Q2 2021 Otter Tail Corp Earnings Call
[music].
Okay.
Good morning, and welcome to Otter tail Corporation's Q2, 'twenty channel what earnings conference call.
This call is being recorded and we will hold a question and answer session. After the prepared remarks, I'll now turn the call over to the company for their operating comments.
Good morning, everyone and welcome to our call. My name is Loren Hanson and I manage Otter Tail's Investor Relations area last night, we announced our second quarter 2021 earnings results, our complete earnings release and slides accompanying this call are available on our website at otter tail Dot com.
A recording of the call will be available on our website later today.
With me on the call today are Chuck Macfarlane Otter tail corporations, President and CEO and Kevin <unk> Otter tail corporations, senior Vice President and Chief Financial Officer.
Before we begin I want to remind you that we will be making forward looking statements. During this call as noted on slide 2 these statements represent our current judgment or opinion of what the future holds they are subject to risks and uncertainties that may cause <unk>.
Actual results to differ materially.
So please be advised about placing undue reliance on any of these statements are forward looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review.
Otter tail Corporation disclaims any duty to update or revise our forward looking statements due to new information future events developments or otherwise for.
For opening remarks, I will now turn the call over to Otter tail Corporation's President and CEO, Mr. Chuck Macfarlane.
Thank you Laura and good morning, everyone welcome to our second quarter 2021 earnings call Otter.
<unk> Corp continues to support all of the locations, we serve with collective efforts to mitigate the spread of Covid is.
As most of our employees return to the office from working remotely we continue to monitor case activity.
Vaccination rates in the community.
We operate.
Also continue to monitor and follow guidance and recommendations from the CDC are states local public health officials in ocean.
As of today, 5% of our employees continue to work remotely.
Throughout the course of the past year and a half are companies and employees have done an excellent job managing the highs and lows from COVID-19 related impacts.
Including adjustments to staffing levels navigating supply chain constraints, managing commodity pricing and supporting increased customer demand.
Please refer to slide 4 as I begin my comments on Q2 results.
We earned $1.1 per share for the quarter, which is 141% increase over the 42.
Per share earned in Q2 of 2020.
All of our businesses had improved results led by our plastics segment, which had another outstanding quarter.
Kevin will provide more detailed discussion of our financial performance in his comments.
Here are a few.
Brief overview of the Q2 results.
The electric segment had a record second quarter with earnings per share increasing <unk>.
This was primarily driven by recovery of investments and a story of station and the <unk> Wind Energy Center.
Approved interim rates going into effect January 1st in conjunction with water tail powers, Minnesota General rate case filing.
And increased revenues from C&I customers sales volumes recover from the negative impacts of Covid.
Our manufacturing segment earnings per share increased 13, due to increased sales volumes at bvd and T O plastics.
BCD experienced increased demand across all end markets as major Oems continue to rebuild depleted inventories created by strong end market sales and production and supply chain issues.
Our plastics segment had another record breaking quarter with earnings per share increasing 42.
This was driven by higher sales and higher pipe prices and improved operating margins, resulting from <unk>.
Positive unique market conditions, driven by PVC resin supply constraints, we do anticipate operating margins to return to more historic levels in 2022.
Based on our strong year to date performance, especially in the plastics segment and our updated view for the remainder of the year. We are raising our 2021 diluted earnings per share guidance to be in the range of $3.50 to $3.65.
From our previously announced guidance of $2.47 to $2.62.
This was a $50 to 56% increase over last year's $2.34, a share.
Turning to some highlights for the quarter.
We retire Hoot Lake plant on May 27th this year, marking the end of 100 years of coal fired energy generation at the site.
On July 21, we joined current and former plant employees and others involved in plant operations to commemorate the plant's legacy and dependable innovative employees.
Lake plant 140 megawatt coal fired generating facility in Fergus Falls, Minnesota played a vital role in our company's history of generating reliable and affordable energy.
We continue to grow otter tail power through capital investments in generation transmission and technology projects.
On slide 12 after years of planning and 2 years of construction and testing a story of station is now part of the mid continent independent system, operator, or MISO energy market.
This allows MISO to economically dispatch the unit this $152 million investment complements our wind generation by providing a reliable backstop when the wind is not blowing.
And it is flex has flexible operating options and low emissions storage station provides 245 megawatts of dispatch will capacity compared to Hoot Lake plants of 140 megawatts.
With projected 85% less carbon emissions than historic Hoot Lake plant levels.
We announced in September 2000, $20 million to $60 million Hoot Lake Solar project that is shown on slide 13.
This is a 49 megawatt project to be built on previously owned a newly purchase land around Hoot Lake plant.
We will make solar will generate enough energy to power approximately 10000 homes each year.
This project offers us a unique opportunity to reuse our existing hoot Lake transmission interconnection, along with substation and plant land. After recently retiring the Hoot Lake coal plant.
This spring the Minnesota PUC approved our request to authorize a 100% of Hoot Lake solar output to be allocated for use by Minnesota customers in 100% of our investment in the Hoot Lake solar to be eligible for future cost recovery from Minnesota customers through a renewable resource rider.
In early July the Fergus Falls City Council approved a conditional use permit which outlines our plans for the site, including screening vegetative management storm water management and decommissioning.
To qualify for the 26% investment tax credit we have secured safe Harbor equipment and currently anticipate the project to be completed in 2023.
As noted on slide 14.
Then a purchase power agreement in 2013 with Nextera energy for energy delivered to the Otter tail power system from the Ash to Beulah 3 wind farm located near La Verne North Dakota.
This agreement includes the option to buy the assets of Ash Beulah 3 converting from a purchase power agreement to our rate base facility in 2023.
This wind farm is a $62.4 megawatt facility with a net capacity, 40% net capacity factor.
We expect to purchase the facility in early 2023.
Regulatory approvals will be obtained over the next several months.
We will be filing our next Minnesota integrated resource plan in September of 2021 as noted on slide 15.
This plan will identify the most cost effective combination of resources to reliably meet customers' needs. During the next 15 years.
We will file the plan in all 3 state jurisdictions.
As required by the Minnesota PUC the plan will address compliance with the Epa's regional haze rule.
Our last integrated resource plan was filed in June of 2016 and.
And approved in April of 2017.
We filed our Minnesota General rate case on November 2nd 2020 as shown on slide 16.
Our last Minnesota rate review was filed in 2016. The primary driver for this request is to place a story of station into our base rates in Minnesota.
<unk> was approved in our most recent AARP.
Been earning <unk> during the construction period.
Additionally, our new customer information system, which focuses on enhancing the customer experience by allowing customers more access from options related to their energy use was also a driver for this request.
Recognizing the economic impact of customers of the ongoing pandemic.
And with input from Commission staff, we agreed to reduce our interim rate request by approximately half to $6.9 million or 3.2%.
This was done in conjunction with approval of our annual depreciation filings, which extended our wind asset lives from 25% to 35 years.
This change in depreciation expense and a reduction in pension expense drove the decrease to the interim rate request.
In December the commission approved our interim rate request beginning in January 2021.
In late April we filed a substantial reduction to our original request incorporating the lower depreciation rates approved by the commission lower borrowing rates lower pension and benefit costs and other refinements identified.
<unk> identified during the discovery phase of the case.
The new request is for $8.2 million or a 3.8% increase versus the original request of $14.5 million.
Our 6.8%.
Kris.
Evidentiary hearings were held in early June.
And the administrative law judge is scheduled to issue his recommendation to the PUC by September 2nd.
We anticipate a decision in late 2021.
Even with this increase otter tail power residential customers will continue to have some of the lowest rates in the country.
As shown on slide 18 utilities rate base is expected to grow by an annual rate of 5% between 2020 in 2025, and a constructive regulatory environment.
And we will be a key driver for future earnings growth.
We anticipate updating our capex and rate base forecast in future earnings calls after filing our Minnesota IOP in September and has more information on the MISO regional transmission plan is known.
Additionally, the utility has entered into electric service agreements with industrial customers in the water pumping in soybean crushing areas.
These new loans and other loans under development are expected to be commercially operational between 2022 and 2024.
Turning to our manufacturing segment.
<unk> our contract metal fabricator continues to experience increased customer demand and improved sales across all of our end markets as major Oems rebuild depleted inventories.
They continue to be challenged with securing staffing levels to keep up with the increased demand.
Industry wide demand for manufacturing talent has increased and lingering COVID-19 impact continue to impact the number of available applicants.
Also steel prices are exceeding historic levels, driven by strong demand and limited product availability as mills are slow to recover from capacity reductions in 2020 related to COVID-19.
Even though <unk> is able to path to increased material costs.
Customer steel availability could impact production for some Oems.
Our plastic segment continues to deliver extraordinary results in a tight pipe market due to PVC resin supply constraints that have significantly driven up PVC pipe prices.
PVC resin constraints resulted from abnormally cold weather in February that impacted the Gulf Coast region.
Some constraints remain due to high demand as PVC resin plants continue to recover from shutdowns.
While we expect PVC resin supply constraints to remain for the rest of the year, both both of our PVC companies remain agile and reliable with on time deliveries.
Looking ahead otter tail power continues to be innovative as we modernize our energy grid enhanced customer experiences.
And work toward a cleaner energy future.
We projected by 2023, our customers will receive approximately 35% of their energy from renewable sources.
Based on current dispatch levels of both Big Stone and Coyote station, our target is to reduce carbon emissions from generation sources, we own 50% from 2005 levels by 2025, and <unk>, 97% by 2050.
We will achieve these targets, while keeping residential rates among the lowest in the nation.
With growing concern about companies generating more than 25% of revenues from thermal coal. Please note otter tail corporation's percentage of revenue from coal assets is significantly below that threshold.
The percentage of consolidated revenues from our coal assets was 12% in 2012.
Yes.
Now I'll turn it over to Kevin for the financial perspective.
Well, thanks, and good morning, everyone.
1 second quarter sales were up 48%.
And net earnings increased 148%.
These results, primarily driven by unique market conditions in our plastic segment.
Resulting from PVC resin supply constraints that caused an acceleration.
Sales pipe price as well in excess of the increase in resin costs.
Let me provide a detailed review of the quarter results as shown on slides 27 and 28.
The electric segment.
Set a new record for second quarter net earnings as we continue to see our largest business execute on its rate base growth strategy.
Net earnings increased $2.1 million quarter over quarter.
Given by a $1.5 million increase in net retail revenues related to the interim rate increase effective January 1.2021 associated with our current Minnesota rate case.
A $1.5 million increase in retail revenues from commercial and industrial customers.
Primarily due to increased sales compared to the second quarter of 2020, which was negatively impacted by COVID-19.
A $1.4 million increase in revenues related to the recovery of mirror core operating expenses in the story of station project costs.
Recovery of increased CIP program spending in Minnesota, and South Dakota and transmission rider revenues.
These items were offset.
By increased operating expenses due to the murra <unk> wind farm and Astoria station being commercially operational.
Increased transmission tariff expenses.
Increased CIP expenditures, which will be recovered through retail rates.
And higher vegetative and plant maintenance expense.
These.
<unk> increases were offset in part by lower bad debt expense due to improving customer collections.
As the economic impact of COVID-19 has eased.
Other items impacting earnings were higher depreciation and property tax expense due to recent capital additions.
Higher interest expense due to new long term debt issuances in 2020.
Higher short term borrowings in 2021, and a lower level of capitalized interest, resulting from the placement.
Of the Astoria station in service in the first quarter.
And also a reduction in other income due to lower amounts of equity funds used during construction due to the completion of the Astoria station.
And income taxes were favorably impacted mainly due to production tax credits earned on <unk> in 2021.
Net earnings for the manufacturing segment increased $5.5 million due to higher parts revenues at BCD from increased demand across all our end markets.
This resulted in increased sales volumes and improved operating margins Steve.
Steel prices continue to exceed historical levels as mill capacity has been slow to recover to pre pandemic levels, creating supply chain challenges.
Scrap revenues were higher primarily due to increased scrap metal pricing.
Our scrap volumes were higher as well in comparison to the same quarter a year ago.
Yes.
Cost of goods sold were higher due to increased sales volumes and higher material costs that were passed onto customers.
Our selling general and administrative costs were higher related to increases in incentive compensation, given dtd's current year financial performance.
And increased travel and recruitment costs necessary to support higher revenues.
At T O plastics, our net earnings improved due to increases in product pricing.
Levels of horticultural sales and improved gross margins, resulting from increased production volumes.
Our plastic segment earnings increased $7.4 million, primarily due to higher pricing.
From a PVC pipe sales in excess of higher product costs.
This dynamic resulted in operating margins not previously experienced.
Increased sales volume also contributed to the improvement.
The significant increase in pipe prices was driven by PVC resin supply constraints.
Due to resin plant shutdowns that started during the first quarter of 2021.
These conditions continued into the second quarter, along with significant global demand for PVC resin and limited pipe inventory across the country.
Resin spread as shown on slide 25, which is the difference between the sales price of PVC pipe and the cost of resin.
In the second quarter of 2021 has increased approximately 65%.
Paired with the first quarter of 2020.
Our corporate costs net of tax were basically unchanged quarter over quarter.
In June we completed a $230 million senior unsecured note offering for otter tail power.
With the delayed draw of $140 million to be issued in November of this year.
90 million to be issued in may of 2022.
The proceeds will be used to refinance existing long term debt and for general corporate purposes.
We continue to generate strong cash flows and have appropriate levels of liquidity under our credit facilities to support our business operations.
We expect operating cash flows in 2021 will be much stronger than originally anticipated, resulting from our plastics segment performance.
These strong cash flows will allow us to look at investment opportunities such as additional contributions to our pension plan.
To improved funded status and opportunities for additional capital investments to continue to grow organically.
We are raising our 2021 overall diluted earnings per share guidance range to $3.50 to $3.65.
As shown on slide 31.
The midpoint of the revised 2021 earnings per share guidance range of $3.58.
Reflects an approximate 53% growth rate off a 2020 diluted earnings per share of $2.34.
The primary drivers are the exceptional performance and improved outlook of our plastic segment.
We are also raising our manufacturing segment guidance based on strong first half performance along with end markets that are continuing to improve.
Our forecast reflects our expectations that supply constraints and inflation are not going away nor will they improve materially in 2021.
Our revised guidance reflects the impact of continued labor challenges as we look to increase wage rates across certain of our businesses.
Order to attract the needed work force to support growing volumes.
Let me review the items contributing to our revised segment guidance for 2021.
We are maintaining our previous guidance for the electric segment and continue to expect earnings will exceed 2020 levels driven by the Amira Court and the story of projects being commercially operational in our $410 million total investment in these projects being fully reflected in rate.
Base.
Both projects have recovery mechanisms in all 3 of our jurisdictions, partially offset by increased operating and maintenance depreciation and property tax expense associated associated with these investments.
And increased interest expense due to the 2020 debt issuances.
The impact of our Minnesota rate case that was filed in November of 2020.
The Minnesota Public utility Commission has approved an interim rate increase of 3.2% or $6.9 million.
These items were partially offset by.
Increased non labor O&M expenses related to planned outages at Big Stone plant and increased post retirement expense related to a decrease in the discount rate.
And long term rate of return on plan assets.
We are increasing our previous 2021 earnings guidance for our manufacturing segment and.
And continue to expect earnings to be higher than 2020.
Based on our strong year to date performance at BTT, driven by the increased sales volumes across all end markets and.
And improved operating margins as our customers continue to rebuild inventories to fill the shortages created by the pandemic.
The strong year to date recoveries in our end markets is certainly indicative of the economic recovery.
However, we believe growth could be more robust if not for the challenges associated with continued supply constraints and labor shortages.
Scrap revenues are expected to be higher based on higher scrap metal prices.
Decreased steel mill capacity due to Covid has created product availability issues will help.
Capacity continues to improve mills.
Sales are struggling to keep up with demand to get the steel needed.
To meet customer demands and continue to keep steel prices elevated above historic levels.
We currently expect steel prices to remain high into 2022.
And we continue to work on increasing staffing levels to keep up with demand and to mitigate the impacts of lower productivity and increased expertise expedited freight costs.
We expect higher earnings at T O plastics, mainly due to their strong year to date performance.
Okay.
Increased sales to horticultural end markets, and improving operating margins and productivity enhancements.
Backlog for the manufacturing segment is approximately $128 million for 2021, compared with $93 million 1 year ago.
Our increased backlog is reflective of the improving economy.
We are raising the 2021 guidance for our plastic segment from our previous guidance due to operating margins being higher than expected during the first 6 months.
Driven by unique market conditions, resulting from PVC supply constraints.
These market conditions continued into the second quarter and resulted in higher than planned PVC pipe sales prices.
Sales prices per.
<unk> to remain elevated for the rest of the year.
Resin suppliers continue to increase raw material prices in response to market conditions.
Such as availability constraints related to feedstock supplies from resin and a strong export market, which has higher resin prices than the domestic market.
We currently expect the supply constraints to continue for the remainder of the year and returned to more net more and more normal levels next year.
<unk> of pipes sold in 2021.
We are now expected to be higher than in 2020, driven by strong construction and municipal markets.
And our corporate costs net of tax are expected to be higher driven by higher employee benefit costs cost and potential contributions to the Otter tail Corporation Foundation.
Our expected 2021 financial results show, 48% of our consolidated earnings per share coming from the electric segment.
This is a departure from our 70% to 75% expected earnings from the electric segment.
The 2021 results are clearly being driven by the economic recovery in our non electric businesses and most significantly by the unique market conditions in our plastic segment that are not expected to continue over the long term.
We continue to expect our electric segment to contribute 70% to 75% of our overall earnings over the long term.
It will continue to deliver reliable performance along with rate base investment opportunities over the next 5 years to allow for growing revenues earnings and cash flows.
The manufacturing and plastics segments will also provide organic growth over the long term.
These 2 segments are expected to provide.
Around 25% to 30% of our earnings over time.
We expect to deliver total shareholder return of 8% to 10% over the long term.
Consisting of our expected, 5% to 7% compounded annual growth rate and earnings per share using 2020 as the base year.
Along with our current dividend yield.
Looking forward, we would expect to grow the dividend.
Lined with our earnings per share growth.
While maintaining a dividend payout ratio between 60% to 70% over the long term.
Our business model continues to serve us well and we remain positioned to.
Fund our rate base growth opportunities at the utility with our strong balance sheet ample liquidity to support our businesses.
Strong investment grade corporate credit ratings.
We are now ready to take your questions.
Ladies and gentlemen, if you have a question. Please press Star then 1 on your touch tone telephone. If your question has been assets, while you're at least steady most theories yourself from the queue.
Thanks, Brad.
After the Q&A Chuck will return with a few closing remarks.
Your first question comes from the line of Chris selling House from <unk>. Your line is open.
Mr. Chris Elling House, you May now ask your question.
Hi, guys how are you.
Hey, good morning, Chris.
The foundation donation potential should we sort of expect that to be similar to the magnitude of 2020 or given the earnings level. This year should we expect that to be bigger.
Hey, Chris It's Kevin we've got roughly 5 cents a share.
Is what.
Included in this updated guidance.
For a potential contribution to the foundation this year so.
Compared to last year, when you look at the foundation between or the contribution between the.
The power company debt they contributed to their foundation and plastics also made a contribution to the.
Otter Tail Corporation Foundation, it's less this year than last year.
Okay.
The debt.
You described the plastics.
Market today I'm, a little confused you are talking about.
Probably selling more pounds, so that suggests that your ability or your allocation of debt.
<unk> market is the same or better.
So that doesn't to me sound like you have a <unk>.
Resin constraint per se.
That mean that some of your competitors have bigger constraints and that's allowing for.
This supply demand imbalance too to allow higher prices or.
I'm, a little confused on where the resin supply problem loans.
The plants are.
Pretty much back to full levels, but they continue to keep.
Customers us and our competitors on resin allocations, so we're getting.
The resin, we need but we arent getting the.
All of the resin, we could certainly use and so our inventory levels are significantly lower.
Today than they have been in previous years and so we're.
We are getting in terms of allocation, we're pretty much producing and selling through.
So really if I think about this is really extraordinary demand that can't be met with supply.
As more.
In my mind, where the margins coming from.
In prior years, where you didnt have the February disruption with the resin.
The market had been able to adjusted volume.
To supply you that incremental capacity.
Yes, it would.
Okay. So this sort of a combination of factors that are causing these margins.
What are you expecting in 2022, you're talking about a return to normal but is there a reason to think that the.
Construction market will ease or are you simply thinking that the resin supply will increase to meet that demand.
Yes, Chris.
As we look at it today, we are expecting that the resin supply.
We will return to more normal type levels in 2022, as such then to meet the demand.
Is it more easily to meet the demand that's out there.
And that we would start to see than this.
Yeah.
Conditions that drove the high sales prices and margins would return back to kind of more normal levels that we've seen historically.
Okay.
Can you give us a little color on what your July weather looked like.
Yes.
July weather has been I would say, it's probably a little bit warmer than normal.
<unk>.
I think we're 5 degrees.
Bob average for July.
Okay. Thank you.
Your next question comes from the line, Brian Russo from Sidoti Your line.
Line is open.
Hey.
Good morning, Brian.
Okay. So just to follow up on the.
The plastic segment.
I mean.
Do you have a competitive advantage in this market or is it just.
Our spread business.
Meaning when demand is outstripping supply your margins expand.
Sure.
Are you able to secure.
Moran resin inventory think competitors, maybe due to location et cetera debt.
Or all your competitors seeing the same.
Unprecedented outsized margins right now.
Yes, Brian This is Kevin I would we certainly believe we have a competitive advantages as it relates to our ability to Cui.
Quickly react to customer demands and needs.
Some of our competitors are not able to do that.
Certainly saw that in 2020, as we kept our plants open lines running while other competitors share.
Did temporary shutdowns.
During the first couple of quarters.
Of Covid.
Impacting us.
<unk> said that though I would also tell you that we are seeing competitors.
Who are.
Making announcements to raise sales prices of pipe.
Pretty significantly as well even since the.
At the end of the quarter here, we've seen competitors come out with price announcements as they continue to raise prices given the revenue.
There's just so even though the plants are back up running in terms of everybody is still having to be on resin allocation.
There is a demand out there for product.
And we're seeing competitors raise prices as well as.
As we go through this and we're seeing that occur also in the.
With our with our customers where they are now starting to.
Not be able to maybe on or some of the prices that had been out there given that.
<unk>.
The supply side is raising prices theyre, having to not be able to honor their prices to the end users as well and having to raise prices. So it's affecting a lot of the market.
Understood. So.
Competitors, raising PVC pipe prices is debt at a leading indicator to Europe plastics segment performance, meaning it's an indication of increasing demand and therefore widening spreads relative to.
Okay.
An increase in the actual raw material or resin.
It could be Brian I think what we're seeing too though is we're seeing.
The.
Our competitors raise prices were also seeing announced resin price increases coming from the suppliers here.
Understood and then on Slide 25 go ahead.
Oh, yes.
So on slide 25, the spread relationship.
And any.
Willingness to share what that spread is.
No.
Okay.
We have confidential.
Confidentiality provisions in our supply agreements with our resin suppliers. So such that we just aren't able to kind of go down that pathway.
Yes, no no understood.
And this bipartisan infrastructure build I think there is nearly 55 billion allocated to.
Water infrastructure is your plastics segment.
Leverage to that spend.
Right.
I think we have not put that in our forecast yet we are aware of the.
The led replacement in the Bill a lot of that has to do with.
With aerie.
Areas in the Eastern U S, which is not a big.
Amount of our pipe going there, but it will put a positive I think on me.
Entire.
Our pipe manufacturing business.
Okay, and then at the BTT segment, obviously, a lot of OEM.
Or end market.
Demand.
Inventory levels dealership Julien.
Dealership inventory levels are are historically low so just hearing some of your customers.
They can't meet the demand because of supply constraints, but it seems that you are.
Yeah.
I'm trying to get a sense of what your volume growth was like in the second quarter versus just revenue because revenue reflects the higher price of steel, which.
It's a pass through so I'm, just trying to get a sense for whats kind of the the actual growth rate.
In terms of.
Units sold versus.
The top line revenue.
Let me try and break it down for you this way, Brian and see if it helps but as.
As we compare to 2020 revenues at TD.
2 our current view, we are seeing about $96 million increase in revenues, So thats <unk>.
47% but of that.
$56 million is material pricing between.
Our 2020 results in revenues and what.
We're forecasting this year so than theirs.
<unk> 40 million of.
If you will.
<unk> growth as it relates to the value add that we're doing.
To our customers.
Got it that's very helpful. So when some of your end market customers on recent conference calls.
Have noted supply chain issues et cetera.
Its not.
That theyre facing supply shortages from elsewhere.
Elsewhere for other products that day.
I would go into it.
These off road vehicles I guess.
Yes, Brian I would say, it's a combination of all.
Certainly are experiencing supply constraints as well, but then the impact.
Our ability to get product to our customers but.
I think you see whether it's Polaris you look at Toro others. This supply constraint is the issue.
A lot of industrial companies.
And we're we're experiencing higher expedited freight costs.
Been having to have employees work over time to try and meet the demand that our customers are putting on us.
We're working through that we're trying to hire more.
More labor to help improve some of that productivity, but.
We're certainly seeing.
Being an impact in the P&L as it relates to higher labor costs and expedited freight costs as we work to get product to them.
Hum.
Okay. What is the utilization rate at the plants at BTT I think you've got 2.1 in Minnesota and 1 in Georgia.
While we have the Washington, Illinois, we have the Georgia facility and then the Minnesota facility I think in.
In general, we're somewhere around 70% capacity level.
Okay, Great and then just switching gears to the utility any insight into into the IR RFP in terms of transmission or renewables or scenarios surrounding environmental compliance.
Ot or maybe repowering et cetera.
Hey, Brian.
We don't usually include any of the <unk>.
Transmission investments and that IRB. Those are generally will come out of the MISO planning and right now we are.
Just going to wait until we file it in September such that our regulators get the first review of the plan.
And what's in it and we are still finalizing that so it's a little early to bring those out.
Okay.
Okay got it thank you very much.
Your next question comes from the line.
The car from Keybanc Your line is open.
Hi, Hi, good morning, Thank you for taking my question.
Good morning.
So obviously you guys have.
Strong performance in the plastics and manufacturing segments right driven by all of this.
Market conditions My question is.
Alright, we will look at the numbers. My question is what are they using it how do you plan to use it.
Unexpected if you will.
Yeah.
And revenue in the cash flow with debt ultimately translated into with that.
That may be your equity needs and we should start thinking about debt or share buyback, let's just get reinvested.
Is there any kind of special use debt they shouldn't be thinking about.
Sophie Thanks for the questions Kevin.
We don't have in our.
We've talked about this in the first quarter call that we don't have any equity needs in the 5 year plan.
And so.
Right now as we look and as I mentioned I think in my.
The opportunity to look at some additional contributions to our pension plan to help the funded status. There. We also have additional capital investments that create additional organic growth for us.
Specifically in the.
The plastic segment that we've been looking at that would.
That extra cash would help us fund those things in.
Allow us to have additional organic growth opportunities going forward.
<unk>.
Got it and so I will take it that you are not.
Considering maybe selling those segments at this point given the emanations must be.
They're attractive.
As we continue to communicate.
<unk>.
The 2 platform strategy between the utility and the manufacturing consisting of manufacturing and plastics segment.
We like the business model, we think is performing well.
Continue to expect to execute on that.
Terrific.
Great quarter and thank you so much for taking my questions. That's all I had.
Thank you.
As a reminder to ask a question over the phone line. Please.
Star followed by the number 1 on your Touchtone telephone again.
It's R..1.
And there are no other questions over the phone line at this time.
Alright.
Ill turn it over here to Kevin for a second.
Yeah just.
Got it.
Momentous occasion here today on the press release that I would like to to cover here and I'd like to recognize Loren Hanson, our manager of Investor Relations today as.
As Laurens last Otter tail earnings call as he has announced his retirement.
You've been with us for 40 years, and leading our Investor Relations group since 1986.
He has shown an unwavering commitment to our company and has been a strong advocate for our shareholders.
Lauren it's been an absolute pleasure to work with you and appreciate all you have done to provide outstanding service to our shareholders and otter tail.
Congratulations on an outstanding career and thanks for the lasting contributions that you've made.
You have touched many lives over the years.
I'd like to also introduce Tyler acre men, who is replacing worn on his retirement Tyler joined Otter tail Corporation in June.
It comes to us from Otter tail power company, where he spent over 8 years and business planning.
<unk> experience at the utility positions him well to lead the Investor relations function going forward.
To continue otter tail tradition of service to our shareholders.
Welcome Tyler.
I'd also like to offer my thanks, and congratulations to Laura He has been a positive fixture as Kevin mentioned in Otter tail Investor Relations for 35 years, all the best in your retirement Ben Welcome Tyler.
As I wrap up here. Thank you for all your questions and interest in Otter tail Corporation.
Our outstanding year to date results reflect the collective efforts of the people of Otter tail Corporation and unique market conditions, we remain focused on our strategic initiatives to grow the business achieve operational and commercial excellence and develop our people and provide value to our shareholders and position us for long term success.
We're also pleased to announce our carbon emissions from 1 generation or non targeted to be 50% less by 2025, and 97% less by 2050 compared to 2005 levels.
Remain committed to making system investments that provide clean reliable and affordable energy solutions for our customers, while improving the communities, where we live and work.
Based on our strong year to date results and our updated view of the remainder of the year, we are raising our 2021 diluted earnings per share.
$1 or $3.50 to $3.65 from our previous guidance of $2.47 to $2.62.
Thank you for joining our call. We appreciate your interest.
In Otter tail Corporation, and we look forward to speaking with you next quarter.
Ladies and gentlemen, this concludes today's conference call. We thank you all for participating you may now disconnect.
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