Core Insights - Otter Tail (OTTR) operates in the Upper Midwest, managing both an electric utility and various industrial businesses, providing power to homes and businesses in multiple states [1] Company Overview - The utility division of Otter Tail is responsible for supplying electricity, indicating a dual focus on energy and industrial sectors [1] Investment Focus - The analysis emphasizes a focus on small- to mid-cap companies, which are often overlooked by investors, while also occasionally reviewing large-cap companies for a broader market perspective [1]

Financial Performance - Consolidated operating revenues for Q3 2025 were $325.6 million, a decrease of $12.5 million or 3.7% compared to Q3 2024[97] - Net income for Q3 2025 was $78.3 million, down $7.2 million or 8.4% from $85.5 million in Q3 2024[97] - Consolidated operating revenues for the nine months ended September 30, 2025, decreased by $31.5 million to $995.9 million, a 3.1% decline, primarily due to decreased sales prices in the Plastics segment[118] - Net Income decreased by $21.8 million, or 13.5%, to $140.0 million, reflecting a decrease in income before income taxes[133] Segment Performance - Electric segment operating revenues increased by $8.2 million or 6.3% to $138.6 million in Q3 2025, driven by a 124% increase in wholesale sales volumes[101] - Manufacturing segment operating revenues decreased by $2.9 million or 3.7% to $76.9 million, primarily due to an 8% decrease in sales volumes across several end markets[110] - Plastics segment operating revenues decreased by $17.7 million to $110.0 million, a 13.9% decline, primarily due to a 17% decrease in sales prices, partially offset by a 4% increase in sales volumes[114] - Electric segment total operating revenues increased by $32.4 million to $417.0 million, an 8.4% increase, driven by a $23.5 million increase in retail revenues[122] - Manufacturing segment operating revenues decreased by $38.6 million to $237.4 million, a 14.0% decline, primarily due to a 12% decrease in sales volumes in the metal fabrication business[130] - Net income for the Plastics segment decreased by $10.98 million to $43.5 million, a 20.2% decline[114] - Net income for the Manufacturing segment decreased by $5.3 million to $8.9 million, a 37.4% decline[130] Costs and Expenses - Production fuel costs in the Electric segment rose by $10.5 million or 69.7% due to increased natural gas prices and generation[106] - Cost of products sold in the Plastics segment decreased by $2.9 million, driven by a 16% decrease in input material costs, including PVC resin[115] - Cost of Products Sold increased by $1.3 million, driven by increased sales volumes, while input material costs, including PVC resin, decreased by 13% compared to the prior year[134] - Selling, General, and Administrative Expenses rose by $1.3 million, mainly due to ongoing litigation costs related to PVC pipe pricing[135] - Depreciation and Amortization Expense increased by $1.5 million due to capital investments in new equipment and facilities at Vinyltech[136] Tax and Income - Income tax expense decreased by $5.9 million in Q3 2025, resulting in an effective tax rate of 14.1%, down from 17.9% in the same period last year[100] - Income tax expense for the nine months ended September 30, 2025, decreased by $20.5 million to $36.6 million, a 36.0% decline, primarily due to a decrease in income before income taxes[121] Liquidity and Capital Structure - The company maintains strong liquidity, with compliance in all financial covenants as of September 30, 2025[151] - As of September 30, 2025, the company had $379.5 million of available liquidity under credit facilities and $325.8 million in cash and cash equivalents, totaling $705.3 million in available liquidity[153] - Net cash provided by operating activities decreased by $33.8 million to $288.9 million for the nine months ended September 30, 2025, compared to $322.8 million in 2024[154] - Net cash used in investing activities decreased by $96.2 million to $216.0 million for the nine months ended September 30, 2025, primarily due to a $46.4 million decrease in capital expenditures[155] - The company issued $100.0 million of long-term debt at OTP, which was used to repay short-term borrowings and fund construction expenditures[157] - Total capital expenditures for 2025 are anticipated to be $321 million, with the electric segment accounting for $300 million[160] - As of September 30, 2025, the company had $1.0 billion of principal outstanding under long-term debt arrangements, with maturities ranging from 2026 to 2055[168] Debt and Ratings - OTC's interest-bearing debt to total capitalization was 0.37 to 1.00, with an interest and dividend coverage ratio of 8.3 to 1.00 as of September 30, 2025[169] - OTP's interest-bearing debt to total capitalization was 0.45 to 1.00, with an interest and dividend coverage ratio of 2.93 to 1.00 as of September 30, 2025[170] - The company paid dividends totaling $66.0 million, or $1.58 per share, in the first nine months of 2025[163] - Moody's revised OTP's long-term issuer default rating from A3 to Baa1, with a stable outlook as of September 30, 2025[172] Regulatory Matters - The North Dakota Rate Case resulted in a revenue requirement of $225.6 million, with a net increase of $13.1 million, or 6.18%, effective March 15, 2025[139] - OTP requested a net increase in annual revenue of $5.7 million, or 12.50%, in the South Dakota Rate Case, based on an allowed rate of return of 8.29%[140] - In the Minnesota Rate Case, OTP requested a net increase in annual revenue of $44.8 million, or 17.7%, with an interim rate request for $31.8 million, or 12.6%[141][142] Market Risks - The company is facing potential impacts from U.S. trade and tariff policies, which could disrupt supply chains and increase costs[93] - There have been no material changes in market risk compared to the disclosures in the Annual Report on Form 10-K for the year ended December 31, 2024[174]

Financial Data and Key Metrics Changes - The company generated $1.86 of diluted earnings per share in Q3, an 8% decrease from the same time last year, primarily due to declining sales prices in the plastics segment [5][18] - The midpoint of the 2025 earnings guidance was increased to $6.47 from $6.26 per share, driven by better-than-expected financial results in the plastics segment [6][22] Business Line Data and Key Metrics Changes - Electric segment earnings decreased by $0.03 per share in Q3, impacted by unfavorable weather and seasonal rate differences [18] - Manufacturing segment earnings increased by $0.04 per share, attributed to a lower cost structure and enhanced production efficiencies [19] - Plastic segment earnings decreased by $0.26 per share, driven by a 17% decline in average sales prices, partially offset by lower input material costs and a 4% increase in sales volumes [20] Market Data and Key Metrics Changes - The lawn and garden and agricultural end markets continue to face demand-related headwinds, while recreational vehicle and construction markets showed signs of improvement [14] - The cost of PVC resin decreased due to global supply and demand dynamics, benefiting the company's cost structure [16] Company Strategy and Development Direction - The updated five-year capital spending plan totals $1.9 billion, with a targeted long-term earnings per share growth rate increased to 7% to 9% [5][27] - The company aims to convert its rate-based growth into earnings per share growth at an approximate one-to-one ratio [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage costs and maintain low electric rates despite ongoing economic challenges [12][13] - The company anticipates the current low-demand environment in the manufacturing segment to persist through most of 2026 [15] Other Important Information - The company filed a request for a net revenue increase of $44.8 million with the Minnesota Public Utilities Commission, driven by infrastructure investments and inflation impacts [7][8] - The company is closely monitoring developments related to a complaint filed at FERC against MISO's Tranche 2.1 projects, which may cause potential delays [11] Q&A Session Summary Question: Inquiry about the updated EPS long-term growth rate - Management expects utility earnings to grow in line with the rate base, with year-to-year fluctuations anticipated [31] Question: Update on the antitrust case and DOJ involvement - Management provided an update on ongoing civil litigation and the DOJ's intervention, indicating no specific deadline for court decisions but anticipating developments in 2026 [33] Question: Discussion on cash usage and long-term strategy - Management emphasized prioritizing investments in utility growth and potential opportunistic M&A, while maintaining a focus on shareholder returns through dividends [38][39]

Financial Data and Key Metrics Changes - The company generated $1.86 of diluted earnings per share in Q3, an 8% decrease from the same time last year, primarily due to declining sales prices in the plastics segment [5][18] - The midpoint of the 2025 earnings guidance was increased to $6.47 from $6.26 per share, driven by better-than-expected financial results in the plastics segment [6][23] - The balance sheet remains strong with $325 million in cash on hand and a leading return on equity of 16% [21][22] Business Line Data and Key Metrics Changes - Electric segment earnings decreased by $0.03 per share due to unfavorable weather and seasonal rate differences, although higher sales volumes partially offset this [18] - Manufacturing segment earnings increased by $0.04 per share, driven by a lower cost structure and enhanced production efficiencies [19] - Plastic segment earnings decreased by $0.26 per share, with a 17% decline in average sales prices of PVC pipe, partially offset by lower input material costs and a 4% increase in sales volumes [20] Market Data and Key Metrics Changes - The lawn and garden and agricultural end markets continue to face demand-related headwinds, while recreational vehicle and construction markets show signs of improvement [14] - The company expects the current low-demand environment to persist through most of 2026 [15] Company Strategy and Development Direction - The updated five-year capital spending plan totals $1.9 billion, with a targeted long-term earnings per share growth rate increased to 7%-9% [5][27] - The company aims to convert rate-based growth into earnings per share growth at an approximate one-to-one ratio [28] - The long-term earnings mix target has been updated to expect 70% of earnings from the electric platform and 30% from the manufacturing platform by 2028 [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth plan despite dynamic market conditions and emphasized the importance of affordability for customers [4][12] - The company is focused on identifying cost-effective investment projects and managing costs prudently [13] - Management anticipates that plastic segment earnings will normalize by 2028, contributing positively to the overall strategy [26] Other Important Information - The company filed a request for a net revenue increase of $44.8 million with the Minnesota Public Utilities Commission, driven by infrastructure investments and inflation impacts [7][8] - The South Dakota rate case is progressing, with interim rates expected to commence on December 1, 2025 [9] Q&A Session Summary Question: Inquiry about the updated EPS long-term growth rate - Management expects utility earnings to grow in line with the rate base, with year-to-year fluctuations anticipated [31] Question: Update on the antitrust case - Management provided an update on ongoing civil litigation and the involvement of the Department of Justice, indicating a timeline for potential decisions in 2026 [33] Question: Discussion on cash usage and M&A opportunities - Management indicated that cash will primarily be used for utility growth and dividends, with potential for opportunistic M&A in the future [38][39]

Financial Data and Key Metrics Changes - The company generated $1.86 of diluted earnings per share in Q3 2025, an 8% decrease from the same time last year, primarily due to declining plastics segment sales prices and earnings [5][19] - The midpoint of the 2025 earnings guidance was increased to $6.47 from $6.26 per share, driven by better-than-expected plastics segment financial results [6][20] - The balance sheet remains strong with $325 million in cash on hand and a leading return on equity of 16% [20] Business Line Data and Key Metrics Changes - Electric segment earnings decreased by $0.03 per share in Q3, primarily due to unfavorable weather and seasonal rate differences [17] - Manufacturing segment earnings increased by $0.04 per share, driven by a lower cost structure and enhanced production efficiencies [18] - Plastics segment earnings decreased by $0.26 per share, with average sales prices of PVC pipe declining 17% compared to the previous year [19] Market Data and Key Metrics Changes - The lawn and garden and agricultural end markets continue to face demand-related headwinds, while recreational vehicle and construction markets show signs of improvement [13][14] - The plastics segment's sales prices have steadily declined, but sales volumes increased by 4% due to capacity added to VinylTech [16] Company Strategy and Development Direction - The updated five-year capital spending plan totals $1.9 billion, targeting a rate base compounded annual growth rate of 10% [5][23] - The company aims to increase its long-term earnings per share growth rate to 7% to 9% from 6% to 8% [5][26] - The company is focused on customer-oriented growth, with plans to attract large loads to its electric utility [12][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage costs and maintain low electric rates despite economic challenges [13][12] - The company anticipates that the current low-demand environment will continue through most of 2026, with expectations for a rebound in the manufacturing segment thereafter [14][25] - Management noted that the plastics segment remains crucial for overall strategy, providing enhanced returns and cash flow to support utility growth [25][27] Other Important Information - The company filed a request for a net revenue increase of $44.8 million with the Minnesota Public Utilities Commission [6][7] - The South Dakota rate case is progressing, with interim rates expected to commence on December 1, 2025 [9] Q&A Session Summary Question: Long-term EPS growth rate expectations - Management expects utility earnings to grow in line with the rate base, with fluctuations year-to-year but a long-term target of 7%-9% growth post-2028 [28][30] Question: Update on antitrust case - There are ongoing civil litigation and investigations, with no specific deadline for court decisions anticipated until 2026 [31] Question: Long-term cash usage strategy - The primary focus is on investing in utility growth and returning capital to shareholders through dividends, with no external equity needs [32][33] Question: Structure of the large load customer agreement - The 155-megawatt customer is an interruptible load with minimal capacity needs, expected to reduce fixed costs without significant investment [35]

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Financial Performance - Q3 2025 diluted EPS was $1.86[10], compared to $2.03 in Q3 2024[12], a decrease of 8%[12] - Year-to-date 2025 diluted EPS was $5.32[12], compared to $5.87 in the same period of 2024[12], a decrease of 9%[12] - The company increased the 2025 EPS guidance midpoint to $6.47[10], a 3% increase[13] - The company's ROE (trailing twelve months) was 16% on an equity layer of 64%[10] Electric Platform - The company filed a Minnesota rate case requesting a net revenue increase of $44.8 million, a 17.7% increase, with a proposed ROE of 10.65% and an equity layer of 53.5%[16] - The company filed a South Dakota rate case requesting a net revenue increase of $5.7 million, a 12.5% increase, with a proposed ROE of 10.8% and an equity layer of 53.54%[19] - The company updated the rate base growth CAGR to 10%[10], with significant rate base growth from $1.89 billion in 2024 to $3.41 billion in 2030[22] Manufacturing Platform - Sales prices in the plastics segment decreased by 17% quarter-to-date and 14% year-to-date, while sales volumes increased by 4% quarter-to-date and 9% year-to-date[41] - The company is undertaking a multi-phase expansion project at Vinyltech Corporation, which is expected to increase plastics segment production capacity by 15% upon completion of Phase 1 and 2[46] - BTD Georgia expansion is expected to generate up to $35 million in incremental annual revenue[46] Investment and Growth - The company increased the long-term EPS growth rate target to 7-9% (2028 base year)[10] - The company's capital expenditure plan includes $1.918 billion for the electric segment and $129 million for manufacturing & plastics from 2026 to 2030[63] - The company targets a total shareholder return of 10-12%, a dividend yield of ~3%, and a dividend growth rate of 6-8%[69]

Financial Performance - Otter Tail Corporation reported diluted earnings per share of $1.86 for Q3 2025, with an increase in the midpoint of 2025 earnings guidance to $6.47, up by $0.21[10] - The Electric segment's operating revenues increased by $8.2 million, or 6.3%, to $138.6 million, while net income decreased by $1.2 million, or 4.3%, to $27.3 million[13] - The Manufacturing segment's operating revenues decreased by $2.9 million, or 3.7%, to $76.9 million, but net income increased by $1.7 million, or 80.1%, to $3.9 million[17] - The Plastics segment's operating revenues decreased by $17.7 million, or 13.9%, to $110.0 million, with net income down by $11.0 million, or 20.2%, to $43.5 million[19] - Operating revenues for the third quarter of 2025 were $325.6 million, compared to $338.0 million in the same period of 2024[31] - Net income for the nine months ended September 30, 2025, was $224.1 million, down from $246.8 million in 2024[31] - Basic earnings per share for the third quarter of 2025 were $1.87, compared to $2.04 in the same quarter of 2024[31] - Total operating revenues for the nine months ended September 30, 2025, were $995,959 thousand, a decrease of 3.1% from $1,027,437 thousand in 2024[34] - Net income for the nine months ended September 30, 2025, was $224,119 thousand, down 9.2% from $246,812 thousand in 2024[34] Capital Expenditures and Investments - The company introduced a new five-year capital spending plan totaling $1.9 billion, targeting a compounded annual growth rate of 10% for the rate base[6] - Total capital expenditures for 2024 amounted to $359 million, with a projected decrease to $321 million in 2025[25] - The Electric segment's total capital expenditures for 2024 were $301 million, expected to rise to $300 million in 2025[25] - The company anticipates a total capital expenditure of $1,918 million for the Electric segment from 2026 to 2030[25] - The Manufacturing and Plastics segments' capital expenditures totaled $129 million for 2024, with plans for additional capacity investments[25] - Capital expenditures for the nine months ended September 30, 2025, were $213,329 thousand, a decrease from $259,750 thousand in 2024[33] Liquidity and Assets - Total available liquidity as of September 30, 2025, was $705.3 million, including $325.8 million in cash and cash equivalents[12] - Total current assets increased to $737,243,000 from $630,041,000, representing a growth of approximately 17% year-over-year[32] - Cash and cash equivalents rose to $325,786,000 compared to $294,651,000, marking an increase of about 10.6%[32] - Total noncurrent assets reached $3,106,580,000, up from $3,022,041,000, indicating a growth of approximately 2.8%[32] - Total assets amounted to $3,843,823,000, compared to $3,652,082,000, reflecting an increase of around 5.2%[32] - Total current liabilities were $206,360,000, a rise from $199,790,000, which is an increase of about 3%[32] - Total liabilities and shareholders' equity stood at $3,843,823,000, consistent with total assets, indicating a balanced financial position[32] - Shareholders' equity totaled $1,831,451,000, compared to $1,668,499,000, representing an increase of approximately 9.8%[32] Regulatory and Rate Changes - Otter Tail Power filed a request for a rate increase of approximately $44.8 million, or 17.7%, driven by infrastructure investments and inflation[3] Earnings Growth and Projections - The anticipated earnings mix for 2025 is approximately 36% from the Electric segment and 64% from Manufacturing and Plastics segments[22] - The updated long-term earnings per share growth rate target is set at 7% to 9%, with a targeted total shareholder return of 10% to 12%[6] - The company expects annual rate base growth of 11.8% in 2025 and 11.6% in 2026[25] Operational Performance - The Electric production fuel expense increased to $25.4 million in Q3 2025 from $15.0 million in Q3 2024[31] - Operating income for the electric segment for the three months ended September 30, 2025, was $35,750 thousand, slightly down from $36,471 thousand in 2024[34] - The plastics segment reported operating revenues of $110,015 thousand for the three months ended September 30, 2025, a decrease of 13.9% from $127,757 thousand in 2024[34] - The corporate segment reported an operating loss of $3,792 thousand for the three months ended September 30, 2025, compared to a loss of $5,358 thousand in 2024[34] - The manufacturing segment's operating income increased to $5,690 thousand for the three months ended September 30, 2025, from $2,683 thousand in 2024[34] Inventory and Goodwill - The company reported a net increase in inventories to $155,765,000 from $148,885,000, which is an increase of about 4.5%[32] - Regulatory assets decreased slightly to $9,433,000 from $9,962,000, a decline of approximately 5.3%[32] - Goodwill remained stable at $37,572,000, unchanged from the previous period[32] Debt and Financing - Proceeds from the issuance of long-term debt amounted to $100,000 thousand for the nine months ended September 30, 2025[33]

Core Insights - Otter Tail Corporation reported strong third-quarter financial results, leading to an increase in annual earnings guidance for 2025, with diluted earnings per share now expected to be between $6.32 and $6.62, up from a previous range of $6.06 to $6.46 [2][23]. Financial Performance - The company achieved diluted earnings per share of $1.86 for the third quarter of 2025, reflecting a positive trend in financial performance [7]. - Operating revenues for the Electric segment increased by $8.2 million, or 6.3%, compared to the same period last year, driven by higher fuel recovery revenue and increased sales volumes [13][15]. - Net income for the Electric segment decreased by $1.2 million, or 4.3%, primarily due to lower pension-related income and unfavorable weather conditions [13][16]. Segment Analysis - The Manufacturing segment experienced a revenue decline of $2.9 million, or 3.7%, attributed to an 8% decrease in sales volumes across various end markets [17][18]. - The Plastics segment's operating revenues decreased by $17.7 million, or 13.9%, due to a 17% drop in sales prices, although sales volumes increased by 4% [19][20]. Capital Expenditures and Investment Plans - Otter Tail Corporation introduced a new five-year capital spending plan totaling $1.9 billion, aiming for a compounded annual growth rate of 10% in the rate base [6]. - The capital expenditure plan includes investments in electric utility infrastructure and manufacturing capacity, supporting long-term growth [29]. Dividend Declaration - The Board of Directors declared a quarterly common stock dividend of $0.525 per share, payable on December 10, 2025 [8]. Cash Flow and Liquidity - Consolidated cash provided by operating activities for the nine months ended September 30, 2025, was $288.9 million, down from $322.8 million in the same period of 2024 [9]. - As of September 30, 2025, total available liquidity was $705.3 million, including $325.8 million in cash and cash equivalents [12].

Core Viewpoint - Otter Tail Corporation will announce its third quarter 2025 financial results on November 3, 2025, and will host a conference call on November 4, 2025, to discuss its financial and operational performance [1]. Group 1: Financial Results Announcement - The financial results will be released after the stock market closes on November 3, 2025 [1]. - A live conference call and webcast will take place on November 4, 2025, at 10:00 a.m. CT [1]. Group 2: Accessing the Webcast - Accompanying slides will be available on the corporation's website prior to the webcast [2]. - Participants are encouraged to visit the website in advance to download any necessary software [2]. - A recording of the webcast will be accessible on the corporation's website shortly after the call [2]. Group 3: Participation Information - Pre-registration for the conference call is required to obtain the dial-in number and passcode [3]. - Contact information for inquiries regarding participation is provided [3]. Group 4: Company Overview - Otter Tail Corporation operates in diversified sectors, including an electric utility and manufacturing businesses [4]. - The company's stock is traded on the NASDAQ Global Select Market under the symbol OTTR [4]. - Corporate offices are located in Fergus Falls, Minnesota, and Fargo, North Dakota [4].