Otter Tail Q3 Earnings Call Highlights

Key Points

• Third-quarter diluted EPS fell to $1.41 from $1.86 a year earlier, driven mainly by lower PVC pipe pricing, reduced volumes and higher input costs in the Plastics segment.
• Otter Tail narrowed its 2026 adjusted EPS guidance to $5.73–$6.03 while maintaining the $5.88 midpoint. Plastics earnings are expected to decline through 2027 as weaker housing demand and margin pressure persist.
• The company reaffirmed its $1.9 billion five-year utility capital plan, raised potential incremental investment to $850 million and reported more than $600 million in liquidity, while expecting to fund growth without issuing equity.

Otter Tail NASDAQ: OTTR reported third-quarter diluted earnings per share of $1.41, down from $1.86 in the prior-year period, as lower PVC pipe pricing and higher input costs weighed on its Plastics segment. The company narrowed its 2026 adjusted diluted EPS guidance range while maintaining its midpoint, citing confidence in its ability to meet its financial objectives for the year.

Chief Executive Officer Chuck MacFarlane said the company continued to execute its strategic growth plan despite what he described as a challenging operating environment. Otter Tail Power advanced its regulatory priorities and capital-investment plans, while the Manufacturing and Plastics businesses managed higher costs and changing demand conditions.

Guidance narrowed as Plastics outlook softens

Otter Tail narrowed its adjusted diluted EPS guidance range to $5.73 to $6.03, from a prior range of $5.68 to $6.08. The midpoint remained $5.88. The outlook excludes the after-tax impact of a legal settlement expense recognized during the second quarter.

Chief Financial Officer Tyler Nelson said the company modestly adjusted the midpoints of its Plastics and Corporate guidance ranges. The Plastics revision reflected softer demand conditions as elevated mortgage rates and growing developed-lot inventory put pressure on new-home construction. A one-time adjustment related to estimated vendor rebates also affected annual earnings expectations.

Otter Tail continues to expect Plastics earnings to decline through the end of 2027, with 2028 segment earnings projected at $45 million to $50 million. Nelson said the timing and degree of the decline could vary materially based on seasonality, pricing and other factors.

The company reiterated its long-term EPS growth target of 7% to 9%, which it said supports a total shareholder return target of 10% to 12% once Plastics earnings normalize in 2028.

Utility operations and rate-base investment

Electric segment earnings were flat from a year earlier during the third quarter. Nelson said timely recovery of rate-base investments, higher electric rates in Minnesota and South Dakota, and favorable weather supported results. Those factors were largely offset by higher operating and maintenance costs, including labor, vegetation-management and plant-outage expenses.

For the first nine months of 2026, Electric segment earnings rose 14% from the same period last year, according to Nelson.

Otter Tail Power’s Minnesota rate case advanced during the quarter. The company submitted surrebuttal testimony and participated in an administrative law judge hearing. It reduced its requested net revenue increase to $38.7 million from $42.3 million, primarily due to a jurisdictional allocation adjustment.

The company is also progressing through its 15-year integrated resource plan in Minnesota. The Minnesota Department of Commerce recommended additional renewable generation beyond Otter Tail Power’s proposal and suggested battery storage as an alternative to natural gas. The company’s reply comments are due in December.

MacFarlane said Otter Tail Power reaffirmed its expectation for a 10% five-year compound annual growth rate in rate base and expects utility earnings to grow at a similar rate over the planning period. He said the plan does not depend on securing large new loads, though such loads represent an incremental opportunity.

• Solway Solar is expected to enter service in the first half of 2027.
• Abercrombie Solar is expected to become operational in the second half of 2028.
• A battery-storage facility under development is expected online in 2028.

MacFarlane said the two solar projects under construction remain on schedule and on budget. However, the company is encountering increased challenges in developing and constructing regional transmission projects, including greater complexity in siting. President Tim Rogelstad said local concerns could create delays, though the company remains confident in the need for the projects and expects to provide an update with year-end results.

Manufacturing improves, while Plastics margins contract

Manufacturing segment earnings declined by $0.03 per share in the third quarter. Nelson attributed the decline primarily to lower gross margins stemming from higher production costs and reduced productivity associated with onboarding new employees. General and administrative expenses also increased.

Higher sales volumes partly offset those pressures as conditions improved in several end markets and the company gained new business with existing customers. MacFarlane said recreational vehicle, lawn and garden, and horticulture markets remained stable, while construction demand improved and industrial demand remained strong. Agricultural markets remained challenging, though the company sees some modest improvement looking into next year.

Despite the quarterly decline, Manufacturing segment earnings were up 28% year to date. Nelson said management is focused on improving productivity and controlling costs.

Plastics segment earnings fell by $0.34 per share. The average selling price of PVC pipe declined 9% year over year, while volumes decreased 5%. MacFarlane said customers had accelerated purchases earlier in the year in response to announced resin-price increases, contributing to lower third-quarter volumes. A softer housing market also affected demand.

PVC resin and other input-material costs increased 10% from a year earlier, driven primarily by global resin supply-and-demand dynamics. Nelson said those higher costs compressed margins, while the segment also absorbed a one-time vendor-rebate adjustment.

The company said its Phoenix facility’s added large-diameter pipe capacity helped partially offset the volume decline. MacFarlane also pointed to potential demand from water infrastructure related to data centers and other large manufacturing facilities.

Capital plan and liquidity

Otter Tail reaffirmed a five-year capital-investment plan totaling $1.9 billion for Otter Tail Power. It increased its incremental investment opportunity to $850 million from $750 million, largely because a potential wind project opportunity was increased to 300 megawatts from 200 megawatts.

As of the end of September, the company’s equity layer represented 61% of total capital. Otter Tail had more than $600 million in available liquidity, including more than $250 million in cash equivalents and marketable securities.

Nelson said Otter Tail expects to retire, rather than replace, its only outstanding parent-level debt by year-end. The company also said it expects to fund its growth plan without accessing equity capital markets.

About Otter Tail (NASDAQ:OTTR)

Otter Tail Corporation is a diversified company headquartered in Fergus Falls, Minnesota. Through its electric utility subsidiary, Otter Tail Power Company, it generates, transmits and distributes electricity to residential, commercial, industrial and agricultural customers.

Otter Tail Power Company serves customers across portions of western Minnesota, eastern North Dakota and northeastern South Dakota. Its generation portfolio includes coal, natural gas, wind and other energy resources, supporting the company's role as a regional provider of electric power and related utility services.

Beyond its utility operations, Otter Tail Corporation owns manufacturing businesses that produce fabricated metal components, plastic products and other specialized goods.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.