Otter Tail (OTTR) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Otter Tail Corporation achieved diluted earnings per share of $2.01, a 60$2.3 million or approximately 10.3% over Q3 2021, driven by an 18.4% increase in retail megawatt hour sales [25] - The Manufacturing segment's net earnings increased by $2 million, supported by a 17$27.6 million compared to Q3 2021, although sales volume decreased by 15% due to softening demand [29][22] Market Data and Key Metrics Changes - Demand for PVC pipe began to soften in Q3 as distributors and contractors used up high-priced inventory [21] - Rising interest rates are impacting housing starts, leading to project cancellations or delays into 2023 [36] Company Strategy and Development Direction - The company is targeting a 50% reduction in carbon emissions from owned generation resources by 2025 and 97% by 2050 [11] - Otter Tail Power is actively participating in MISO's long-range transmission planning projects, with an estimated capital investment of $330 million [15] - The company anticipates a shift in earnings mix to approximately 65$36 million to $41 million [40] - The revised diluted earnings per share guidance for 2022 is now$6.42 to $6.72, down from the previous range of$6.83 to 7.13 [60] Other Important Information - The company is monitoring various economic indicators to ensure preparedness for changes in the market [37] - Corporate costs are expected to increase in 2022 due to investment losses and higher healthcare costs [37] Q&A Session Summary Question: Plastics segment guidance and demand outlook - The revised guidance for the Plastics segment reflects a midpoint of 0.48 for Q4 2022, down from $0.90 in Q4 2021, due to volumetric risks and margin compression from resin price declines [44] Answer: - Management acknowledged the fall-off in demand and resin price reductions impacting performance, with expectations of elevated earnings but lower than current levels moving into 2023 [49][50] Question: Regulated utility earnings growth - Inquiry about whether the step-up in guidance for the utility reflects a new level of earnings power due to ongoing customer demand [51] Answer: - Management confirmed that favorable pricing from a commercial customer contributed to the uplift, but caution was advised regarding the sustainability of margins [51] Question: BTD operational efficiency - Question regarding whether BTD's widening margins are sustainable due to improved operations [53] Answer: - Management indicated that improved customer take rates are leading to better efficiencies and productivity, which should support margins moving forward [55]