Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Otter Tail Corp (OTTR, Financial) reported a 6% increase in diluted earnings per share to $2.07, driven by strong performance in the Plastics and Manufacturing segments.
- Plastics segment earnings increased by 9% due to higher sales volumes and improved distributor and end market demand.
- Manufacturing segment earnings rose by 15%, primarily due to higher margins at BTD Manufacturing.
- The company increased its 2024 earnings guidance to a range of $6.77 to $7.07, reflecting confidence in continued strong performance.
- Otter Tail Power's 5-year capital spending plan includes $1.3 billion in investments, expected to produce a 7.7% rate base growth.
Negative Points
- Electric segment earnings decreased by 6% due to unfavorable weather and lower transmission revenue.
- The Manufacturing segment faces end market demand-related headwinds, with conditions expected to soften further in the second half of 2024.
- Sales volumes at BTD Manufacturing decreased, particularly in the lawn and garden, and agriculture end markets.
- Gross profit margins in the Plastics segment declined due to lower PVC sales pipe prices.
- The North Dakota Public Service Commission denied the advanced determination of prudence request for the on-site fuel storage project at Astoria Station, creating uncertainty about the project's future.
Q & A Highlights
Q: Can you provide more details on the performance of the Plastics segment and its impact on the overall earnings?
A: Chuck MacFarlane, President and CEO: The Plastics segment saw a 9% increase in earnings from the second quarter of 2023, driven by higher sales volumes due to customer sales volume growth and improved distributor and end market demand. This was partially offset by lower pipe prices. The strong performance in this segment has led us to increase our 2024 earnings guidance.
Q: What are the key factors contributing to the increased earnings guidance for 2024?
A: Todd Wahlund, Vice President and CFO: The increase in our 2024 earnings guidance to a range of $6.77 to $7.07 is primarily due to the continued strength within our Plastics segment. We have also updated our PVC pipe pricing expectations, anticipating a slower decline than previously expected.
Q: How is the Electric segment performing, and what are the future expectations?
A: Chuck MacFarlane, President and CEO: Electric segment earnings decreased 6% from the same time last year, mainly due to unfavorable weather and lower transmission revenue. However, we are maintaining our 2024 guidance for this segment, expecting it to overcome these headwinds through prudent cost management and rate case revenue increases.
Q: Can you elaborate on the capital spending plan for the Electric segment?
A: Chuck MacFarlane, President and CEO: Our 5-year capital spending plan includes $1.3 billion of investment, expected to produce a rate base growth of 7.7%. Key projects include advanced metering infrastructure, wind farm repowering, and transmission investments under MISO's long-range plan.
Q: What are the challenges faced by the Manufacturing segment, and how are you addressing them?
A: Todd Wahlund, Vice President and CFO: The Manufacturing segment is facing end market demand-related headwinds, with conditions expected to soften further in the second half of 2024. We are taking actions to manage costs and mitigate the impact of lower sales volumes, particularly in the lawn and garden, and agriculture end markets.
Q: How is Otter Tail Power addressing the transition to cleaner energy?
A: Chuck MacFarlane, President and CEO: We received approval from the Minnesota Public Utilities Commission for our integrated resource plan, which includes adding solar and wind generation, battery storage, and transitioning Coyote Station to an emergency-only resource. We are also investing in on-site fuel storage at Astoria Station.
Q: What is the status of the North Dakota rate case?
A: Chuck MacFarlane, President and CEO: We filed a general rate case with the North Dakota Public Service Commission in November 2023. We have amended our filing to request an increase in net revenues by approximately $23 million, based on a requested ROE of 10.6%. We anticipate the final outcome in late 2024.
Q: How is the company positioned financially to support future growth?
A: Todd Wahlund, Vice President and CFO: We have a strong balance sheet with over $230 million in cash and cash equivalents and a consolidated equity layer of 62.1%. We do not anticipate needing to issue additional equity for at least the next 5 years, based on our current projected capital spend and financial performance.
Q: What are the expectations for the Plastics segment in the second half of 2024?
A: Todd Wahlund, Vice President and CFO: We expect the Plastics segment to continue performing well, with sales volumes increasing due to customer growth and improved market demand. However, we anticipate a slower decline in PVC pipe prices, which will support our updated earnings guidance.
Q: How does Otter Tail Corporation plan to balance growth and customer affordability?
A: Chuck MacFarlane, President and CEO: We are focused on identifying opportunities for capital investment to support safe, reliable, and increasingly clean electric service while maintaining affordability. Our electric rates have consistently remained below national and regional averages, and we continue to prioritize customer affordability in our planning and investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
