Otter Tail (US:OTTR)2026-02-18 18:27Financial Performance - In 2025, Otter Tail Corporation generated net income of $275.9 million, or $6.55 per diluted share, a decline from $301.7 million, or $7.17 per diluted share in 2024, primarily due to decreasing product prices in the Plastics segment [236][249]. - The Electric segment achieved a 7% earnings growth in 2025, producing earnings of $97.6 million, driven by increased sales volumes and recovery of rate base investments [238]. - The Manufacturing segment's earnings decreased by 16% to $11.5 million in 2025, impacted by soft end-market demand and customer inventory management efforts [239]. - The Plastics segment's earnings fell by 15% to $170.4 million, with average sales prices for PVC pipe products declining by 15% compared to the previous year [240]. - Operating revenues decreased by $26.5 million in 2025 to $1.304 billion, primarily due to lower sales prices in the Plastics segment and decreased sales volumes in the Manufacturing segment [249]. Operating Expenses and Income - Operating expenses increased by $8.1 million in 2025, mainly due to higher purchased power costs and depreciation expenses in the Electric segment [250]. - Net cash provided by operating activities decreased by $66.7 million to $385.985 million in 2025, primarily due to higher working capital requirements and a decrease in earnings [283]. - Corporate selling, general, and administrative expenses decreased by $0.8 million, or 3.4% [270]. - Other income in the Corporate segment increased by $1.5 million, driven by higher investment income from short-term investments [270]. Dividends and Liquidity - The company paid dividends totaling $2.10 per share, amounting to $88.1 million, marking the 87th consecutive year of dividend payments [237]. - As of December 31, 2025, the company had total available liquidity of $705.5 million, an increase from $606.3 million as of December 31, 2024 [282]. Capital Expenditures and Investments - Total capital expenditures for 2025 were $288 million, with anticipated total capital expenditures from 2026 to 2030 projected at $2.050 billion [292]. - Net cash used in investing activities decreased by $120.7 million to $290.724 million in 2025, mainly due to a $70.6 million decrease in capital expenditures [286]. - The company had $372.4 million invested in cash equivalent investments as of December 31, 2025, compared to $282.0 million in 2024 [332]. Debt and Interest Rates - As of December 31, 2025, the company had $1.0 billion of principal outstanding under long-term debt arrangements, with maturities ranging from 2026 to 2055 [302]. - The weighted-average interest rate on all outstanding borrowings as of December 31, 2025, was 5.08% [299]. - The company has $1.107 billion in total debt obligations, with $140 million due within one year [294]. - A 100-basis point change in interest rates during 2025 would have approximately $0.3 million impact on interest expense based on average outstanding short-term debt [332]. - All outstanding long-term debt obligations as of December 31, 2025 had fixed interest rates, mitigating material interest rate risk [333]. - The company manages interest rate risk by issuing fixed-rate debt with varying maturities and limiting variable interest rate debt [333]. Regulatory and Market Outlook - The company expects normalization in the PVC pipe market by 2027, anticipating a shift in earnings mix back toward long-term targets of 70% Electric and 30% Manufacturing [242]. - OTP requested a net increase in annual revenue of $5.7 million, or 12.5%, in the South Dakota rate case [274]. - OTP filed for a net increase in annual revenue of $44.8 million, or 17.7%, in the Minnesota rate case [275]. Pension and Goodwill - The discount rate for the pension plan was 5.71% in 2025, a slight increase from 5.70% in 2024 [318]. - A 25-basis point increase in the discount rate would decrease pension costs by approximately $807, while a decrease would increase costs by $840 [319]. - BTD Manufacturing and the Plastics segment carried goodwill balances of $18.1 million and $19.3 million, respectively, as of December 31, 2025 [321]. Credit Ratings - The current credit ratings for OTC are Baa2 (Moody's), BBB (Fitch), and BBB (S&P), while OTP has ratings of Baa1 (Moody's), BBB+ (Fitch), and BBB+ (S&P) [306].