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OT

Otter Tail Corp (OTTR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 diluted EPS of $1.62 was in line with management’s plan and above S&P Global consensus ($1.53) as stronger Electric segment earnings and Plastics volumes offset pricing pressure; consolidated revenue of $337.4M came in below consensus ($349.7M) due to Manufacturing softness and lower Plastics pricing . EPS consensus and revenue consensus values retrieved from S&P Global.*
  • Guidance maintained: FY25 diluted EPS range $5.68–$6.08; expected ROE 13.8%–14.6%; segment EPS mix unchanged from February (Electric $2.29–$2.35; Plastics $3.26–$3.50; Manufacturing $0.21–$0.27; Corporate $(0.08)–$(0.04)) .
  • Electric segment benefited from near‑normal winter weather, higher volumes, and rider recovery; Manufacturing faced end‑market demand and margin deleveraging; Plastics volumes rose with new capacity while prices fell 11% YoY, pressuring margins .
  • Regulatory catalysts: ND rate case implemented in March; SD rate review filed June 4; large-load service agreement (target ~155 MW) advances near Big Stone Plant; management highlighted tariff and IRA policy watch points .

What Went Well and What Went Wrong

  • What Went Well

    • Electric segment net income up 10% YoY on favorable weather and volume, with interim ND revenues and rider recovery supporting results; CEO: “we produced earnings…in line with our expectations and a good start to the year” .
    • Plastics volumes +13% YoY aided by new large‑diameter line at Vinyltech and strong distributor demand; CFO: “First quarter earnings also benefited from lower material costs as resin prices have declined” .
    • Balance sheet/liquidity strong: $607M total availability, $284.8M cash; FY25 growth to be financed without external equity; dividend raised 12% YoY to $0.525/qtr .

  • What Went Wrong

    • Consolidated revenue declined 2.8% YoY and missed consensus as Manufacturing revenues fell 17.8% YoY on broad end‑market softness; Plastics pricing down 11% YoY compressed margins despite volume gains .
    • Operating income and margin declined YoY, reflecting lower product pricing in Plastics and deleveraging in Manufacturing; corporate costs rose on higher medical claims .
    • Cash from operations fell to $39.5M vs $71.9M in Q1 2024 due to timing of fuel/recovery and operating payments and lower earnings, a near‑term cash flow headwind .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$347.1 $303.1 $337.4
Diluted EPS ($)$1.77 $1.30 $1.62
Operating Income ($USD Millions)$95.0 $66.8 $84.0
Operating Margin %27.3% (calc from )22.0% (calc from )24.9% (calc from )
Net Income ($USD Millions)$74.3 $54.9 $68.1

Segment breakdown

Segment MetricQ1 2024Q4 2024Q1 2025
Electric Revenue ($USD Millions)$141.5 $139.8 $149.7
Electric Net Income ($USD Millions)$22.5 $21.5 $24.7
Manufacturing Revenue ($USD Millions)$99.4 $66.6 $81.7
Manufacturing Net Income ($USD Millions)$5.3 $(0.6) $1.5
Plastics Revenue ($USD Millions)$106.2 $96.7 $105.9
Plastics Net Income ($USD Millions)$46.7 $38.9 $43.4

KPIs

KPIQ1 2024Q1 2025
Retail MWh Sales1,580,851 1,673,004
Heating Degree Days2,913 3,451
Heating Degree Days (% of normal)84.4% 100.9%
Weather EPS effect vs normal$(0.06) $—
Weather EPS effect vs prior year—$0.06

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Diluted EPSFY 2025$5.68–$6.08 $5.68–$6.08 Maintained
ROE (%)FY 2025~14% 13.8%–14.6% Clarified range
Electric EPS componentFY 2025$2.29–$2.35 $2.29–$2.35 Maintained
Manufacturing EPS componentFY 2025$0.21–$0.27 $0.21–$0.27 Maintained
Plastics EPS componentFY 2025$3.26–$3.50 $3.26–$3.50 Maintained
Corporate EPS componentFY 2025$(0.08)–$(0.04) $(0.08)–$(0.04) Maintained
Dividend per share (quarterly)Declared Q2 2025—$0.525 (12% YoY increase) Announced

Earnings Call Themes & Trends

TopicQ3 2024 (11/5/2024)Q4 2024 (2/18/2025)Q1 2025 (5/6/2025)Trend
AI/technology/AMIAMI ~90% meter upgrade, expected Opex savings AMI progress; solar and transmission portfolio expanding AMI substantially complete; wind repowering progressing Positive execution
Supply chain & tariffs/macroImport competition returning (horticulture); consumer behavior shifts Monitoring tariffs/administration changes; limited impact near term Actively monitoring tariff landscape; steel price increases; minimal EPS impact expected via passthroughs Elevated uncertainty; manageable
Regulatory/legalND rate case hearings; class action suits noted (PVC industry) ND rate case settled; elevated long‑term targets ND case implemented; evaluating SD/MN filings; SD filing later mid‑2025 Constructive outcomes; active docket
Product performance (Plastics)Price declining, volumes rising; large‑diameter line near completion 2024 Plastics record earnings; normalization projected by 2028 Q1: volumes +13%, price −11% YoY; EPS $1.03 from Plastics Normalization path continues
Large-load pipelineLOIs discussed; expect agreements in 1–2 quarters ~970 MW pipeline; capital plan excludes large-load delivery ~1,000 MW pipeline; executed service agreement; target ~155 MW (3 MW firm/152 MW nonfirm) Building momentum

Management Commentary

  • CEO: “Collectively, we produced earnings of $68.1 million, or $1.62 per diluted share, in line with our expectations and a good start to the year” .
  • CEO on tariffs: “We are actively monitoring the evolving tariff landscape…we are well positioned to weather this period of economic turbulence” .
  • CEO on ND rate case and growth: “Otter Tail Power finalized its fully settled North Dakota general rate case…we continue to execute on our investment and regulatory priorities, including development work on our renewable generation and large transmission projects” .
  • CFO: “Our balance sheet remains very strong…total available liquidity of over $600 million…we are affirming our 2025 diluted EPS guidance range of $5.68 to $6.08” .
  • CFO on Plastics: “The average sales price of PVC pipe declined 11%…partially offset by a 13% increase in sales volumes…lower resin costs” .

Q&A Highlights

  • Plastics volumes and pricing trajectory: Management assumes low single‑digit volume increase for FY25, strong 1H with risk of 2H demand softness; expects continued ~12% annual price declines until margins revert to pre‑2021 levels by 2027/2028 .
  • Competitive capacity expansion: Competitors likely adding incremental line capacity/debottlenecking; no evidence of new plants; company’s new large‑diameter line serving Southwest market effectively .
  • Tariff pass‑through: Domestic steel price increases expected to raise raw material costs 2H25; earnings impact minimal due to customer passthrough, while monitoring end‑market demand shifts .

Estimates Context

MetricQ1 2025 ConsensusQ1 2025 ActualSurprise
EPS ($)$1.53*$1.62 +$0.09; bold beat
Revenue ($USD Millions)$349.7*$337.4 −$12.3; bold miss
# EPS Estimates3*——
# Revenue Estimates2*——

Values retrieved from S&P Global.*

  • EPS beat driven by Electric segment strength and Plastics volume/mix; revenue miss reflects Manufacturing demand headwinds and continued price declines in Plastics .

Key Takeaways for Investors

  • EPS beat with revenue miss: Quality of earnings supported by segment mix and cost control; watch Manufacturing volumes and Plastics pricing trajectory for 2H25 risk to topline .
  • Guidance intact: FY25 EPS $5.68–$6.08 affirmed; near‑term narrative is execution against rate base growth and managing tariff/tax policy uncertainty—no external equity needs .
  • Electric growth durable: ND rates implemented; AMI and wind repowering progressing; large‑load opportunity (~155 MW near Big Stone) could be a multi‑year upside lever if approvals arrive on schedule .
  • Plastics normalization: Volume strength from Phoenix capacity offsets price declines; management reiterates normalization path to $45–$50M segment earnings by 2028—key for medium‑term EPS mix shift .
  • Manufacturing cyclical trough: End‑market softness (RV/ag/construction) and deleveraging pressured margins; cost actions ongoing—any demand stabilization would be a margin delta .
  • Liquidity and dividends: $607M liquidity and $0.525/qtr dividend (12% YoY increase) provide support to TSR while funding utility capex internally .
  • Regulatory pipeline: SD rate review filed; potential MN case later in 2025; constructive ND outcome underscores balanced approach—monitor outcomes for allowed ROE/timing .

Estimates Where They May Adjust

  • Analysts likely raise EPS modestly post‑beat while trimming revenue on Manufacturing softness and continued Plastics price headwinds; maintain caution for 2H25 volume/demand risk flagged by management . Values retrieved from S&P Global.*

Additional Detail: Segment Narratives

  • Electric: Operating revenues +$8.2M YoY, retail MWh +5.8%, heating degree days 100.9% of normal; interim ND revenue and riders offset increased depreciation/interest from capex .
  • Manufacturing: Revenues −17.8% YoY, net income −70.9% YoY; volume declines and scrap revenue down with reduced leverage of fixed costs; SG&A down partially offset .
  • Plastics: Revenues roughly flat YoY, net income −7.1% YoY; price −11% YoY, volumes +13% YoY; lower resin costs aided margins; Phoenix Phase 1 large‑diameter capacity driving Southwest service capability .