Otter Tail Corporation Reports Record Earnings and Raises Long-Term Financial Targets
Otter Tail Corporation (NASDAQ: OTTR) today announced its financial results for the quarter and year ended December 31, 2024, marking a milestone year for the company. The company achieved record diluted earnings per share (EPS) of $7.17 for the full year, with a consolidated return on equity (ROE) of 19.3% on an equity ratio of 62.2%. The company also updated its electric utility’s five-year rate base compounded annual growth rate to 9.0% from 7.7%, and increased its long-term earnings per share (EPS) growth rate target to 6% to 8%, reflecting a robust outlook for the future.
CEO Overview
President and CEO Chuck MacFarlane highlighted the company’s achievements in his statement: “Otter Tail Corporation produced record earnings in 2024, generating diluted earnings per share of $7.17. 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.”
MacFarlane also noted the strong performance of the company’s Otter Tail Power division, which converted its 2024 rate base growth into earnings growth at approximately a 1:1 ratio. The company secured approval for its fully settled North Dakota general rate case in the fourth quarter, resulting in a net annual revenue requirement increase of $13.1 million based on a return on equity (ROE) of 10.1% and an equity layer of 53.5%.
Segment Performance
Electric Segment
The Electric segment, a cornerstone of Otter Tail Corporation, delivered strong results. Operating revenues for the full year were $524.5 million, a slight decrease of $3.8 million or 0.7% from $528.3 million in 2023. Net income for the segment increased by $6.5 million to $90.96 million, driven by higher retail revenue from an interim rate increase in North Dakota and increased rider revenue. These gains were partially offset by unfavorable weather conditions and increased depreciation and interest expense related to capital investments.
Retail megawatt-hours (MWh) sales decreased by 90,947 MWh or 1.6% to 5,681,268 MWh. Heating degree days fell by 946 or 15.1% to 5,313, while cooling degree days dropped by 150 or 25.4% to 440. The adverse weather conditions had a negative impact on retail sales, reducing earnings by $0.13 per diluted share compared to normal weather conditions.
Manufacturing Segment
The Manufacturing segment faced softer end-market demand, leading to a 14.9% decline in operating revenues to $342.6 million from $402.8 million in 2023. Net income decreased by $7.8 million to $13.7 million, primarily due to lower sales volumes and reduced gross profit margins. Sales volumes declined by 15%, with significant reductions in the recreational vehicle, agriculture, construction, lawn and garden, and horticulture end markets. Scrap metal revenues also fell by 28%, contributing to the overall decline.
Despite these challenges, the segment continues to generate incremental cash, positioning the company for future growth opportunities. The long-term fundamentals remain strong, and the company is taking steps to mitigate the impact of lower sales volumes on earnings.
Plastics Segment
The Plastics segment delivered record earnings of $200.7 million, up from $187.8 million in 2023, driven by a 10.9% increase in operating revenues to $463.4 million. The segment benefited from a 27% increase in sales volumes, primarily due to customer sales volume growth and strong distributor and end-market demand. However, sales prices decreased by 12% compared to 2023, driven by changing market conditions.
The segment’s strong financial results were a key driver of the company’s overall performance. The completion of the first phase of the Vinyltech expansion project in the fourth quarter added large-diameter PVC pipe production capability, better serving customers in the southwest market.
Cash Flows and Liquidity
Otter Tail Corporation’s consolidated cash provided by operating activities reached a record $452.7 million in 2024, up from $404.5 million in 2023. The increase was primarily due to a decrease in working capital and a $7.5 million increase in net income. Investing activities included capital expenditures of $358.7 million, with a significant portion allocated to the Electric segment for wind repowering and advanced metering projects. The company also made a $50.1 million long-term investment in U.S. treasuries.
Financing activities in 2024 included the issuance of $120.0 million of long-term debt at Otter Tail Power, primarily to fund capital investments. Dividend payments amounted to $78.3 million. As of December 31, 2024, the company had $311.6 million of available liquidity under its credit facilities and $294.7 million of available cash and cash equivalents, totaling $606.3 million in available liquidity.
2025 Outlook
For 2025, Otter Tail Corporation anticipates diluted earnings per share (EPS) to be in the range of $5.68 to $6.08. The company expects earnings to be distributed approximately 39% from the Electric segment and 61% from the Manufacturing and Plastics segments, net of corporate costs. This anticipated earnings mix deviates from the long-term expected earnings mix of 65% Electric / 35% Non-Electric due to the expected elevated performance of the Plastics segment in 2025.
Electric Segment
The Electric segment is expected to see earnings increase by 7% in 2025, assuming normal weather conditions and a 12% increase in the average rate base compared to 2024. The segment will also experience increased depreciation and interest expense from capital expenditures and associated financing. A planned maintenance outage at Coyote Station in 2025 will impact earnings, as there were no planned outages in 2024.
Manufacturing Segment
The Manufacturing segment is forecasted to face a 27% decline in earnings in 2025, driven by lower sales volumes in the contract metal fabrication business and compressed operating margins from the deleveraging of manufacturing costs due to lower production and sales volumes. Some volume recovery is expected in the horticulture plastic products business.
Plastics Segment
The Plastics segment is anticipated to see a 29% decline in earnings in 2025, primarily due to continued declines in product sales prices. However, modest sales volume growth is expected, driven by new capacity at the Phoenix facility. Macroeconomic uncertainty may temper this growth.
Corporate Costs
Corporate costs are expected to decrease primarily due to lower incentive compensation costs compared to 2024.
Capital Expenditures
Otter Tail Corporation’s updated five-year capital expenditure plan totals $1.4 billion, with a compounded annual growth rate of 9% on average rate base. The plan includes investments in wind and solar resources, transmission and distribution assets, and system reliability and technology upgrades for the Electric segment. Capital expenditures for the Manufacturing and Plastics segments focus on replacing and upgrading existing equipment and adding additional capacity.
