Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to Otter Tail Corporation's 2022 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.

Tyler Nelson

Good morning, everyone, and welcome to our 2022 earnings conference call. My name is Tyler Nelson. our quarter announced results. annual we night, XXXX and fourth financial Last

the made complete accompanying today. at our of slides release ottertail.com. will call recording Our and on this earnings website on available our are available A call later be website

me Vice are MacFarlane, President Financial Corporation's call and Otter Moug, Otter today and and Chief CEO; Kevin the Tail on Tail With Chuck President Corporation's Senior Officer.

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

As are noted these from X, may statements represent expectations of differ our and here. on Slide risks which current future subject uncertainties, results presented views events. and actual They cause those to

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

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

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

Chuck MacFarlane

XXXX you, our and financial share annual begin We diluted Otter comments our Good earnings call. Slide $X.XX, morning, as of welcome XX% earnings my on to refer results I XXXX. achieved a Corporation in Tyler. record Tail results. X, from Please XXXX. Thank per to generated year-end increase

of another level our by capitalized All record industry led to double-digit Plastics segment, which segments achieve growth earnings produced on extraordinary conditions earnings.

in a our XXXX Kevin our year, remain our more but financial forward, a earnings expected to we segment past of XXXX. this discussion moment, Looking record elevated level recede In Plastics performance. provide to beginning from expect will detailed earnings relative in normalized

dependable provide segment rate per Plastics corporate for strong and year and metrics, in excluding by BTD, and our a our investments and without CAGR, historic companies. segment flow our have earnings share generated Plastics per businesses. T.O. strength Power, allow costs, we our compounded with our liquidity structure Through cash Plastics steady of XXXX, our annual earnings already five and The earnings illustrates and capital Plastics at X Tail XX.X% growth additional and produced and to segment. additional earnings Otter growth the capital impact XXXX changes share and Slide in operating credit in

Turning to Slide We Power's energy efforts toward cleaner X. future. illustrate working Tail Otter a in

by reduce carbon generation to targeting occurs. resources levels from XXXX dispatch targeted are owned from We XX% approximately our XXXX, emissions by XXXX XX% assuming and

renewable and generation forecast XXXX. contracted our by than Additionally, energy is XX% owned be to more

clean It by energy requires to requirements. use to to in Governor, customers requires emissions credits bill week, to XXXX by Walz carbon retail utilities by The provide to achieve XX% and The law legislation also the energy allows Minnesota. into XXXX. bill provide energy to XX% utilities electricity signed Last Minnesota offset XXXX. renewable utilities Minnesota carbon-free carbon-free these

to we by renewable provide the resources some and we -- additions renewable the expect these and requiring requirements existing existing The with state's our meet energy renewable standard fleet utilities We equal to updates also energy now energy to renewable credits. from bill renewable at available energy total additional will XXXX, current Based mix, on XXXX the of XXXX. XX% require our will this energy least anticipate resource XXXX. between requirement in projected renewable meet

to the project been the from investment Passage approved the assigned May to includes Inflation tax in be million project. of Solar Act Tail project renewable of All XX through to the construction $XX and benefits this completed and credit Minnesota has customers, XX%. Hoot Otter are Reduction Project investment Slide overview Lake expected an the recovery the has XX% rider. of megawatt XX mid-XXXX. is Power's of costs XXXX of increased in began on

facility X, January of this of offtake purchase rate XX. power the maintaining alternative Power purchase base cost farm have investment. Slide lower XXXX. Since had power agreement. the of Tail this All to agreement than the have provides to purchase purchase been place the completed in III we a facility. recovery received to Otter Acquiring XXXX, Turning on provide the Ashtabula regulatory a approvals wind

Slide million. will XX and to to provides a additional projects, Plan. Tranche of in co-owner information Alexandria MISO's Stone Long Transmission two the Range on South Jamestown Otter X X Tail Ellendale be Tranche Big in XX% XXX is to the projects kV five next capital and capital investment approximately be total to projects. Otter these estimated expected occur of investment transmission in Tail's is the years. $XXX

the schedule. Slide The Reduction resource incorporate passage load November, Minnesota Power's Act. Plan. increased allows Integrated amended reserve PUC seasonal MISO's XX construct on additions margin request Resource capacity recent an changes Inflation Tail amend of the our us of -- schedule effects Otter the supported In requirements, of to the to the provides update procedural MISO plan and to

to to reviewing ownership dual capability of the Station at to These proposal determined Astoria could XXX Astoria not fuel solar in preferred resource the to which updated schedule add generating of our amended plan Station. our commence fuel a to on in Coyote authority an yet items interest withdrawing March modify of coal-fired XX% have to year. does XXXX this file from plan add an plan, time line be station. capability impact to The and process We at the for requested the five megawatts add dual site year initial

Tail share of our recovered a be produce capital billion five Slide capital plan XX over or per earnings X% rate provides our at spending rate a next time targeted in investment growth The an rate the overview in this annual of of riders. growth compounded ability XX% rates Approximately producing over level plan $X.X period, capital plan. growth of base year key X%. is will to This base X.X% frame. includes Power's driver Otter through this to existing plan

growth Turning in steel volatile year Strong volume business earnings the and our XXXX. performance sharply during financial prices customer Slide steel fabrication the the highlights demand in double-digit the growth markets our the half second segment Manufacturing on end with most metal year. BTD, prices declining to experienced our drove of for across XX produced year.

we negatively improving scrap our demand T.O. robust continue monitor economic have supply revenues, in cost from shipping impact metal of impacted offsetting increases which product prices Plastics and the customer benefited impact and our demand customer steel Lower may XXXX inflationary conditions volumes. are price that chains, with to along pressures.

(ph) Looking Slide ‘XX segment. highlights forward, our our XX Manufacturing markets served end outlook by market for

ag, soften and vehicle throughout discretionary impact to as in spending. markets end & generation horticulture and recreational inflation customers' market back especially and XXXX. rate expect the We remain contrast, we of XXXX, the environment to half lawn In the in strong the interest the garden year power expect

highlights XX XXXX. our from financial our Slide results Plastics in segment

pipe reduce their conditions sharply effectively sales quarter resin distributors in year market team extraordinary to and contractors this Our to fourth levels. on prices prices. as only market purchase including conditions, manage industry the volumes seen for led of to PVC capitalized point, To produce on inventory results. Demand the financial have pressure a housing record declined softening our we and lower modest to

contractor in We expect compress and margins after inventories are rightsized. will XXXX distributor

and plant is expansion expansion. our are our underway permitting in At we location, phase our design and project of rail Vinyltech

execution and would I employees persistence in all thank Finally, like for XXXX. to

maintaining focus the of year Our achieving excellence. during while operational team on managed effectively challenges our a commercial and number

additional on for expectations in XXXX Now commentary and XXXX. our financial I'll our performance turn to it Kevin provide over to

Kevin Moug

good XXXX approximately an consolidated revenues billion $XXX Consolidated year. Well, XX% thank million. $X.XX you, was earnings everyone. to Chuck, outstanding and and XX:XX morning, were increased

increased All of earnings up XX%. over XXXX. improved XX%, XX%, and was earnings Plastics our Manufacturing produced segments double-digit growth earnings Electric segment

were on generated return XX.X% equity dividend Our a with equity X.X% return XXXX indicated layer a for over which share These on consecutive rolling represented XX-month XXXX announced of $X.XX XX.X% in XX% of XX%, represents increase XXth we year also XXXX a of approximately XXXX. payments. was the returns and the compared in dividend. And a dividend annual XXXX an annual respectively.

XX, in refer resulting load related higher earnings including power Revenues an market from and revenues energy new million in overview of higher provide gas primarily increase by Electric segment driven commercial was in to and as favorable to and a conditions XXXX Slide increased to earnings. to The costs increased increase Dakota. fuel production $X.X XXXX, benefited an of demand also impact from net costs. segment customers, from XXXX due natural industrial XXXX. The Please in earnings purchase increased compared over revenues recovery commercial North the weather I fuel

in It Also maintenance related operating Big planned and These both by driving increases were costs plant. Big costs share a Coyote the outages has in This consistent and this increase growth higher and at increases in Station into XXXX and Stone growth travel Coyote other XXXX time a over offset through earnings time. items outages partially benefit Plant, frame. has costs, the to per Station Stone related labor increases maintenance at the rate and to and and were higher segment X% tariffs over same X% performer been base employee converted other expenses. transmission

Net for the driven up sales due volumes costs previous by Sales material and volumes increase demand. over costs in $X.X XX% at an by year. steel segment improved over X% million in higher Manufacturing earnings to BTD. Steel the were XXXX, increased revenues market driven increase XX% strong material end

sales Segment scrap Plastics items prices metal by favorable and pricing a net sales higher sales partly cost also to lower T.O. volumes, were These were impacted revenues scrap experienced decline due volumes. in increased volumes. and offset increased by scrap and lower earnings absorption. positively prices

the to This earnings into in XXXX Net conditions pound continued this offset XXXX. in was continuation approximately by $XX.X million related partially to price significant an and a the lower due change of increased was increases sales revenues increase segment PVC sales started unique pipe per of market Plastics from XXXX. uplift of volumes. that to compared in Driving XX%

of to of because housing were to raw demand projects of issues, of and first pipe. customers order their PVC volumes the the additional reducing pipe the and of purchases sales use market customer during of half more constraints lower in delaying material year The goods supply buying by PVC contractors softening during a instead due up inventory year chain last caused the half finished softening

impact costs, were employee and of losses care expense were health costs our on and at the our company. expenses These Our corporate offset facility benefit outstanding increased investments life from corporate due debt insurance. service corporate-owned lower smaller captive by impacted proceeds the corporate-owned our partially and professional amounts interest policies to increased on higher insurance life credit by costs insurance

an XX. range of Slide share. a outlook for share reflects to This per $X.XX to business XXXX our Moving of $X.XX earnings

is the will manufacturing and be platform and that segment of elevated our in with for Manufacturing net XX% Our discussions expected there corporate previous consistent earnings to our from XXXX. XXXX is our XX% be from costs. This from Plastics mix approximately earnings Electric segment

returns segment generated and our Electric Changes the segment from billion the increased corporate and in rate guidance segment in average increase and increasing increasing as to in from our are customers. XXXX guidance as sales base XXXX normal follows: $X.X cost Electric weather on due base industrial for volumes based earnings to year. is is rate XXXX commercial X.X% guidance

as to guidance also and We impact lower well. operating maintenance earnings favorably expect XXXX expenses

operating benefit by Ashtabula This expenses Solar maintenance costs the increased reduction lower an wind and pension III is expenses. operating employee the discount and long-term and to These compensation return. and and driven other and the in inflationary offset by increase the Hoot farm, costs increased impacts of farm on the costs maintenance related rate Lake primarily due lower pension rate to assumed partially are

assumptions manufacturing overall volume volumes Manufacturing in customers industrial as We this slowing expected continued by markets. driving experience segment driven decline for offsetting earnings XXXX, in concerns our power from steel expect year, given Key are to expected continue decline generation about sales growth given decline a part products. demand slower year-over-year this price overall our XX% in and guidance, agriculture last declines. production to sector, to is the Partially decline end

offset from anticipated year-over-year in cost Earnings demand prices, is Decreased by by flat pressure unfavorable revenue lower product on increases at inflationary and price costs as customer downward T.O. and putting operating BTD metal are expected increased scrap to cost metal be scrap and business. are driven revenues the increased pressures margins. at absorption, Plastics

of approximately Backlog compared was December year XXXX the million $XXX as million ago. XX, with segment a Manufacturing for $XXX

rising of lower than As our be are especially lower in lots first and consume sales XXXX developers current industry continue half housing a previously contractors due XXXX distributors to we've the the as record volumes earnings to been Plastics inventories purchase pulling and on interest in communicating, segment volumes, the of manage given of the starts demand to earnings expected are back and following: being dynamics slowdown impacting developed. current the rates overall number as

over decline Contractors being see year well speculation sales delayed. or get to prices. started lower lead as reduced some level And they canceled back have are as project XXXX. factors expected to driven projects some This the material expect to also carry. to that shedding normalize, as demand a inventories distributors industry has long begin part middle want being This materials to We inventories. to to margins times supply product than of and by leading for be costs of normal the will taken by longer is

no well inflationary are to equivalents, benefit corporate on claims in costs. on lower expected salary offset and XXXX, lower costs, investments, and expected generated of self-insured corporate increases increase receiving lower plan as our death cash and life Our lower on any contributions lower partially as costs health foundation, are our operating incentive in resulting to corporate compensation by benefit owned be in expected proceeds other earnings insurance. These expected cash categories expectation from losses expense on items

economic such changes rates consumer We continue starts, as confidence positioned single and occur. multifamily well to monitor we various indicators, are when housing to and ensure mortgage levels

are need to companies. variable operating rate rising the concerns to that to on continues our environment There rate we the be especially or what during across XXXX, related the issue have and refinance new related actively impact all interest debt and managing impacts debt will Additionally, in of year. earnings of the inflation to

to assess costs risk. as We our rising borrowing exposure low

last are XXXX excess facility to and We in rate years, going earnings borrowings have considered of higher amounts The is in enviable the two levels on being the Our cost minimum increased our two to be earn our and the on cash. to company to our borrowings guidance. variable return don't due drawn And a on are consists parent flows of position we credit debt utility of able facility. cash outstanding of over these any expect facilities.

bond until We maturity our December don't have any XXXX. scheduled next XXXX. in new And issuances scheduled of debt is

ability uplift While we additional by years. risk portfolio, has in in and strengthened flows these Plastics of our generate levels over during the two our equity economic layer. times. high The to last been has driven the earnings, strong the the This further have recognize demonstrated non-electric having businesses of segment earnings performance cash businesses especially

at utility December of expect consolidated XX.X% XX, million We Our advantage from December consolidated as to that XXXX, further financing equity the with approximately compared as five-year by now This end we have XX, we plan. XXXX in our in increase has stand $XXX no increased XXXX. a equity through to offers and equity sector distinct the layer XXXX. us a needs

elevated from to expect As XXXX. our XX% segment earnings our currently our platform. XXXX from beginning previously mentioned, platform reflects Manufacturing move our XX% earnings and We from Manufacturing mix our to Electric guidance in

million. As segment currently to our part $XX normalized of earnings of this in a range we million Plastics shift $XX earnings from mix, to in expect the be

of positioned strategies with business fund targets. well, sheet, growth support balance liquidity us This opportunities to the credit and our businesses corporate well model serves our rate platforms we collective at and reflects the investment-grade base XX remain strong our to ratings. and utility performance our strong Slide financial ample

We ready your take are questions. now to

Operator

[Operator from Instructions] Siebert Chris question come Williams. Our Ellinghaus the first line from will of

Your open. line is

Chris Ellinghaus

changing just balance the the is sheet talking are at last your about the good one fortune of couple striking for talk Can the I strategic How the years of plans you? that about. was the in sheet guys. was looking Hey, sort were utility? you things of that of So was how that balance you

Kevin Moug

at as to clearly look base further it rate going us additional that projects look think additional flexibility we gives forward. I

out plan there. year five current our have We

of powering a the in part at about uplift looked of both driven quarter example, had a Inflation in we capital Reduction from we as for quite QX think Reduction QX, was opportunities of release. that the plan not third saw I'm wind sorry, Act, -- quarter our Act, second to X.X% there of we the million. -- impact compared And I by $XXX the about 'XX Inflation

the midst of We're X with Tranche together that course, end plan we'll be at putting the of amended filing the then still of integrated projects commission And resource on. our in March. that the came MISO have then that's first in would inventories additional And earnings filed, once additional we update expect of to would Chris, the quarter evaluate projects. CapEx on spend, we an just rate based We call. our continue

that so us And uplift equity rate cash have in and that we to help growth. that support the gives flexibility further just base

talked project we've should and this expansion Georgia then I in an evaluate mean, and us expansion we flexibility before Plastics add as also Phoenix project the for additional continue well, with BTD. in I about to gives

Chris Ellinghaus

to in have the you might do any bill energy thoughts IRP, addition in anything? accelerate the that be So clean how what might about and

Chuck MacFarlane

Clean Minnesota Energy Bill?

Chris Ellinghaus

Yeah.

Chuck MacFarlane

Yeah.

look to we anticipate our carbon-free use are price and component, facilities As meet it. we will allocated Dakotas, to transferred those we existing wind which The use from the at market to will for most components two it, through likely to RECs there's that a generated Minnesota. we RECs

to The will the think capital amount need that, additional drive some second five component forecast. is budget by year currently a of may outside the We be XXXX. XX% renewables, that but hit renewable that

Chris Ellinghaus

the us expansion, give of more you those frame, Plastics things? Can details costs, sort time Okay. on some

Kevin Moug

would be a Yeah. be around line including would million. that collective right time the the second XXXX sometime costs, frame, $XX Chris, in we

the property, we've been we rail spend the which in acquisition working land to to on. acquisition mentioned the doing to and expansion. And fourth we due in the of reminder, expansion completed of we'll Chuck is plant spur rail so comments, the expansion, And by his we rest the in XXXX, quarter -- we're XXXX in of dollars XXXX. a now now, in the terms start did then timing, land as driven that the also as the related And that

a There's a and expected add an of office to of well to expansion an there's then add pipe expansion additional would an a new million as XX-inch part capacity -- that, that pounds XX add line capacity. as additional

So plants. it's uplift between about capacity two overall our an the in X%

Chris Ellinghaus

Great. Okay.

Kevin Moug

time frame XXXX expect me. of sized And facility being then come second we frame, in -- that considered would time right frame kind line a excuse 'XX is and time XXXX is now that then then support the completed, is that once currently in line that the expansion XXXX, is would -- to that when that on

Chris Ellinghaus

helpful. That's in Great. was Okay. 'XX? corporate Kevin, foundation from the contribution what

Kevin Moug

million. $X

Chris Ellinghaus

talked of PVC inventory? was half Okay. And there Or pipe there the year, just in a lastly, in kind slowdown that incremental the was half and much you're inventories the to how first expecting drawdown about year. continue the second dramatic? Was of the of you that that of

Kevin Moug

there at that of where in that inventory, they that's was that start had down. would anticipating a there and we Chris, I one price distributors up fair both was second they kind that a just would saw prices instead buying come higher-priced that sitting say, in was additional QX channel amount of there September, that they combination occurred. early it sales in higher-priced inventory in part released inventory second decreases first we was the latter needed announced was were quarter of certainly we probably was the the a that projects to when August, where to of as of there then and recognition was two and use aware resin a of recognized earnings that was it contractors. There And one large

to QX, causing necessarily course, go XXXX. PVC construction of as additional into learned where or to but housing that into additional we certainly delayed, that not of other then materials into with projects either types being moved get slowdown then, and overall pipe, the expected continue chain a about of issues, started And quarter information the we just As supply into we the fourth market is continued these slowdown projects was of well. canceled

probably materials, The will they inventories pipe to contractors, work the general, is they -- of of is that most is, to and through such and PVC come view that have down other in thought by start that 'XX, that expecting have sufficient we're -- middle are that their seeing that. distributors

Chris Ellinghaus

color the Okay. Great. year. guys Thanks congrats on a tremendous and for

Chuck MacFarlane

Chris. Thanks,

Operator

Thank of the will from Sidoti. Our [Operator Instructions] Russo you. from come next question line Brian

Your line is open.

Brian Russo

Hi. Good morning.

Chuck MacFarlane

Brian. Hi,

Brian Russo

interest 'XX like Are control So just your first interest earning you're pressure can market it your if rate have continue pressures? at where just despite expense inflation ROE. looking under as earnings relative you seems very on trends, on expect to and the those the to utility. close rate -- looks we that interest It to base,

Chuck MacFarlane

Yeah, Brian. This is Chuck.

least in do in those at have decrease pension O&M through think had I up, seeing tailwinds help. expense. operations don't other think we will plant year-over-year, think do our we we repeat are We significant that two and we a that We can, XXXX. items going but expense

Brian Russo

Right.

maybe of three So no jurisdictions? outside have you planned the the IRP cases process, any rate in of

Chuck MacFarlane

this year. do anticipate We overall, will through don't this it one, are would we a of service filing is rate cases. exercise go I by say, rate anticipate most But We not. we I complete Dakota. If would jurisdiction. studies would that there case by cost point, an we be year. likely not And June, in North at every any

Brian Russo

Okay. planned? million Plastics And expansion $XX you of on X% just normalized this the have does million side, to $XX just it. earnings, that then clarify, exclude Got to the capacity

Kevin Moug

doesn't, No, Brian. it

view. longer-term in that to 'XX again, any see kind real that start And frame. time into the of baked we won't probably from So it 'XX, is benefits

Brian Russo

And just then BTD... lastly Okay. Great. on

Kevin Moug

a Just from that, a XXXX frame. forward is that reminder time range

Brian Russo

sense what's what seeing top your -- we and it a you And of obvious might like is a margins? growing top be and in markets macro or is slowdown like the then still to Is XXXX? BTD. trying seems what just to -- of see in just structural organic just you be. structure cost growth the it's Right. is just Yeah. your line which while just is might or slowing end lastly headwinds due Are eating which Just impacting on your It line, get some environment. it

Kevin Moug

we prices -- top a and 'XX the in part at -- garden that to it's rec steel Brian, decline We large is as but 'XX. in line generation then it's vehicle, from they're and we're we're currently -- expected favorable, seeing are to seeing market of the growth the in as XXXX, ag where mentioned, not are market, Yeah. lawn power slow. Chuck mentioned,

we're another is -- revenue in expecting scrap line overall, factor Scrap so XXXX.And $XXX drop in around a drop key XXXX seeing to a will And average the see top top revenue. in a prices tonne. in probably

And we're in that tonne the seeing in now range $XXX 'XX.

or increases so having on terms we types inflationary significant impact other our benefit business have of our care -- well. as earnings health in seeing cost then pressures. continuing are year-over-year we the of as into are that's on And We in terms And a costs side pretty business guidance pressures to pressures and the of costs in built see wage well. inflationary the and inflationary do increasing of certainly

Brian Russo

Thank Great. much. very Okay. you

Operator

Thank further in closing over not back the marks. any to you. like for questions I'm showing Chuck queue. the to call any I'd turn

Chuck MacFarlane

employees their your and call I in Otter our in again like thank year. an making for joining extraordinary Corporation. Tail our would for you efforts interest to thank Well, XXXX

Looking expect the to a $X.XX. within of to XXXX earnings forward, range per industry we the total, we normalize. conditions pipe to industry share transitional in PVC as year be $X.XX expect generate In

Plastics strategic Over growth by strategy well the earnings to are our financial our positioned businesses our we long term, complemented utility achieve Manufacturing and predictable targets. with stream, and

of and thank speaking base to Again, increase to of earnings forward to annually. you X% in range for in We next growth with look we our compound a per XXXX of and X% to produce earnings off quarter. X% joining the X% you dividend our expect share call, to

Operator

concludes Thank today's conference participating. This for call. you

may day. You great now Everyone, disconnect. have a

Otter Tail (OTTR) 14 Feb 232022 Q4 Earnings call transcript