including state utility commission approval of resource plans, assigned service areas, the siting and construction of major facilities, capital structure, and allowed customer rates, and operational and economic risks associated with our electric generating and manufacturing facilities. These and other risks are more fully described in our filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K, as updated in subsequently filed Quarterly Reports on Form 10-Q, as applicable. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information.

Category: Earnings

About the Corporation: Otter Tail Corporation, a member of the S&P SmallCap 600 Index, has interests in diversified operations that include an electric utility and manufacturing businesses. Otter Tail Corporation stock trades on the Nasdaq Global Select Market under the symbol OTTR. The latest investor and corporate information is available at www.ottertail.com. Corporate offices are in Fergus Falls, Minnesota, and Fargo, North Dakota.

OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited)

 

Three Months Ended March 31,

(in thousands, except per-share amounts)

 

2024

 

 

2023

 

Operating Revenues

 

 

Electric

$

141,488

 

$

151,909

 

Product Sales

 

205,580

 

 

187,172

 

Total Operating Revenues

 

347,068

 

 

339,081

 

Operating Expenses

 

 

Electric Production Fuel

 

17,694

 

 

11,492

 

Electric Purchased Power

 

22,521

 

 

41,825

 

Electric Operating and Maintenance Expense

 

47,977

 

 

45,549

 

Cost of Products Sold (excluding depreciation)

 

114,723

 

 

112,369

 

Nonelectric Selling, General, and Administrative Expenses

 

18,914

 

 

18,699

 

Depreciation and Amortization

 

25,897

 

 

23,856

 

Electric Property Taxes

 

4,367

 

 

4,621

 

Total Operating Expenses

 

252,093

 

 

258,411

 

Operating Income

 

94,975

 

 

80,670

 

Other Income and (Expense)

 

 

Interest Expense

 

(9,850

)

 

(9,415

)

Nonservice Components of Postretirement Benefits

 

2,442

 

 

2,412

 

Other Income (Expense), net

 

4,579

 

 

2,118

 

Income Before Income Taxes

 

92,146

 

 

75,785

 

Income Tax Expense

 

17,808

 

 

13,304

 

Net Income

$

74,338

 

$

62,481

 

 

 

 

Weighted-Average Common Shares Outstanding:

 

 

Basic

 

41,724

 

 

41,632

 

Diluted

 

42,033

 

 

41,977

 

Earnings Per Share:

 

 

Basic

$

1.78

 

$

1.50

 

Diluted

$

1.77

 

$

1.49

 

OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)

 

March 31,

 

December 31,

(in thousands)

2024

 

2023

Assets

 

 

 

Current Assets

 

 

 

Cash and Cash Equivalents

$

238,158

 

$

230,373

Receivables, net of allowance for credit losses

 

195,674

 

 

157,143

Inventories

 

148,194

 

 

149,701

Regulatory Assets

 

9,175

 

 

16,127

Other Current Assets

 

16,742

 

 

16,826

Total Current Assets

 

607,943

 

 

570,170

Noncurrent Assets

 

 

 

Investments

 

66,110

 

 

62,516

Property, Plant and Equipment, net of accumulated depreciation

 

2,459,189

 

 

2,418,375

Regulatory Assets

 

96,682

 

 

95,715

Intangible Assets, net of accumulated amortization

 

6,568

 

 

6,843

Goodwill

 

37,572

 

 

37,572

Other Noncurrent Assets

 

51,968

 

 

51,377

Total Noncurrent Assets

 

2,718,089

 

 

2,672,398

Total Assets

$

3,326,032

 

$

3,242,568

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

Current Liabilities

 

 

 

Short-Term Debt

$

—

 

$

81,422

Accounts Payable

 

92,170

 

 

94,428

Accrued Salaries and Wages

 

21,922

 

 

38,134

Accrued Taxes

 

26,486

 

 

26,590

Regulatory Liabilities

 

33,513

 

 

25,408

Other Current Liabilities

 

34,383

 

 

43,775

Total Current Liabilities

 

208,474

 

 

309,757

Noncurrent Liabilities and Deferred Credits

 

 

 

Pensions Benefit Liability

 

32,945

 

 

33,101

Other Postretirement Benefits Liability

 

27,501

 

 

27,676

Regulatory Liabilities

 

277,056

 

 

276,547

Deferred Income Taxes

 

246,560

 

 

237,273

Deferred Tax Credits

 

14,985

 

 

15,172

Other Noncurrent Liabilities

 

77,511

 

 

75,977

Total Noncurrent Liabilities and Deferred Credits

 

676,558

 

 

665,746

Commitments and Contingencies

 

 

 

Capitalization

 

 

 

Long-Term Debt

 

943,536

 

 

824,059

Shareholders’ Equity

 

 

 

Common Shares

 

208,918

 

 

208,553

Additional Paid-In Capital

 

426,358

 

 

426,963

Retained Earnings

 

861,127

 

 

806,342

Accumulated Other Comprehensive Income

 

1,061

 

 

1,148

Total Shareholders' Equity

 

1,497,464

 

 

1,443,006

Total Capitalization

 

2,441,000

 

 

2,267,065

Total Liabilities and Shareholders' Equity

$

3,326,032

 

$

3,242,568

OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

Three Months Ended March 31,

(in thousands)

 

2024

 

 

 

2023

 

Operating Activities

 

 

 

Net Income

$

74,338

 

 

$

62,481

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

Depreciation and Amortization

 

25,897

 

 

 

23,856

 

Deferred Tax Credits

 

(187

)

 

 

(186

)

Deferred Income Taxes

 

7,859

 

 

 

8,028

 

Investment Gains

 

(2,385

)

 

 

(1,829

)

Stock Compensation Expense

 

5,514

 

 

 

5,269

 

Other, net

 

(874

)

 

 

93

 

Change in Operating Assets and Liabilities:

 

 

 

Receivables

 

(38,531

)

 

 

(31,049

)

Inventories

 

1,920

 

 

 

1,460

 

Regulatory Assets

 

7,338

 

 

 

7,147

 

Other Assets

 

537

 

 

 

5,278

 

Accounts Payable

 

8,195

 

 

 

(7,387

)

Accrued and Other Liabilities

 

(24,372

)

 

 

(19,617

)

Regulatory Liabilities

 

9,365

 

 

 

4,420

 

Pension and Other Postretirement Benefits

 

(2,701

)

 

 

(2,411

)

Net Cash Provided by Operating Activities

 

71,913

 

 

 

55,553

 

Investing Activities

 

 

 

Capital Expenditures

 

(74,044

)

 

 

(98,101

)

Proceeds from Disposal of Noncurrent Assets

 

2,499

 

 

 

1,030

 

Purchases of Investments and Other Assets

 

(4,331

)

 

 

(3,308

)

Net Cash Used in Investing Activities

 

(75,876

)

 

 

(100,379

)

Financing Activities

 

 

 

Net Borrowings (Repayments) on Short-Term Debt

 

(81,422

)

 

 

52,650

 

Proceeds from Issuance of Long-Term Debt

 

120,000

 

 

 

—

 

Dividends Paid

 

(19,553

)

 

 

(18,256

)

Payments for Shares Withheld for Employee Tax Obligations

 

(5,754

)

 

 

(3,088

)

Other, net

 

(1,523

)

 

 

(1,396

)

Net Cash Provided by Financing Activities

 

11,748

 

 

 

29,910

 

Net Change in Cash and Cash Equivalents

 

7,785

 

 

 

(14,916

)

Cash and Cash Equivalents at Beginning of Period

 

230,373

 

 

 

118,996

 

Cash and Cash Equivalents at End of Period

$

238,158

 

 

$

104,080

 

OTTER TAIL CORPORATION SEGMENT RESULTS (unaudited)

 

Three Months Ended March 31,

(in thousands)

 

2024

 

 

 

2023

 

Operating Revenues

 

 

 

Electric

$

141,488

 

 

$

151,909

 

Manufacturing

 

99,380

 

 

 

106,782

 

Plastics

 

106,200

 

 

 

80,390

 

Total Operating Revenues

$

347,068

 

 

$

339,081

 

 

 

 

 

Operating Income (Loss)

 

 

 

Electric

$

29,042

 

 

$

30,096

 

Manufacturing

 

7,413

 

 

 

9,509

 

Plastics

 

63,305

 

 

 

45,683

 

Corporate

 

(4,785

)

 

 

(4,618

)

Total Operating Income

$

94,975

 

 

$

80,670

 

 

 

 

 

Net Income (Loss)

 

 

 

Electric

$

22,470

 

 

$

23,221

 

Manufacturing

 

5,261

 

 

 

6,862

 

Plastics

 

46,740

 

 

 

33,686

 

Corporate

 

(133

)

 

 

(1,288

)

Total Net Income

$

74,338

 

 

$

62,481

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240506728281/en/

Media Contact: Stephanie Hoff, Director of Corporate Communications, (218) 739-8535 Investor Contact: Beth Eiken, Manager of Investor Relations, (701) 451-3571