Otter Tail (OTTR) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved earnings per share of $1.72, a 136$1.6 million, or 9.4%, over Q1 2021 [31] Business Line Data and Key Metrics Changes - The electric segment's earnings were positively impacted by favorable weather and increased commercial and industrial sales [8] - The manufacturing segment's earnings decreased by $1.3 million due to lower productivity and increased costs [8] - The plastics segment's net earnings increased by$41.7 million compared to Q1 2021, driven by improved sales prices of PVC pipe [36] Market Data and Key Metrics Changes - PVC resin production and supply improved slightly, but prices are expected to increase through July due to rising natural gas prices and a strong export market [10] - Demand for PVC pipe remains strong, with limited inventories contributing to rising sales prices [36][42] Company Strategy and Development Direction - The company is focused on capital investments in generation, transmission, distribution, and technology projects to grow Otter Tail Power [11] - The Hoot Lake solar project is on schedule for completion in 2023, with construction expected to begin in May 2022 [11] - The company aims to reduce carbon emissions from its generation resources by approximately 50% from 2005 levels by 2025 [14] Management's Comments on Operating Environment and Future Outlook - Management noted inflationary pressures on freight and steel costs, but they are monitoring these issues closely [12] - The company expects market conditions to continue impacting profitability in the second half of 2022, with resin prices anticipated to decline after July [43] - The corporate costs are expected to increase in 2022 due to higher incentive compensation costs [44] Other Important Information - The company is exploring additional capacity expansions at its facilities to support organic growth opportunities [29] - The five-year financing plan includes the issuance of long-term debt to support electric segment growth, with no need for external equity [30] Q&A Session Summary Question: Can you talk about the PVC expansion you have in the works? - The first phase involves buying additional land and upgrading existing infrastructure, while the second phase will focus on production line expansion [50] Question: What are your thoughts on the equity bill from PVC profitability? - The company plans to use the equity for organic growth in both utility and manufacturing businesses [51] Question: What is your outlook for the second half of the year for plastic? - Management sees potential pressure from rising interest rates affecting housing starts, but supply chain issues are expected to improve [52][53] Question: Can you discuss the landscape of the PVC business? - The company is in the upper half of competitors in terms of capacity and is exploring organic expansion opportunities [66][72] Question: What is causing the extraordinary expansion of spreads in PVC pricing? - The increase in sales prices is driven by strong demand and supply chain challenges, particularly shortages of additives [78][80] Question: What is the expected normalized full-year earnings for plastics? - Management is reviewing long-term views on resin prices and their impact on normalized earnings for plastics [92][94]