Otter Tail (US:OTTR)2022-08-03 00:26Financial Data and Key Metrics Changes - Otter Tail Corporation achieved diluted earnings per share of $2.05, an increase of 103% over Q2 2021 [8] - Consolidated revenues increased by 40% and net earnings rose by 104% compared to the second quarter of 2021 [25] - The electric segment's net earnings increased by $3.4 million or approximately 22% over Q2 2021 [26] Business Line Data and Key Metrics Changes - The plastics segment's quarterly earnings increased by $41.4 million over Q2 2021, primarily due to an 86% increase in the price per pound of PVC pipe sold [10][32] - The manufacturing segment's net earnings increased by $1.85 million, driven by an 8% increase in sales volumes at BTD [28] - The electric segment's earnings growth was driven by increased commercial and industrial sales and the finalization of the Minnesota Rate Case interim rate refunds [9] Market Data and Key Metrics Changes - Sales prices for PVC pipe continued to increase at a rate higher than raw material price increases, driven by strong demand and limited inventories [23][33] - Supply constraints impacted the availability of PVC resin additives, leading to a 6% decrease in sales volumes compared to the same quarter a year ago [34] Company Strategy and Development Direction - Otter Tail Power is targeting a 50% reduction in carbon emissions from its generation resources by 2025 and 97% by 2050, with over 50% of energy generation expected to be renewable by 2025 [13] - The company plans to invest nearly $1 billion in capital expenditures from 2022 to 2026, with a projected annual rate base growth of approximately 6% [21] - The strategic planning process has led to an expectation of normalized earnings for the plastics segment to be in the range of $36 million to $41 million beginning in 2024 [43] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding consumer demand and economic conditions, noting potential softness in consumer balance sheets as the economy transitions [58] - The company remains confident in its ability to grow earnings per share at a compound annual growth rate of 5% to 7% starting in 2024 [44][109] - Management highlighted the importance of monitoring economic indicators such as housing starts and consumer confidence to remain well-positioned for future changes [41] Other Important Information - The company has no immediate equity needs to support its $1 billion capital expenditure plan due to strong earnings and cash flows from the plastics segment [75] - The purchase of the Ashtabula III wind farm is anticipated to close in January 2023, subject to regulatory approvals [15] Q&A Session Summary Question: Can you repeat the normalized level of net income for the manufacturing businesses? - Management clarified that normalized earnings for the plastics segment are now expected to be in the range of $36 million to $41 million beginning in 2024 [50] Question: What are your thoughts on the economy for manufacturing and consumer demand? - Management noted that demand remains strong, particularly in the recreational vehicle and lawn and garden sectors, but expressed caution regarding potential economic downturns [58] Question: Can you quantify the cash flow windfall from the plastics segment? - Management indicated that the strong earnings from the plastics segment have further strengthened cash flows and liquidity, allowing for continued investment without equity needs [75] Question: What is the timeline for the new transmission spend? - Management anticipates construction completion for the new transmission lines between 2028 and 2030 [68] Question: Are there plans to adjust the business mix back to long-term targets? - Management conducted a review and determined that the current earnings mix aligns with their long-term strategy, despite the challenges in forecasting plastics earnings [101]