Otter Tail Q1 2025 slides: earnings decline 8% as company maintains guidance

Otter Tail Corporation (NASDAQ:OTTR) shares fell 7.73% to $74.75 on May 6, 2025, following the release of its first quarter earnings presentation that showed an 8% year-over-year decline in earnings per share despite the company maintaining its full-year guidance.

Quarterly Performance Highlights

Otter Tail reported first quarter 2025 net income of $68.1 million and diluted earnings per share of $1.62, down from $74.3 million and $1.77 per share in the same period last year. The company maintained a strong return on equity of 18.3% and reported available liquidity of $607 million.

As shown in the following financial summary chart comparing Q1 2025 to Q1 2024 results:

The 8% decline in earnings represents a significant shift from the company’s robust performance in Q4 2024, when it reported record earnings of $7.17 per share that substantially exceeded analyst forecasts. Despite the quarterly decline, Otter Tail affirmed its 2025 EPS guidance range of $5.68 to $6.08, with a midpoint of $5.88 and projected ROE of 14.2%.

Strategic Initiatives

Otter Tail’s long-term strategy continues to focus on its dual-platform business model, with targeted earnings mix of 65% from its electric utility operations and 35% from its manufacturing segment. The company presentation emphasized its investment thesis, highlighting strategic diversification, internally financed growth, and a long-term EPS growth rate target of 6-8%.

The company’s business overview and investment thesis are illustrated in the following slide:

A significant development during the quarter was the successful conclusion of the North Dakota rate case, which resulted in a $13.1 million net revenue increase (6.18%) and established a new allowed ROE of 10.1% with a 53.5% equity layer. Final rates were implemented in March 2025.

Capital Investment Plan

Otter Tail outlined an ambitious rate base growth plan, projecting an increase from $1.89 billion in 2024 to $2.91 billion by 2029, representing a 9.0% compound annual growth rate. The company expects to convert this rate base growth into electric segment earnings growth at nearly a 1:1 ratio.

The following chart illustrates the projected rate base growth and recovery mechanisms:

The company’s capital investment strategy includes several major projects:

• Advanced Metering Infrastructure ($60 million, completion in 2025)
• Wind Repowering ($230 million, completion in 2024 and 2025)
• Solway Solar ($100 million, completion in 2026)
• Abercrombie Solar ($450 million, completion in 2028)

Operating Environment and Risk Factors

Otter Tail identified several challenges in its operating environment, particularly related to tariffs and Inflation Reduction Act (IRA) changes in its electric segment. The company outlined mitigation strategies including domestic sourcing where possible and actively advocating for tax credit continuation.

In the manufacturing segment, the company noted increased capital expenditure costs and challenges in domestic sourcing. For its plastics business, Otter Tail indicated that product demand remains robust but is monitoring for potential changes in residential and commercial development activity.

Forward-Looking Statements

Despite the quarterly earnings decline, Otter Tail’s management expressed confidence in the company’s long-term outlook. The electric segment is expected to deliver 7% earnings growth in 2025, supported by the rate base expansion plan and regulatory outcomes.

The company highlighted its 86-year history of uninterrupted dividends as part of its 9-11% total shareholder return target. Otter Tail’s financial strategy emphasizes internally financed growth without equity needs, leveraging cash flow from its manufacturing platform to fund utility rate base growth.

The Q1 2025 results and maintained guidance suggest that while Otter Tail faces near-term challenges reflected in the quarterly earnings decline and stock price drop, management remains confident in the company’s ability to execute its long-term growth strategy centered on electric utility expansion and strategic manufacturing operations.

Full presentation:

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