OTTR - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to the Otter Tail Corporation's 2018 Year-End Earnings Conference Call. Today's call is being recorded, and we will hold a question-and-answer session after the prepared remarks. I will now turn the call over to the company for their opening comments.

Loren Hanson

Good morning, everyone, and welcome to our call. My name is Loren Hanson and I manage Otter Tail Investor Relations Area. our guidance results range. announced earnings our we share per night, XXXX and year-end XXXX Last

Financial A President call Our CEO; President this website today on Tail ottertail.com. are, call Otter earnings later and are of and complete release on Senior Officer. Otter Corporation's available Kevin our and today. With Chuck website Moug, the on MacFarlane, be and available will slides Chief me accompanying replay Vice our the call at Corporation's Tail

Before begin, remind that we want I you statements we to forward-looking making during will be this call.

X, statements that of uncertainties are Slide on noted or holds. to judgment subject our may opinion cause As the They future these materially. represent actual and current results risks what differ to

undue reliance statements. placing of about these any advised on be please So

statements any detail to or encourage to we filings described in Commission, and or developments disclaims forward-looking you revise Securities information, forward-looking are due more otherwise. Corporation our duty Exchange Tail in to the with new statements future which events, our update review. Otter Our

remarks, I will President over Corporation's Tail Chuck opening CEO, the turn Mr. Otter and to MacFarlane. call now For

Charles MacFarlane

my to Thank X released our our updated refer and of to night, as guidance Last $X we which you, results. share $X.XX. Please I the good Loren, XXXX were per midpoint of morning, everyone. comments. begin $X.XX, above Earnings Slide is XXXX earnings

well. performed stock Our

total shareholder five at yield of shareholder the rate three XXXX, Total The a the ranked in ending one Otter X.X%. return year-end years over was past annual the in index Corporation XX.X% compound For grown at electric dividend of Tail EEI has return utilities. years. investor-owned number

our makes Interim on overall Commission power a the Power's North South refund, equity include; Tail of The $X.X return rates X.X% went The Commission Merricourt Dakota costs decide rates implemented non-fuel accomplishments which Public place remain decision in the until our February by the and Public additional request of are granularity generation recover Dakota. into X, Service effect Some to increase $X.X approximately to also We completed in second which We when straining into proposed will or a million in Big line Utilities rates, request, of kV February in X.XX%. XXXX. with project goes interim or South-Ellendale our Otter Final of step of on revenue XXXX subject it and XX.X%. XXX to X.X% XXXX. transmission facility wind on for energized regional service. in rates Stone is increase the million an Commission XXXX early the

of all was multi-value this Our who for cost project cost share the this $XXX customers recovery allows MISO which line. the from from because is benefit million, project, a

of generation projects, $XXX the XXXX quarter XXXX. July investment with through to Otter quarter estimate will the in interconnection capital wind the will which construction generator for work into of MISO and an at than our transmission also Our fourth an Dakota territory, X% In in project territory. of providing for Power improve and service costs. service customers will infrastructure the pay provide reliability Tail investment enhance will process commercial continue Merricourt of be We increased the operation end we project largest the Tail's Otter southern our in $XX approximate customers in million XXXX, expected In will began less the capacity Southeastern/South XXXX, million. that third

in North our rate the site million generation $XXX recent South gas Station Public rider PSC recovery project approve Utilities natural North And the Commission permit approved Dakota the for for Astoria Dakota case. the project. Dakota

Delaying XX second loss the North Dakota in a the and man-hour achieving history X produced, incident. develop XX-year energy allow milestones. investments plant Sustainability time system us low XX resource of last plan. in will evolving cost filing growth how plants the one-year these Last, energy commitments. date to the into produce rules. a insight will is regional marked to and proposed environment. for enables of see regulatory significant continuing renewable and ago. over and published will the our two our a approved X, all our million certainly March governance August, that its first. our highest between XXXX rate least, construction and time in base We informed XXXX one consider filing more I'm XXXX, environmental regulations significant and in by others X% due the give project employees new wind a transmission rate to throughout annual the glimpse crossed upgrade in our to to executing Coyote investors expect gives to and without regulations for outcomes Information for Station ensure these of not we a development. the and resource to plan. rule in XXXX. These into Coyote investments to biggest X recognition for In and our electric the cutover environmental, XXXX I'd highlights but begin incident and satisfaction. XXXX, special constructive that year haze occurred from of yearly in go-live exceeded you'll clean official loss may generation the social which million Report, utilities thank our be resource ESG and safety This our year-end, affordable put project System. a for XX-month our The mix Minnesota megawatt February plants Commission are Slide operational and like for for result of also our On key are and Utilities the Station through to By report proud the years The an you team our customer seamless help generation. regional plant XX, plan service project impact Public to and modeling next hours Congratulations extension accomplishments environmental Two employees continued other Customer X, June amount

also prove development. companies demand improve additional positively celebrated by supported and and strong relationships lower Both these is in by serve Vinyltech XXth to while in delivery XXXX earnings, while We're XXXX. base additional capital businesses. last continue reporting growth launches. the in well congratulate manufacturing flexibility fabricator markets the our they horticulture will volume that growth contributed on its key market in our continues and business organization excellent responsiveness remaining year. in investment, much in the anniversary The strategy, the in are In operational prices, Plastics Northern talent utility continued increase company's targeting experienced organic a and in XXXX growth X% location tax improvement competitive. Employees continue and to the achieved manufacturing to growth Pipe continued accomplishments needs. our performance. across new and on-time OSHA to highly with and by Products sales Our in companies rates. through by companies product It's demonstrating growth exceptional XXXX. year They customer had XXXX. I appreciation in XXXX, done manufacturing - segment its driven in lowest grow account and company an XX% to aligned mostly organic this increased rate metal and and and overall highest with includes on half job earnings, create income The T.O. operations history. in rate achieved XX% we Georgia largest contract notable BTD and execute of which them a sales profitable

perspective. the for turn it to financial over I'll Kevin Now,

Kevin Moug

our Well, position; Chuck, capital our XXXX financial plan liquidity sheet and following thank XXXX you, and outlook. and the the XXXX morning, balance our strength expenditure our I everyone. indicated business dividend; ratings; corporate increase credit results; will good cover annual the items, our five-year in

earnings. year-over-year earned strong We segments performance. last increases X% are approximately Revenues and and with our with grew grew our $X.XX XXXX share, approximately $X.XX XX% in per revenues compared reporting all pleased earnings per share year. with financial which We showing

XX.X% return ratio equity XX.X%. on of equity was XXXX Our an on

equity platform peers. returns layer holding continues to deliver when two to company higher a higher strategy Our compared equity on on

rates partially of earnings normal in more year-over-year went drivers $X by Dakota implemented associated weather due was with favorable share our in net to and year-over-year. to revenues interim Dakota improved a effect provide by XXXX, weather as into increased XX. income Dakota offset increased our the revenues now area XXXX. Slides rates associated FERC earnings weather, North a was increased North an of case general overview million revenues from impact Interim a the earnings equity refunds our that tariffs, to by with to rate case, XX Minnesota on recovering to October increased to $X.XX on South compared me Let subject lower from tax reduction in renewable due increased federal investment to Minnesota reform, revenues. in rider excess cost the and million taxes SIP lower retail a These for service of were North and transmission component related depreciation. under resource, rates, the Dakota, items environmental lower rider return balance in recovery our tax approved in revenue lower due segment, $X.XX a and include XXXX rate rates Electric recovery which revenues share, refunds, January of current in $X.X to provision net of favorable recognize estimated in reduction rates segment and due shown rider the of Key by

volumes was have taxes. For and in million mainly due from These horticultural that increased follows; income in expenses. increase decrease Stone income increase earnings metal were transmission of with of higher which lower South of balance of containers. increased at maintenance lower elimination X.X% items million, a Big increases million in the to earnings Dakota in million Manufacturing freight higher customers excess maintenance, margins. resulted earnings XXXX, higher tax sales lower PVC the did $XX.X higher to through cost Section in to volumes an to were taxes the increased and operating pound items these in scrap The of improvement reform. Those dynamics of sales Sales region. and costs XXXX improvement the which this as Coast XXXX deferred liabilities offset in of offset BTD's sales however $XXX,XXX XXX product and T.O. lowered year-over-year due impact operating Gulf tax estimated favorable expenses, and volumes. net its XXX sales eliminated and year-over-year These all costs. lower scrap our rate Dakota sold. X.X% XX% tax to pipe increased costs an of $XX.X due expense earnings in tax as share were the corporate the our pricing. by year-over-year. of with year's tax the end million increased lower XXXX. increase the due in sales mainly period We write-down increased loss resulted and goods favorably recovery increased was due prices. XXXX, improved gross reduction items reduction XXXX, $X.X the per $X.XX the have of segment goods earnings $XX.X and offset cost year-over-year, that tax higher a XX.X% last cost the prices sold in increase segment's increased deduction and in impacts federal in higher impact expenses. in cost from primarily depreciation BTD's and rates segment's increased T.O. XXXX due Plastics the planned of to of part tax, expense sales reduced $X.X to to of XXXX more in slightly Earnings due increased reversal Key The XXXX, to deferred which outages the to a We $X.X the higher pounds sold, income in passed also at million. the offset transmission in expense. impacted by prices, revenues a from property improved don't due In scheduled tax goods variance than last in liabilities operating to $X.X are a in $X.X maintenance partially rate to North deduction, The plant time this Plastics. deferred major tax Section million revenues impacting of result a higher same by elements due were to outage material and from by months of XXXX labor, sales in and revenues from million to pipe riders Other came tax BTD's for XX% markets, million, Net tax relates any and a Plastics taxes improved four in due earnings. was The of revenues lower $X.X sold in reform compared before a hurricane-related were a

experienced recoverability the the establishment million deferred an of expense, state increase expenses benefit a XXXX corporate $X in related other tax net Tail uncertain We allowance XXXX, in corporate was in and charitable net increase corporate the savings employee to tax corporate as The to of in costs operating our tax of to before increased the year-over-year, we savings certain Foundation costs. valuation in primarily expense. in result realized from federal result tax assets was the to million in tax taxes reduction costs primarily tax in the in $X million center Our Corporation the increase change. year-over-year losses. tax offset XXXX, lease and in items on positions write-down a of Charitable contributions mostly And rate due the Otter reform. establishment of This in by increase net a due an reduction due the of $X

any let's XX, and Moving no equity don't financing to and liquidity. Slide year, equity Last had financial expect review our activity XXXX. in issuances condition we

expected of and agreements XXXX in credit two from until Our flow XXXX are credit activities October generated facilities. place XX between these operating cash

XXXX, to do support private We XXXX of business $XXX Tail of of million range placement Power debt Company grade appropriate we'll levels a Otter reflect maintaining and committed we affirmed our platforms. to of We last to and have operations that $XXX in expect Otter all the currently And in the the Tail at million liquidity of manage connection ratings to in with rating and three our investment both Corporation agencies during Otter half Power's remain rate Tail And, base outlook. growth. commitment. credit ratings our to

$X.XX Slide on $X.XX performance XXXX our our Directors shown returns. XXXX a from solid strong of to our of and rate XX, share. outlook, liquidity, X.X% our the increased This cash balance and per the company's to commitment annualized share Board As enhancing dividend generation is shareholder sheet, indicated increase result per profile

expect of consecutive payout We stock paid quarters. to highlights be through dividends XX% increases XXXX ratio years maintaining line earnings a and targeted in dividend XX expenditure in the with range Slide have our future for to growth, XXX our XX XX% while plans we XXXX for on capital for the timeframe.

be share year in our consolidated expenditures Astoria well We This $XX timeframe for XXXX plan and will will XXXX for earnings and our facing expect In the base manufacturing million. Planned million and XXXX The of compounded strategies regulatory per capital future returns Station for natural on wind year. riders. through project The $XXX the of XX cyclical $XX as projects, includes also guidance to includes These nature utility improving in guidance approximately $X.XX Merricourt to Corporation's earnings base electric capital. calls as capital plan be businesses. XXXX XX% this spend to to is as our million positively factors our five-year of recovered gas-fired manufacturing results, rate impact million expenditures over plant. for businesses the capital $XX the for includes through XXXX segment. investments annual for X%, current the $X.XX. the continue $XXX growth this the the for be rate updated reflects using million projected plastics Slide

higher the revenues rider transmission plant, Big are is increased from along and the outcome for based with XXXX investments workers' in expenses to Dakota of on decreased recovery South decrease AFUDC net a increasing Dakota natural retiree and project Astoria by in constructive benefits, in environment. increasing to offset increased X.X% compared reliability our on including transmission Astoria project, from and interest to North normal $X.XX due to income discount from Weather share items planned gas impacted favorably per weather. to maintenance compensation the projects, additional projects Dakota the transmission Station. into depreciation in project our expected the Our expense our cost wind generation by the Stone Merricourt revenues by Increased South-Ellendale pension to related case, completion South service. normal. XXXX tax XXXX Higher These electric rate capital earnings than rate the operating being property rate be is medical driven XXXX larger due X.X%, segment's and medical put

by BTD our vehicle, segment also at to to compared recreational T.O. a We industrial The scrap in the sales revenues this sales year end expect backlog million due at earnings and million earnings driven stronger and manufacturing segment ago. in is with increased for science lawn garden life primarily XXXX and approximately increased markets. markets, increased Plastics, the from $XXX end due increased increased and sales horticultural XXXX $XXX agricultural volumes, for

be XXXX lower than income Plastics' expect We to XXXX. net

We to resin In prices volumes are and net of higher sales operating compared lower tax year. expecting be XXXX. in costs, last lower corporate to margins increasing due expected are slightly to

in base guidance Our of to in our electric for XX%, our compares Astoria of segments. from Dakota reflect mix This the XX% XXXX respectively, is rate being our projects. South our and by related earnings with and segment XX% Merricourt, the manufacturing and plastics driven reliability current growth electric XXXX. XX% earnings The and from earnings increase earnings

our by driven in electric plastics earnings will further to XXXX believe segment positions to growth of in annual compounded calls achieve continue a of and mix using unallocated electric rate net XX% our be the timeframe X% which per over approximately us XX% our spend earnings the XXXX share This capital capital earnings corporate of plan, guidance line a expect back for XXXX's our the the costs. and to XXXX be We segments manufacturing $X.XX segment. to move to share. in through We from long-term with XX% X% of

platforms on economic Our two guidance this and the face year. challenges business is our XXXX dependent the will

key drivers of include base constructive execution the For utility, Dakota and growth in the successful South our rate projects. outcome case rate

all operational strong sales further be to return and continues XXXX cash a key while dividend improve on segment to providing And support drivers earnings, earnings expected capital. by our are this margins. continued locations decline strong in to Plastics, across BTD, flows our improvements on our returns for complement include For to invested to portfolio

We to ready are your now questions. take

Operator

first [Operator question Our Instructions] Paul comes with KeyBanc. from Ridzon

Paul Ridzon

give you background contribution on some just for look charitable and forward? this Could going we what should

Charles MacFarlane

Paul. I appreciate the Sure, question.

with of established the basis been the $XXX,XXX in We range, would the Corporation get wanted and one $X the that range to financial we is have Tail subject have, we good then $X.X XXXX, see at as success having we're I amount, fund Company number Otter that well. $XXX,XXX are foundation company kind see, future ultimately Otter entities, Company looking $XXX,XXX kind foot - considering in you you made parent off to both but forward, at both And year, depending could to the I'm million would for sorry we commitment tell you Tail foundations of utility on of year. for well, much a look as organizations suppose, that of the foundation Otter future a in probably on the Power on the results I the going a Power Tail Power I right a Otter million the also forward, for, Corporation Tail certainly success, the in to, range a we're of a the $X establishing and the to that so And a contributions and help the contribution in million. those say, for go-forward for healthier

Paul Ridzon

the So critical 'XX was just - kind of this getting mass.

Charles MacFarlane

Yes.

Paul Ridzon

'XX give more little data, 'XX, some looks And a can to you your EEI moved to then from relative detail CapEx like there? it

Charles MacFarlane

we Merricourt. The a see the what bit terms relates you when Astoria and you EEI saw now, we've push - then in at we of back movement, project the of movement the The - seen - what is the Paul, timing of Merricourt Merricourt to a in project.

basically a going dollars 'XX so into of from isn't It's just the movement away. project And 'XX.

Paul Ridzon

just fundamentally everything the shift? timing the So still same,

Charles MacFarlane

Yes.

Paul Ridzon

this then reduced being call, I the competitively every pressures I segments? in maybe benefit from ask And seeing manufacturing but of reform you're the know tax

Charles MacFarlane

in With haven't of we about some our just talk in needed. price T.O. increases we kind across as couple price in Paul, customers to in the XXXX get and seen - from in - able BTD release of uplift We and and of were we was we customers we at comments, place Plastics. the where my actually our that. press with were board it saw appropriate thought both

given certainly as quarter a any kind it customers saw it's prices a of the our negotiate of in are It market manufacturing was to - supply we savings course had on XXXX 'XX, for really we base picking in seeing we commodity that the conditions. the business that market when up be looking mean but the that push with of prices the were of happen, seeing pricing, have business head in is any having it could supply up couldn't haven't reduction reflective and some that for We of because We're anything we PVC businesses. and were side that and reform. in pipe with well in of really back tax doesn't but more as that driven fourth the do of tax from we our softening looking our same nature we actually into PVC prices and things

Paul Ridzon

What's the softening driving that in market?

Charles MacFarlane

stronger prices much we that there we through we we than I as went 'XX, think - expected. saw

- if we're they think as to expected similar that pullback saw we stick we demand some resin stick the of fourth quarter, some kind pricing prices the to our softening there's seeing saw in as increases seen market we've And in of announced see competition. completed and in relates and quarter, sales we'll We it's fourth what's 'XX, price really some head it fully, started the uplift into here just it's driving into the resin some - move as we it. and and related we some quarter Now, costs. in in going it's but first market we

Operator

next Our Ellinghaus from Capital. comes question Chris with Williams

Chris Ellinghaus

the it mentioned in half that of the year. continue? you second trend you'd was Georgia, about profitable the expecting Are that talk Can to

Charles MacFarlane

we Yes, XX% a volume - in more We are. increase like year-over-year in Georgia.

that going we've six leverage we improve anticipate to of got the customers around of last some So similar We've 'XX. backlog results at 'XX so good on and we see site. or there a on-time had to number our delivery continued with continue operationally, a that then improve dramatically work months forward as in pricing, into and we better

Chris Ellinghaus

that really mean the pretty growth? good you're some revenue look, revenue BTD another particularly backlog way expecting you the Does strong year there? with had expecting Are

Charles MacFarlane

metal that are assume lot and in backlog part XX% an the that increase, on is expecting price We prices the were quarter these definitely XX% are I the a a seen that or final we've based little. and XXXX metal drop would of XX% say, to prices in probably of backlog

kind is the segments going in a where growth that of see bit, there those growth. but impact not good in metal segments you're do overstated that the are So 'XX the backlog to some of anticipate we - little all likely

we to the it making have that same of making, part are it's we new we in awarded volume We the that to parts of weren't just in are programs us, going higher be Ag were been previous year. sector not meaning

share growth So there. it's a market

Chris Ellinghaus

would events? Kevin, would were sort about, the likely that fourth foundation those donations is talking stay that kind you of of anticipate you quarter

Kevin Moug

Yes.

Chris Ellinghaus

lot competition there you plastics the been in coming that is trying increasing have about your or bit, - utilization slack may was get is - your where some there little a or a capacity from? And in that higher competition utilize what of competitors lastly, talked of to

Charles MacFarlane

lot plants. is out the their Yes. - mean, think certainly in has - the competition I larger I that there of a the some of in there capacity

occur integrated businesses. also and or is there's Some PVC of resin that resin that always at their vertically have there want and it's are some competition their and were or their to whether profits manufacturers plants there potential

been a of we And so - be mean, levels continue reduced to bit kind looks happened we the into the with there's I those month only have so far, into here. that did and see it's continuing in the - little seen year and first quarter. that sales were quarter but of from a at half fourth we're some prices least,

Operator

next question Paul with question from Our is a follow-up KeyBanc. Ridzon

Paul Ridzon

back the - prices income? the net at but shouldn't last impact to decrease Just in will the metal question, impact revenues, BTD,

Kevin Moug

do to Correct. in prices backlog customer, through show passed as the The are part metal prices. up but they the far as total

Paul Ridzon

said when kind and talks 'XX electric I talked you about about that, Kevin, you and like, O&M the about of could utility review missed pension, outlook, something you quickly said? what you

Kevin Moug

year, part, in expect, discount a and rate we XXXX, rate rates we our up for and our X.X%. pension discount - move in discount XXXX utility O&M the other had benefit our given - lower I the use in that on went that half we're part, we because kind of XXXX X.X%, went of at and - Paul, in the we're to then mean, up Sure. plan large rate programs of where now last interest

Paul Ridzon

also And look for of should we in loss? outage decrease O&M, the because plant

Kevin Moug

Yes.

Paul Ridzon

So that fair should the total be down? O&M Correct? in line say? to Is

Kevin Moug

Yes.

Operator

phone on the showing I'm lines. further questions any And not

Charles MacFarlane

execute to XXXX generation XXXX. and this we Vinyltech and ability a for and to we Corporation, Northern joining thank technology to on questions In on for T.O. will deliver Plastics, operational and We look our $X.XX segment, the appreciate manufacturing Thank Otter strategy and our will a of Tail we you us for $X.XX refine and in we in Tail confident shareholder execution strong long-term and continuing BTD further on Pipe you profitability performance projects Otter will continued successful in your deliver With focus will the we We allow your value. major Tail Well, XXXX, our and forward to the on Power's growth utility to remain projects. Corporation. call. continue believe improve guidance support to growth interest share. our Otter

Operator

this gentlemen, conclude and today's Ladies presentation. does

a disconnect. wonderful now have may day. You And

Otter Tail (OTTR) 19 Feb 192018 Q4 Earnings call transcript