Otter Tail Q1 Earnings Call Highlights

Key Points

• Otter Tail reported first-quarter diluted EPS of $1.73 (up from $1.62 a year earlier) and reiterated full-year 2026 guidance of $5.22 to $5.62, with the quarter's ~7% EPS gain driven by stronger Electric and Manufacturing results offsetting weakness in Plastics.
• Management completed a planned succession: Tim Rogelstad was named President of Otter Tail Corporation, Todd Wahlund was named SVP and President of Otter Tail Power Company, and Tyler Nelson was named CFO, with leadership changes said to not alter the company’s strategy.
• Regulatory and capital developments included a constructive South Dakota rate-case settlement (new base rates effective April 1, achieving about 75% of the request) and $230 million wind repowering expected to boost output ~20%; the company also removed a 430 MW large-load from its pipeline but said it has >$650 million liquidity and reaffirmed a $1.9 billion five-year electric capital plan and funding without external equity through at least 2030.

Otter Tail NASDAQ: OTTR reported first-quarter 2026 diluted earnings per share of $1.73, up from $1.62 a year earlier, as stronger results in its Electric and Manufacturing segments more than offset continued earnings pressure in its Plastics business. Management maintained its full-year 2026 diluted EPS guidance range of $5.22 to $5.62.

Leadership transition highlighted

Chief Executive Officer Chuck MacFarlane opened the call by discussing leadership changes announced the prior month, describing them as part of long-standing succession planning. Effective April 13, Tim Rogelstad was elected President of Otter Tail Corporation and will oversee the company’s electric and manufacturing platforms while reporting to MacFarlane.

MacFarlane said Todd Wahlund was elected Senior Vice President of the corporation and President of Otter Tail Power Company, and that Tyler Nelson was elected Vice President and Chief Financial Officer of the corporation. MacFarlane said the changes “do not alter our strategy or priorities” and are intended to strengthen the leadership team.

Utility updates: South Dakota rate case settled; Minnesota case in discovery

MacFarlane said Otter Tail Power achieved a “constructive outcome” in its South Dakota rate case, with the South Dakota Commission approving a settlement agreement reached during the quarter. He said new base rates were implemented on April 1. MacFarlane said the final outcome achieved “approximately 75% of our request when considering adjustments for rider treatment.”

In Minnesota, MacFarlane said interim rate revenues of $28.6 million went into effect on January 1, subject to refund. Rogelstad later told analysts the case is currently in discovery, noting that the pace started later than typical and that the last two months have included “heavy discovery.” He said the next major step is intervener testimony, expected in the second quarter. Nelson said the company does not expect to make adjustments to the case based on the recent interest rate environment beyond incorporating data from a completed issuance.

MacFarlane also said the company is finalizing its next integrated resource plan and expects to file it in Minnesota later in the month.

Capital projects and load pipeline: wind repowering completed; large-load project removed

MacFarlane said Otter Tail Power completed a $230 million wind repowering project earlier this year, upgrading wind towers at four owned wind energy centers. He said the upgrades are expected to increase output by 20% and are economical for customers due to renewed renewable energy tax credits.

On solar development, MacFarlane said two projects are in the early stages of construction and that the company secured solar panels in the first quarter, a step he said eliminates tariff-related risk and helps avoid potential cost increases. He said a 75 MW battery storage facility remains under development and is targeted to come online in 2028.

MacFarlane said development continues on regional transmission projects, including ongoing work to address landowner and local government opposition related to siting and permits for the Jamestown to Ellendale Tranche 1 project. He also said the company received a Minnesota route permit for the Big Stone to Alexandria Tranche 1 project, a nearly 100-mile transmission line. MacFarlane added that the company is monitoring a complaint filed at the Federal Energy Regulatory Commission against MISO’s Tranche 2.1 projects, and while Otter Tail continues to expect those projects to move forward due to reliability benefits, it believes delays are possible.

MacFarlane also provided an update on the company’s large-load pipeline, saying Otter Tail removed a 430 MW load that had been under a term sheet and no longer expects it to move forward due to permitting challenges and failed tax incentive legislation in South Dakota. Rogelstad told analysts the company continues to work with that customer, but the customer is not currently included in the pipeline and could potentially return. MacFarlane said these pipeline changes do not affect the company’s current load growth forecast or capital spending plans because internal forecasts are adjusted only for loads with signed electric service agreements.

MacFarlane said the company is projecting customer bills to increase by 3% to 4% on a compounded annual growth rate over the current five-year planning period, citing factors such as MISO system-wide recovery for transmission investments, renewable energy tax credits, and reduced energy costs.

Segment results: electric and manufacturing improved; plastics pressured by pricing

Nelson said first-quarter EPS increased 7% year over year. He attributed the increase primarily to stronger Electric and Manufacturing segment performance, partially offset by weaker Plastics results.

• Electric segment: Nelson said earnings increased $0.25 per share, or 43%, driven by increased rates and recovery of rate-based investments. He cited interim rates in Minnesota and South Dakota and noted that new base rates in North Dakota were effective for all of the first quarter. He also said results benefited from higher commercial sales volumes, while unfavorable weather, higher operating and maintenance costs, and increased depreciation partially offset gains.
• Manufacturing segment: Nelson said earnings increased $0.06 per share, driven by higher margins primarily from a favorable product mix, along with higher volumes and improved production efficiency. Higher general and administrative costs partially offset the improvement. MacFarlane said dealer inventory levels have “largely normalized,” with increased sales volumes in construction and recreational vehicle markets, while the industrial end market remained strong. He added that agriculture conditions remain challenging due to a weak farm economy, elevated costs, lower relative commodity prices, and ongoing trade disruption.
• Plastics segment: Nelson said earnings fell $0.24 per share, or 24%, primarily due to lower PVC pipe sales prices. MacFarlane said average PVC pipe sales prices declined 19% from the first quarter of 2025, while volumes increased 7%. He said the quarter benefited from an opportunistic specialty pipe sale and increased buying late in the quarter as distributors and contractors moved ahead of potential PVC resin cost increases announced by U.S. PVC resin manufacturers.

MacFarlane said input costs, including PVC resin, declined 12% from a year ago as domestic resin supply was elevated. However, he said the company is now seeing an increase in PVC resin costs “stemming from the conflict in the Middle East.” In response to an analyst question, MacFarlane said the company believes the situation will be resolved over the long term, but added it is uncertain whether it will be resolved by the second half of the year, while noting current impacts to U.S. domestic export prices of resin.

Guidance, capital plan, and financing outlook reaffirmed

Nelson reiterated full-year 2026 diluted EPS guidance of $5.22 to $5.62, which he said is expected to produce an approximately 12% return on equity. He said key focus areas for the remainder of the year include a planned major outage at a coal facility beginning in the second quarter and higher mid-year operating and maintenance spending related to asset health and resiliency initiatives. He also said manufacturing demand visibility becomes less certain in the second half of the year.

For Plastics, Nelson said the company expects strong second-quarter volumes and temporarily stabilizing product pricing as customers accelerate purchases ahead of potential PVC cost increases, but said the full-year volume forecast is “largely unchanged” because accelerated buying could weigh on second-half demand alongside broader macroeconomic conditions.

Nelson said the company ended March with more than $650 million of available liquidity, including nearly $350 million of cash and equivalents, and said Otter Tail expects to fund its rate-based growth plan without external equity needs “through at least 2030.” He reaffirmed the company’s five-year capital spending plan, including $1.9 billion of planned investment in the electric segment supporting a targeted 10% rate base compound annual growth rate. He also said the company continues to project up to $750 million in incremental electric capital investment opportunity tied to potential wind generation, transmission acceleration, and potential delivery investment for a new large load.

On financing, Nelson said the company completed a $170 million private placement in the first quarter, with $100 million funded in March and $70 million scheduled to fund in June. He said the company does not anticipate further debt issuances in 2026 and plans to retire $80 million of parent-level debt maturing in the fourth quarter using available cash, without refinancing.

Nelson also reaffirmed the company’s long-term Plastics outlook, stating management expects Plastics earnings to decline through the end of 2027 and expects 2028 earnings of $45 million to $50 million, while cautioning that the timing and level of earnings could vary materially.

About Otter Tail NASDAQ: OTTR

Otter Tail Corporation, through its primary subsidiary Otter Tail Power Company, is a regulated electric utility engaged in the generation, transmission and distribution of electricity. The company operates a diversified portfolio of owned and contracted power generation facilities, including coal, natural gas, wind and hydroelectric units, supplemented by long-term power purchase agreements. In addition to utility operations, Otter Tail provides related engineering, construction and maintenance services to support grid reliability and efficiency.

The company's service territory covers a predominantly rural footprint in the Upper Midwest, including communities in west-central Minnesota, eastern North Dakota, northwest Wisconsin and small portions of South Dakota.

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