Q2 2025 Otter Tail Corp Earnings Call
Prepared remarks. I'll now turn the call over to the company for their opening comments.
Good morning and Welcome to our second quarter 20125.
Icon and I'm Oto, corporations manager of investor relations. Last night, we announced our second quarter Financial results.
Our complete earnings release and Slide the company in this call are available on our website at Ottertail. Calm, a recording of This call will be available on our website later today.
With me on the call or Chuck McFarland Ottertail, corporation's, president and CEO, and Todd Walland Oto, corporations vice president and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on slide 2, these statements represent our current views, and expectations of future events, their subject to risk and uncertainties, which may cause actual results to differ from those presented here. So, please be advised against placing undue Reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission which we encourage you to review.
Ottertail Corporation, disclaims, any duty to update or revise. Our forward-looking statements, due to new information future events developments or otherwise, I will now turn the call over to Oto corporations, president and CEO Mr. Chuck McFarland.
Thank you Beth, good morning and Welcome to our second quarter earnings call.
Please refer to slide 4. As I began my remarks with a summary of a quarterly highlights.
We are pleased with our Q2 Financial results as they outpaced our expectations.
Our team members continued to perform well and remain committed to our mission of delivering value by building strong electric and Manufacturing platforms.
In June severe weather moved through our service territory resulting in significant, infrastructure and property damage.
Nearly 1 in 3 of our customers experienced a sustained interruption to their electric service due to the storms.
I'm appreciative of our team members efforts in, working to restore power, for our customers as safely and quickly as possible.
Beyond our storm response. We continue to deliver upon a significant rate-based, growth plan, and Regulatory priorities.
we secured regulatory approval from the Minnesota and South Dakota commissions to direct assignment of our 2 solar projects under development,
And filed our South Dakota rate case.
Across our manufacturing platform, our team members are capitalizing on our recent expansion projects, to better, serve, and grow with our customers.
We continue ramping up the new BTD, Georgia facility to full production capability.
Vinyl Tech continues to benefit from its enhanced facilities as well as. Its new line capable of producing large diameter pipe.
Slide 5 provides a summary of our quarter and year-to-date earnings.
We produced diluted earnings per share of $1.85 in the second quarter compared to $2.77 last year.
Despite the expected decline in earnings, we are increasing the midpoint of our 2025 earnings guidance to $6.26 from $5.88, as the plastic segment is performing better than we anticipated.
We are maintaining the earnings guidance range for all other segments.
in a moment Todd will provide a more detailed discussion of our second quarter Financial results and our updated 2025 Outlook
On slide 7, we highlight legislative and regulatory changes impacting the utility industry.
The legislation known as the 1. Big beautiful. Bill act was enacted on July 4th.
This broad spending and tax legislation, among many other things. Introduced a phase out of renewable energy credits under the inflation reduction act for wind and solar Investments.
The legislation also created new foreign entity of concern rules which may restrict tax credit eligibility for certain Investments.
While we continue to work through the final legislation and monitor for any changes to regulation.
We expect our current 5-year, capital investment, spending plan, totaling 1.4 billion to remain intact.
Our wind repowering project is expected to be unaffected by the new law.
Our 2 Solar Development projects are expected to receive full production tax credits.
However, renewable projects included in our 650 million incremental investment opportunity as well as other future renewable resources are under review to determine the potential impact of the legislation.
Further the EPA is reconsidering, recent environmental regulations, impacting fossil fuel-based power plants.
In June, the EPA proposed to repeal the greenhouse gas. Emission standard under Section 111 of the Clean Air Act.
Along with recent amendments made to the Mercury and air toxin standards.
in addition, the EPA granted the request to reconsider its previous, partial disapproval of North Dakota's Regional Haze State, implementation plan,
The EPA had disapproved of North Dakota's conclusion, that emissions controls at Coyote station were unnecessary.
We will continue to monitor the epa's action, but think these developments could potentially extend, the availability of our 2 coal facilities to support grid. Reliability.
Transitioning now to an operational update for Ottertail power as noted on slide 8.
We filed the request with the South Dakota Public Utilities Commission for permission to increase our base electric rates for the first time since 2018.
In our requests, we proposed to increase net revenues by approximately 5.7 million.
based on a requested, Roe of
8.
On an equity layer of 53 and a half percent.
New rates would go into effect upon the earlier of either. The South Dakota commission issuing its decision
Or December 1st of 2025?
Even with this requested increase in electric rates.
We continue to be 1 of the lowest cost providers in the region.
Separately, we are finalizing our Minnesota cost of service analysis.
And we anticipate filing a rate case in Minnesota later this year.
Turning the slide 9 after review of recent legislation. We are reaffirming our electric segment capital investment and rate based growth projections through 2029.
We continue to expect this customer focused investment plan to produce a rate base compounded annual growth rate of 9% and anticipate our utility earnings to grow at a similar rate over this time frame.
Slides, 10 and 11, provide an overview of ongoing and future capital projects.
Project development work and regulatory planning continue on our two solar projects, which together will add 345 megawatts of cost-effective solar generation to our portfolio.
In the second quarter, we secured regulatory approval to directly assign and recover. The capital investment associated with Abercrombie solar and solar solar to our Minnesota and South Dakota customers.
These customers will receive the energy and the benefits from the new facilities.
Development work continues on 3 Mr. Tanch 1 projects Ottertail power will co-own
We continue to work through land owner, and local government, resistance associated with sighting, and certain permits for 1 of the projects.
Development work also continues on our Myso Tranche 2.1 projects.
We are working closely with our co-owners on Project planning, and Regulatory matters.
Ferc approved, construction work in progress and a banded plant in July for the MSO trunch. 2.1 portfolio projects allowing for timely recovery of our capital investment
Our transmission C, capital investment under mso's, tranche 1, and 2.1, remain critical for supporting grid reliability in the years to come.
We continue to expect these Investments to have a limited impact on our retail. Customer rates, as the costs are allocated across the entire MSO footprint of which our customers comprise a small percentage.
Additionally, our JTI Q project, which received a DOE grant.
Continues to be under development.
The doe has been re-evaluating previously, awarded grants, and we will continue to monitor these developments.
Turning the slide 12 out of Tail Power, remains positioned to attract and support large loads.
Throughout the second quarter, we continue to engage with companies, looking to add new load, large loads to our system.
We reached a term sheet with a potential customer, providing a general framework for offering electric service to a new 430 megawatt load.
Represent a possible opportunity for us.
Additionally, we continue to Target bringing the 155 megawatt load secured in q1 online later. This year.
As a reminder, the 155 megawatt load is comprised of 3, megawatts of firm load and approximately 152. Megawatts of non-firm load.
We obtained approval for the electric service agreement from the South Dakota commissioned in July of 2025.
And continued to make progress on constructing the distribution assets needed to serve the load.
We have, and will continue to be, thoughtful in our negotiations to ensure we are appropriately mitigating any potential adverse implications of adding large new loads to our existing customer base.
Adding new loads, if appropriately managed.
Not only benefit us but also our current customers as it enables us to spread out our existing fixed costs.
We remain committed to maintaining Affordable Electric Service for our customers. We have demonstrated the ability to do so for many years.
Slide 13 illustrates Otter Tail. Power has some of the lowest electric rates in the nation, with our 2024 rates being 30% below the national average.
And 16% below our regional peers.
Further S&P recently published a report noting that we have the lowest overall electric rates of all investor-owned utilities in the US.
Transitioning to our manufacturing platform. Slide 15 provides an overview of the industry conditions, impacting, our manufacturing segment.
BTD continues to navigate soft and market demand the construction and lawn and garden and markets are improving as dealer. Inventory levels are normalizing.
However, recreational vehicle and Agricultural and markets, continue to be negatively impacted by higher levels of new, and used inventory, amidst challenging, macroeconomic conditions, and tear up uncertainty.
The Horticulture market served by tolix has improved.
But the extent and timing of sales, volume recovery remains unclear.
During Q2, we saw an increase in volumes compared to the same time last year.
However, increased import competition continues to be a challenge for our team.
We continue to monitor industry, conditions, including the potential impact of tariffs.
and will remain well positioned to respond when demand improves
In the meantime, we are focused on managing costs and have a tenure management team with experience operating through down cycles and uncertain market conditions.
Slide, 16 provides an overview of our plastic segment, price and volume trends.
Our sales, pricings of PVC pipe, continue to steadily decline.
Decreasing 15% in the second quarter of 2025 compared to the same time last year.
Sales volumes increased 11% due to strong distributor, and end market demand for our products.
We also benefited from lower material input costs including resin.
The cost of PVC. Resin has decreased from the same time last year due to global supply and demand Dynamics resulting in continued elevated. Domestic Supply.
Returning to slide 17, our manufacturing platform remains well positioned for future growth opportunities.
The BTV Georgia facility is scaling up to full production capability.
Work also continues on Phase 2 of our vinyl tech expansion.
Which is expected to increase our production capacity by another 26 million pounds.
Once Phase 2 is complete in early 2026, our annual production capacity for the plastic segment will total approximately 400 million pounds.
I will now turn it over to Todd to provide his financial update.
Thank You, Chuck and good morning, everyone.
Turn this slide 19. We produced diluted earnings per share of $1.85 in the second quarter compared to $2.77 the same time last year.
These results outpaced our expectations.
Please follow along on slides 20 and 21 as I provide an overview of quarterly financial results by segment.
Electric segment, earnings increase 2 cents per share in the second quarter.
We also experienced favorable weather conditions compared to the same time last year.
This was partially offset by increased operating and maintenance expenses, largely due to a planned major maintenance outage at Coyote station.
We did not incur these expenses in 2024.
We also had higher depreciation and interest expense as a result of our Capital Investments.
In the manufacturing segment, earnings decreased by 8 cents per share, primarily due to product pricing benefits in the second quarter of 2024.
Operating margins in the second quarter of 2024 were higher due to the timing of pass-through steel cost fluctuations and the selling of lower-cost inventory.
More sales volumes in the resulting deleveraging of our fixed production costs. Also negatively impacted segment earnings in the second quarter of 2025.
Our team continues to focus on managing costs in the business. Aligning, our cost structure with the current demand environment and positioning to respond. Well, in the end market demand rebounds
Despite the current down cycle period, the long-term fundamentals of our manufacturing segment remains strong.
And we continue to benefit from the incremental earnings and cash flow generated by these businesses.
We have a solid track record in the manufacturing segment of performing well when the end markets rebound.
During the slide 21, the plastic segment continues to perform well.
But we are experiencing the anticipated decline in earnings from the segment. As we progress towards a projected, more normalized margin level,
While the performance exceeded expectations earnings for the segment, decreased 18, cents per share compared to the same time last year.
The decrease was driven by lower sales prices partially offset by the impact of higher sales volumes and lower material input costs,
the average sales price of PVC pipe decline. 15% compared to the second quarter of 2024.
This continues, the downward Trend. We have experienced in the middle of 2022. When our PVC pipe pricing reached, its High Point.
Partially, offsetting the decline in pricing was an 11% increase in sales volumes.
The higher sales volumes are largely driven by continued, strong and market, and distributor demand for our products, and the incremental volume from the large diameter. Pipe capacity, we added late last year
Second quarter earnings, also benefited from lower material input costs which decreased 15% from the same time last year.
PVC resin prices have declined due to global supply and demand dynamics, which continues to result in elevated levels of domestic supply.
Finally, our corporate costs improved 2 cents per share in the second quarter of 2025.
This was driven by the returns earned on our short-term investments, from our strong cash position.
As well as market-based, gains on our corporate owned life insurance policy Investments.
Turning to slide 22.
Our balance sheet remains very strong.
We have over 300 million dollars of cash on hand and continue to produce a utility sector leading return on equity.
On a 63% Equity layer.
Our solid balance sheet helps to ensure we are well-positioned to deliver on our customer-focused growth strategy.
On slide 23 where increasing our 2025 diluted earnings per share. Guidance to a range of $6.66 to $6.46.
We uplifted guidance due to stronger than anticipated plastic segment performance as well as our gross margin expectations. For the remainder of the year.
With the domestic supply of PVC resin, continuing to be elevated. We expect the cost of resin to be lower than we previously anticipated for the second half of the year.
As we updated our forecasted sales, mix and sales by region. We also are projecting higher average prices for the remainder of the year than we previously forecasted.
Both changes to our assumptions, have a positive impact on our margin expectations.
We are maintaining our original 2025 earnings guidance for all other segments, which includes a year-over-year growth expectation for the electric segment at over 7%.
As shown on slide 24. We have a proven track record of delivering outstanding, earnings per share growth with and without the impact of plastic segment earnings,
Slide 25 presents our customer focused capital investment plan for years 2025 through 2029.
The 1.4 billion dollars of capital investment in our electric segment will benefit our customers and investors and will be a key driver of earnings growth for this business. Over the 5-year period,
From 2024 to 2029, we project a 9% compound annual growth rate in earnings per share for the electric segment.
As included on slide 26, we continue to reaffirm our long-term earnings expectations of our plastic segment, to be in a range of 45 to 50 million beginning in 2028.
We continue to expect earnings to decline through 2027 based on the assumption that we expect margins to compress and eventually return to levels in the business that we achieve Prix 2021.
This includes an assumption that our average sales prices continue to turn downward at a rate similar to what has been experienced since late 2022.
It also assumes costs increase with the level of inflation.
Due to seasonality and other factors this rate of margin compression change could and very likely will vary from period to period.
Continues to be difficult to predict with certainty and the timing or level of earnings could vary materially from this projection.
The plastic segment continues to provide value to our shareholders with solid returns and favorable cash flows to help support funding of our long-term growth strategy.
Flight 27 summarizes our investment targets, we continue to Target and earnings mix of 65% from our electric segment.
We project reaching that in 2028 as electric segment earnings grow by 9% on average per year.
Combined with our projected plastic earnings.
We expect the 9% electric segment growth to be among the leaders in the utility sector.
Auto power continues to be a high-performing regulated electric utility with a significant capital investment plan and a proven track record of producing earnings in line with its rate based growth.
Our manufacturing and plastic pipe businesses consistently produce creative returns.
Generating incremental earnings and cash flow.
That we are able to reinvest into our rate-based growth plan.
We have no external equity needs projected through 2029 as a result.
We are now ready to take your questions.
Thank you.
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There are currently no questions in the queue, but we'll wait for another moment or 2 to see if anyone would like to line up in the queue.
And there is still no questions. I will turn it back over to Chuck for his closing remarks.
Thank you for joining our call and your interest in Ottertail Corporation.
If you have any questions, please reach out to our Investor Relations team. We look forward to speaking with you next quarter.
Thank you. This does conclude the program, and you may now disconnect.