Otter Tail Corporation

11/04/2024 | Press release | Distributed by Public on 11/04/2024 17:01

Otter Tail Corporation Announces Third Quarter Earnings, Increases Consolidated 2024 Annual Earnings Guidance

FERGUS FALLS, Minn.--(BUSINESS WIRE)-- Otter Tail Corporation (Nasdaq: OTTR) today announced financial results for the quarter ended September 30, 2024.

SUMMARY

  • Midpoint of 2024 earnings guidance increased $0.15 to $7.07 per share.
  • Diluted earnings per share decreased 7% to $2.03 per share compared to the third quarter of 2023.
  • Return on equity of 20% over the trailing twelve months.

CEO OVERVIEW

"Our team members continue to perform well as they navigate changing market conditions," said President and CEO Chuck MacFarlane. "While third quarter earnings were lower than the same time last year, electric segment earnings increased 16 percent, or $4 million, primarily due to the impact of interim rates in North Dakota and the financial impact of a Federal Energy Regulatory Commission ruling on transmission owner returns on equity. Plastics segment earnings decreased 8 percent, or $5 million, as the sales prices of PVC pipe continue to decline. The manufacturing segment is experiencing demand related headwinds across several of its end markets, resulting in a decrease in earnings of 71 percent, or $5 million, due to lower sales volumes. Year to date earnings are ahead of last year by 4 percent and support the increase to our 2024 earnings guidance.

"Otter Tail Power continues to execute on its significant rate base growth plan, which includes investments to support safe, reliable, increasingly clean and affordable electric service for our customers. Our wind repowering project remains on schedule and we expect to finish the equipment upgrades at the first of four owned wind energy centers later this year. We look forward to completing this project in its entirety next year as it will increase the efficiency of these wind sites while simultaneously lowering customer bills through increased output and available tax credits.

"Our Manufacturing segment continues to face softening end market demand. We continue to take action to tightly manage costs and mitigate the impact of lower sales volumes. Despite this near-term softness, the longer term fundamentals of the segment remain strong. Our expansion project in Georgia is progressing well and we anticipate occupying the new space later this year. We look forward to bringing this additional capacity online in early 2025 to better serve our customers in the southeast.

"Despite Plastics segment earnings decreasing from the same time last year, the segment continues to perform better than anticipated, capitalizing on customer sales volume growth. Sales prices of PVC pipe continue to decline but at a slower rate than expected. The first phase of our expansion project at Vinyltech in Arizona is nearly complete and we anticipate adding large diameter PVC pipe production capability at this location later this year.

"Our diversified business model continues to serve us and our stakeholders well as it generates incremental earnings and cash flow for us to fund our rate base growth plan without any equity needs. As of September 30, 2024, our total available liquidity was $544 million.

"We are increasing and tightening our 2024 diluted earnings per share guidance to a range of $6.97 to $7.17 from our previous range of $6.77 to $7.07."

QUARTERLY DIVIDEND

On November 4, 2024, the corporation's Board of Directors declared a quarterly common stock dividend of $0.4675 per share. This dividend is payable December 10, 2024 to shareholders of record on November 15, 2024.

CASH FLOWS AND LIQUIDITY

Our consolidated cash provided by operating activities for the nine months ended September 30, 2024 was $322.8 million compared to $318.5 million for the nine months ended September 30, 2023, with the increase primarily due to increased earnings from our Plastics segment, partially offset by increased working capital at our Manufacturing segment.

Investing activities for the nine months ended September 30, 2024 included capital expenditures of $259.8 million and a $50.1 investment in long-term marketable securities. Capital expenditures during the period were largely within our Electric segment, including investments in our wind repowering and advanced metering projects, and also included continued investments in our facility expansion projects in Arizona and Georgia. Financing activities for the nine months ended September 30, 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, fund capital investments, and support operating activities. Financing activities for the nine months ended September 30, 2024 also included net short-term borrowings of $14.0 million and dividend payments of $58.7 million.

As of September 30, 2024, we had $170.0 million and $93.8 million of available liquidity under our Otter Tail Corporation and Otter Tail Power Credit Agreements, respectively, along with $280.0 million of available cash and cash equivalents, for total available liquidity of $543.8 million.

SEGMENT PERFORMANCE

Electric Segment

Three Months Ended September 30,

($ in thousands)

2024

2023

Change

% Change

Operating Revenues

$

130,380

$

130,326

$

54

-

%

Net Income

28,530

24,565

3,965

16.1

Retail MWh Sales

1,304,446

1,300,324

4,122

0.3

%

Heating Degree Days

2

3

(1

)

(33.3

)

Cooling Degree Days

378

317

61

19.2

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

Three Months Ended
September 30,

2024

2023

HDDs

4.7

%

6.3

%

CDDs

111.5

%

92.2

%

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 for the three months ended September 30, 2024 and 2023.

2024 vs
Normal

2024 vs
 2023

2023 vs
Normal

Effect on Diluted Earnings Per Share

$

0.01

$

0.02

$

(0.01

)

Operating Revenues increased $0.1 million compared to the same period last year. Increases in retail and transmission revenue were largely offset by decreased fuel recovery revenues. Retail revenue increased due to an interim rate increase in North Dakota in connection with our current rate case and the impact of favorable weather. Transmission revenue increased due to a reduction in our estimated refund liability in connection with an order issued by FERC regarding a contested matter related to the allowed ROE during certain prior periods, which resulted in an additional nonrecurring revenue in the current period. Fuel recovery revenues decreased due to a decrease in generation from our coal-fired and natural gas facilities, thus lowering fuel consumption, as well as decreased market energy costs.

Net Income increased $4.0 million primarily due to the impact of favorable weather, interim rates in North Dakota, and the reduction of an estimated refund, as described above, as well as a decrease in property taxes in North Dakota, partially offset by increased depreciation and interest expense.

Manufacturing Segment

Three Months Ended September 30,

(in thousands)

2024

2023

$ Change

% Change

Operating Revenues

$

79,896

$

100,678

$

(20,782

)

(20.6

)%

Net Income

2,174

7,446

(5,272

)

(70.8

)

Operating Revenues decreased $20.8 million primarily due to a 13% decrease in sales volumes, with declines experienced primarily in the recreational vehicle, agriculture, construction, and lawn and garden end markets. Sales volumes have softened due to lower end market demand and inventory management efforts by manufacturers and dealers. A 37% decline in scrap metal revenues, largely driven by lower production volumes, and a 6% decrease in steel costs, which are passed through to customers, also contributed to the decrease in operating revenues.

Net Income decreased $5.3 million primarily due to lower sales volumes and lower scrap metal sales, as described above, as well as a decrease in margins at both our contract metal fabricator and our plastics thermoforming manufacturer. Decreased profit margins were driven by the mix of products sold in the current period compared to the same period last year, and reduced leveraging of fixed manufacturing costs resulting from decreased production and sales volumes.

Plastics Segment

Three Months Ended September 30,

(in thousands)

2024

2023

$ Change

% Change

Operating Revenues

$

127,757

$

127,052

$

705

0.6

%

Net Income

54,479

59,162

(4,683

)

(7.9

)

Operating Revenues increased $0.7 million as a 13% increase in sales volumes, driven by continued customer sales volume growth and distributor and end market demand, was largely offset by continued declining sales prices. Sales prices have steadily declined throughout the year and decreased 11% compared to the same period last year.

Net Income decreased $4.7 million primarily due to decreased sales prices, as described above, and increased general and administrative expenses.

Corporate

Three Months Ended September 30,

(in thousands)

2024

2023

$ Change

% Change

Net Income

$

296

$

801

$

(505

)

(63.0

)%

Net Income decreased $0.5 million primarily due to increased insurance and employee benefit expenses, partially offset by increased investment income earned on our short- and long-term investments, as well as gains on our corporate-owned life insurance policies.

2024 BUSINESS OUTLOOK

We are increasing our 2024 diluted earnings per share range to $6.97 to $7.17. We expect our earnings mix in 2024, based on our updated guidance, to be approximately 30% from our Electric segment and 70% 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

August 5, 2024

November 4, 2024

Low

High

Low

High

Electric

$

2.01

$

2.13

$

2.17

$

2.13

$

2.17

Manufacturing

0.51

0.36

0.40

0.30

0.34

Plastics

4.47

4.35

4.54

4.61

4.70

Corporate

0.01

(0.07

)

(0.04

)

(0.07

)

(0.04

)

Total

$

7.00

$

6.77

$

7.07

$

6.97

$

7.17

Return on Equity

22.1

%

18.3

%

19.0

%

18.8

%

19.3

%

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 in the fourth quarter as demand continues to soften across most end markets and manufacturers tightly manage inventories through year-end, and
  • Product pricing pressures and lower scrap revenues within our metal fabrication business, partially offset by reduced operating costs as we align our production costs with the current demand environment.

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

  • Better than expected financial results in the third quarter of 2024, and
  • A slower decline in product sales prices than previously expected and increased sales volumes in the fourth quarter of 2024.

Corporate Costs - We are maintaining our corporate cost guidance.

CONFERENCE CALL AND WEBCAST

The corporation will host a live webcast on Tuesday, November 5, 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; actual and threatened claims or litigation; 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 September 30,

Nine Months Ended September 30,

(in thousands, except per-share amounts)

2024

2023

2024

2023

Operating Revenues

Electric

$

130,380

$

130,326

$

384,696

$

395,997

Product Sales

207,653

227,730

642,741

638,856

Total Operating Revenues

338,033

358,056

1,027,437

1,034,853

Operating Expenses

Electric Production Fuel

14,991

19,603

45,009

45,928

Electric Purchased Power

10,735

10,895

42,507

57,932

Electric Operating and Maintenance Expense

43,737

43,534

136,367

134,604

Cost of Products Sold (excluding depreciation)

111,444

118,303

342,962

351,330

Nonelectric Selling, General, and Administrative Expenses

18,829

15,863

55,896

51,433

Depreciation and Amortization

27,051

24,548

79,579

72,636

Electric Property Taxes

3,705

4,194

11,691

13,151

Total Operating Expenses

230,492

236,940

714,011

727,014

Operating Income

107,541

121,116

313,426

307,839

Other Income and (Expense)

Interest Expense

(11,173

)

(9,175

)

(31,225

)

(28,285

)

Nonservice Components of Postretirement Benefits

2,367

2,289

7,197

7,122

Other Income (Expense), net

5,421

2,471

14,491

7,841

Income Before Income Taxes

104,156

116,701

303,889

294,517

Income Tax Expense

18,677

24,727

57,077

58,093

Net Income

$

85,479

$

91,974

$

246,812

$

236,424

Weighted-Average Common Shares Outstanding:

Basic

41,800

41,680

41,770

41,663

Diluted

42,081

42,058

42,068

42,028

Earnings Per Share:

Basic

$

2.04

$

2.21

$

5.91

$

5.67

Diluted

$

2.03

$

2.19

$

5.87

$

5.63

OTTER TAIL CORPORATION

CONSOLIDATED BALANCE SHEETS (unaudited)

September 30,

December 31,

(in thousands)

2024

2023

Assets

Current Assets

Cash and Cash Equivalents

$

280,020

$

230,373

Receivables, net of allowance for credit losses

186,273

157,143

Inventories

153,233

149,701

Regulatory Assets

7,860

16,127

Other Current Assets

22,927

16,826

Total Current Assets

650,313

570,170

Noncurrent Assets

Investments

121,421

62,516

Property, Plant and Equipment, net of accumulated depreciation

2,604,869

2,418,375

Regulatory Assets

95,537

95,715

Intangible Assets, net of accumulated amortization

6,018

6,843

Goodwill

37,572

37,572

Other Noncurrent Assets

51,009

51,377

Total Noncurrent Assets

2,916,426

2,672,398

Total Assets

$

3,566,739

$

3,242,568

Liabilities and Shareholders' Equity

Current Liabilities

Short-Term Debt

$

67,401

$

81,422

Accounts Payable

88,885

94,428

Accrued Salaries and Wages

31,320

38,134

Accrued Taxes

29,150

26,590

Regulatory Liabilities

43,685

25,408

Other Current Liabilities

39,149

43,775

Total Current Liabilities

299,590

309,757

Noncurrent Liabilities and Deferred Credits

Pension Benefit Liability

32,388

33,101

Other Postretirement Benefits Liability

28,074

27,676

Regulatory Liabilities

282,997

276,547

Deferred Income Taxes

251,105

237,273

Deferred Tax Credits

14,613

15,172

Other Noncurrent Liabilities

80,978

75,977

Total Noncurrent Liabilities and Deferred Credits

690,155

665,746

Commitments and Contingencies

Capitalization

Long-Term Debt

943,663

824,059

Shareholders' Equity

Common Shares

209,140

208,553

Additional Paid-In Capital

427,751

426,963

Retained Earnings

994,461

806,342

Accumulated Other Comprehensive Income

1,979

1,148

Total Shareholders' Equity

1,633,331

1,443,006

Total Capitalization

2,576,994

2,267,065

Total Liabilities and Shareholders' Equity

$

3,566,739

$

3,242,568

OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months Ended September 30,

(in thousands)

2024

2023

Operating Activities

Net Income

$

246,812

$

236,424

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

Depreciation and Amortization

79,579

72,636

Deferred Tax Credits

(559

)

(558

)

Deferred Income Taxes

8,840

10,800

Investment Gains

(5,259

)

(3,734

)

Stock Compensation Expense

8,082

6,975

Other, net

(2,167

)

(164

)

Change in Operating Assets and Liabilities:

Receivables

(29,130

)

(48,782

)

Inventories

(2,198

)

4,873

Regulatory Assets

7,209

8,387

Other Assets

(2,785

)

3,899

Accounts Payable

3,180

(511

)

Accrued and Other Liabilities

(5,745

)

13,858

Regulatory Liabilities

24,083

21,601

Pension and Other Postretirement Benefits

(7,167

)

(7,209

)

Net Cash Provided by Operating Activities

322,775

318,495

Investing Activities

Capital Expenditures

(259,750

)

(229,849

)

Proceeds from Disposal of Noncurrent Assets

6,684

4,746

Purchases of Investments and Other Assets

(59,100

)

(6,915

)

Net Cash Used in Investing Activities

(312,166

)

(232,018

)

Financing Activities

Net (Repayments) Borrowings on Short-Term Debt

(14,021

)

43,292

Proceeds from Issuance of Long-Term Debt

120,000

-

Dividends Paid

(58,693

)

(54,792

)

Payments for Shares Withheld for Employee Tax Obligations

(6,457

)

(3,088

)

Other, net

(1,791

)

(1,671

)

Net Cash Provided by (Used in) Financing Activities

39,038

(16,259

)

Net Change in Cash and Cash Equivalents

49,647

70,218

Cash and Cash Equivalents at Beginning of Period

230,373

118,996

Cash and Cash Equivalents at End of Period

$

280,020

$

189,214

OTTER TAIL CORPORATION

SEGMENT RESULTS (unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2024

2023

2024

2023

Operating Revenues

Electric

$

130,380

$

130,326

$

384,696

$

395,997

Manufacturing

79,896

100,678

275,961

309,936

Plastics

127,757

127,052

366,780

328,920

Total Operating Revenues

$

338,033

$

358,056

$

1,027,437

$

1,034,853

Operating Income (Loss)

Electric

$

36,471

$

33,142

$

88,108

$

88,427

Manufacturing

2,683

8,829

19,699

26,657

Plastics

73,745

80,119

219,136

200,836

Corporate

(5,358

)

(974

)

(13,517

)

(8,081

)

Total Operating Income

$

107,541

$

121,116

$

313,426

$

307,839

Net Income

Electric

$

28,530

$

24,565

$

69,486

$

67,420

Manufacturing

2,174

7,446

14,271

20,276

Plastics

54,479

59,162

161,829

148,240

Corporate

296

801

1,226

488

Total Net Income

$

85,479

$

91,974

$

246,812

$

236,424

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

Source: Otter Tail Corporation