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Otter Tail (OTTR) - 2023 Q1 - Earnings Call Transcript
OTTROtter Tail (OTTR)2023-05-02 18:43
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Financial Data and Key Metrics Changes - The company reported earnings per share of 1.49forQ12023,adeclinecomparedtotherecordearningsofthepreviousyear,primarilyduetolowerearningsfromthePlasticssegment[16][45]−Theearningsguidancefor2023hasbeenincreasedtoarangeof1.49 for Q1 2023, a decline compared to the record earnings of the previous year, primarily due to lower earnings from the Plastics segment [16][45] - The earnings guidance for 2023 has been increased to a range of 4.55 to 4.85pershare,reflectinga204.85 per share, reflecting a 20% increase from the previous guidance [17][49] Business Segment Data and Key Metrics Changes - The Electric segment net earnings increased by 4 million or approximately 21% compared to Q1 2022, driven by higher commercial and industrial sales volumes [35] - The Manufacturing segment earnings increased by 2.8millionor682.8 million or 68% over the same period, supported by a 19% increase in sales volumes at BTD [37] - The Plastics segment saw a decrease in net earnings of 17.2 million or 34% compared to 2022, with sales volumes declining by 46% [47] Market Data and Key Metrics Changes - Steel prices were 21% lower in Q1 2023 compared to the previous year, impacting revenues but not earnings due to pass-through pricing [46] - PVC pipe prices remained near historic highs, increasing approximately 7% from the first quarter of last year [38] Company Strategy and Development Direction - The company is targeting a 50% reduction in carbon emissions from its own generation resources by 2025 and 97% by 2050 [20] - A capital investment plan of 1.1billionoverthenextfiveyearshasbeenestablished,withafocusonrenewableenergyprojects[13][30]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedconcernsaboutinflationarypressuresandrisinginterestratesimpactingearningsin2023,particularlyrelatedtovariableratedebt[41]−Thecompanyanticipatesadeclineinprofitabilityinthelatterhalfof2023,withpotentialupsideinPlasticssegmentearningsifmarketconditionsimprove[63]OtherImportantInformation−Thecompanyhasaconsolidatedequitylayerof591.1 billion over the next five years has been established, with a focus on renewable energy projects [13][30] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about inflationary pressures and rising interest rates impacting earnings in 2023, particularly related to variable rate debt [41] - The company anticipates a decline in profitability in the latter half of 2023, with potential upside in Plastics segment earnings if market conditions improve [63] Other Important Information - The company has a consolidated equity layer of 59% as of March 31, 2023, which is expected to increase further [55] - The company is actively managing the impacts of inflation across all operating companies [41] Q&A Session Summary Question: What conditions could cause plastic pricing to be more resilient than expected? - Management indicated that if sales prices remain strong, there could be potential upside, but they have not reflected this in guidance [70] Question: What is the contract structure for BTD? - The backlog for BTD is approximately 289 million as of March 31, 2023, down from $339 million a year ago, influenced by steel price differences [76] Question: Is there visibility into distributor orders for PVC pipe? - Management noted that visibility into orders varies, with distributors managing inventory tightly and placing orders based on specific needs [80] Question: Have there been signs of new competition in the PVC market? - Management stated that there have not been any new competitors entering the market due to the significant cost of building a PVC pipe plant [81]