Otter Tail Corporation Announces Record Annual Earnings and Increases Long-Term Financial Targets

FERGUS FALLS, Minn.--(BUSINESS WIRE)--February 17, 2025-- 

Otter Tail Corporation (Nasdaq: OTTR) today announced financial results for the quarter and year ended December 31, 2024.

SUMMARY

   -- Produced record earnings, with annual diluted earnings per share of 
      $7.17. 
 
   -- Achieved a consolidated return on equity of 19.3% on an equity ratio of 
      62.2%. 
 
   -- Updated our electric utility's five-year rate base compounded annual 
      growth rate to 9.0% from 7.7%. 
 
   -- Increased our long-term earnings per share growth rate target to 6 to 8%. 

CEO OVERVIEW

"Otter Tail Corporation produced record earnings in 2024, generating diluted earnings per share of $7.17," said President and CEO Chuck MacFarlane. "Executing on our strategy coupled with the hard work and dedication of our team members made this level of success possible and I am grateful for their contributions.

"Otter Tail Power continues to perform well, converting our 2024 rate base growth into earnings growth at approximately a 1:1 ratio. We continue to execute on our regulatory priorities and obtained approval for our fully settled North Dakota general rate case in the fourth quarter. The outcome of the case provides for a net annual revenue requirement increase of $13.1 million premised on a return on equity of 10.1 percent and an equity layer of 53.5 percent.

"Our Manufacturing segment continues to navigate softened end market demand, and we have taken action to mitigate the impact of lower sales volumes on earnings. Despite the down-cycle, this segment continues to produce incremental cash to fund future growth opportunities, and the long-term fundamentals remain intact.

"Our Plastics segment produced strong financial results, generating record earnings of $201 million. We continue to benefit from improved end market demand and customers' sales volume growth. We completed the first phase of the Vinyltech expansion project in the fourth quarter, adding large diameter PVC pipe production capability to better serve customers in the southwest market.

"We have updated our 5-year capital spending plan and revised our long-term financial targets. Otter Tail Power's updated 5-year capital spending plan totals $1.4 billion and is expected to produce a rate base compounded annual growth rate of 9 percent. We also increased our consolidated long-term earnings per share growth rate target to 6 to 8 percent from 5 to 7 percent, increasing our total shareholder return target to 9 to 11 percent.

"With the strength of our balance sheet and the talent excellence we have and continue to cultivate, we feel well positioned to deliver on our revised financial targets over the long-term. We are initiating our 2025 diluted earnings per share guidance range of $5.68 to $6.08. Our guidance reflects Electric segment earnings growth of approximately 7 percent and as expected, a decline in Plastics segment earnings driven by a continued reduction in product sales prices due to changing market conditions. We also expect a decline in Manufacturing segment earnings as end market demand conditions remain challenging."

CASH FLOWS AND LIQUIDITY

Our consolidated cash provided by operating activities was a record $452.7 million in 2024, compared to $404.5 million in 2023, with the increase primarily due to a decrease in working capital and a $7.5 million increase in net income. Investing activities during the year included capital expenditures of $358.7 million and a $50.1 million long-term investment in U.S. treasuries. Capital expenditures during the year were largely within our Electric segment, including investments in our wind repowering and advanced metering projects, but also included investments in our facility expansion projects within our Manufacturing and Plastics segments. Financing activities in 2024 included the issuance of $120.0 million of long-term debt at Otter Tail Power, the proceeds of which were primarily used to fund capital investments. Other financing activities during the year included dividend payments of $78.3 million.

As of December 31, 2024, we had $311.6 million of available liquidity under our credit facilities and $294.7 million of available cash and cash equivalents, for total available liquidity of $606.3 million.

ANNUAL SEGMENT OPERATING RESULTS

Electric Segment

 
($ in thousands)         2024        2023   $ Change    % Change 
-----------------   ---------   ---------  ---------  ---------- 
Operating 
 Revenues          $  524,515  $  528,359  $ (3,844)    (0.7)% 
Net Income             90,963      84,424     6,539      7.7 
-----------------   ---------   ---------   -------   ------ 
 
Retail MWh Sales    5,681,268   5,772,215   (90,947)    (1.6)% 
Heating Degree 
 Days                   5,313       6,259      (946)   (15.1) 
Cooling Degree 
 Days                     440         590      (150)   (25.4) 
-----------------   ---------   ---------   -------   ------ 
 

The following table shows heating and cooling degree days as a percent of normal.

 
                      2024       2023 
--------------------  ----      ----- 
Heating Degree Days   83.7%      98.4% 
Cooling Degree Days   93.8%     127.2% 
--------------------  ----      ----- 
 

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kilowatt-hour (kwh) sales under actual weather conditions and expected retail kwh sales under normal weather conditions in 2024 and 2023.

 
                                           2024 vs 
                         2024 vs Normal      2023     2023 vs Normal 
---------------------  ------------------  -------  ------------------ 
Effect on Diluted 
 Earnings Per Share     $       (0.13)     $(0.15)    $         0.02 
---------------------      ----------       -----   ---  ----------- 
 

Operating Revenues decreased $3.8 million primarily due to decreases in retail and wholesale revenues. The decrease in retail revenue was driven by decreased fuel recovery revenue due to lower market energy costs and the impact of unfavorable weather. These decreases were partially offset by retail revenue increases due to an interim rate increase in North Dakota in connection with our most recent rate case, increased commercial and industrial sales volumes, and increased rider revenue as we recover the cost of and return on our rate base investments.

Net Income increased $6.5 million primarily due to increased revenue resulting from the interim rate increase in North Dakota and increased rider revenue, partially offset by unfavorable weather, as discussed above. The revenue increases were partially offset by increased depreciation and interest expense related to capital investments and financing costs associated with our rate base investments.

Manufacturing Segment

 
(in thousands)         2024      2023   $ Change    % Change 
-----------------   -------   -------  ---------  ---------- 
Operating 
 Revenues          $342,592  $402,781  $(60,189)   (14.9)% 
Net Income           13,681    21,454    (7,773)   (36.2) 
-----------------   -------   -------   -------   ------ 
 

Operating Revenues decreased $60.2 million primarily due to a 15% decrease in sales volumes, with declines experienced in the recreational vehicle, agriculture, construction, lawn and garden, and horticulture end markets. Sales volumes decreased due to lower end market demand and inventory management efforts by manufacturers, distributors, and dealers. A 28% decline in scrap metal revenues, largely driven by lower production volumes, also contributed to the decrease in operating revenues.

Net Income decreased $7.8 million primarily due to lower sales volumes, as described above, and a decrease in gross profit margins in our plastics thermoforming business, partially offset by reduced general and administrative expenses. Decreased profit margins were primarily due to a reduced leveraging of fixed manufacturing costs resulting from decreased production and sales volumes. Decreased scrap metal sales, as described above, also contributed to the decrease in net income.

Plastics Segment

 
(in thousands)          2024      2023    $ Change    % Change 
------------------   -------   -------  ----------  ---------- 
Operating Revenues  $463,441  $418,026   $  45,415    10.9% 
Net Income           200,747   187,748      12,999     6.9 
------------------   -------   -------      ------  ------ 
 

Operating Revenues increased $45.4 million primarily due to a 27% increase in sales volumes driven by customer sales volume growth and strong distributor and end market demand. Sales volumes in 2023 were negatively impacted by distributors and contractors reducing purchase volumes in response to uncertain and competitive market conditions. Although market conditions remain somewhat uncertain, infrastructure investment and active construction across our sales territories contributed to increased distributor and end market demand in 2024. The impact of increased sales volumes was partially offset by decreased sales prices. Our sales prices have steadily declined after peaking in late 2022 and decreased 12% in 2024 compared to the prior year due to continuing changes in market conditions.

Net Income increased $13.0 million primarily due to the impact of increased sales volumes, as described above. Increased operating revenues, driven by increased sales volumes, were partially offset by a decrease in gross profit margins. Gross profit margins decreased primarily due to decreases in sales prices, as described above.

Corporate

 
(in thousands)         2024    2023  $ Change  % Change 
------------------   ------    ----  --------  -------- 
Net Income (Loss)   $(3,729)  $ 565  $(4,294)       n/m 
------------------   ------    ----   ------   -------- 
 

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February 17, 2025 18:00 ET (23:00 GMT)