Otter Tail Corporation Announces First Quarter Earnings and Increases 2024 Annual Earnings Guidance

About this update from Otter Tail Corporation

FERGUS FALLS, Minn. --(BUSINESS WIRE)-- 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 Source: Otter Tail Corporation

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