\nOtter Tail Corporation (Nasdaq: OTTR) today announced financial results for the quarter ended June 30, 2021.\n<\/p>\n
SUMMARY<\/b><\/p>\n
\nCompared to the quarter ended June 30, 2020:\n<\/p>\n
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- \nConsolidated operating revenues increased 48.2% to $285.6 million.\n<\/li>\n
- \nConsolidated net income increased 147.7% to $42.1 million primarily driven by strong Plastics segment performance resulting from unique market conditions.\n<\/li>\n
- \nDiluted earnings per share increased 140.5% to $1.01 per share.\n<\/li>\n<\/ul>\n
\nThe corporation increases its 2021 diluted earnings per share guidance range to $3.50 to $3.65 reflecting a range of 50% to 56% growth off of 2020 reported $2.34 diluted earnings per share.\n<\/p>\n
CEO OVERVIEW<\/b><\/p>\n
\n\u201cOtter Tail Corporation, through the efforts of our employees and unique market conditions, achieved outstanding financial results during the second quarter of 2021,\u201d said President and CEO Chuck MacFarlane. \u201cEach operating company improved net income during the second quarter compared with the same period a year ago. The Electric segment had a record second quarter in net earnings. The Plastics segment continues its outstanding year driven by PVC resin supply constraints, which initially occurred in the first quarter and continued through the second quarter, have resulted in continued increasing PVC pipe prices and margins at levels not previously experienced. These increased results are primarily due to the unusual and infrequent impact resulting from the extreme cold weather in February that caused resin suppliers to temporarily close various petrochemical plants in the Gulf Coast. We expect these conditions will moderate during 2022 as supply constraints are expected to continue for the remainder of 2021.\n<\/p>\n
\n\u201cOn May 27, 2021 we retired our 140-megawatt (MW) Hoot Lake Plant marking the end of 100 years of coal-fired generation at the site. Our employees did a fantastic job operating this facility reliably and safely up to its retirement. Our replacement generation includes Merricourt, our 150 MW wind facility, and Astoria Station, our 245 MW natural gas-fired combustion turbine generation facility, which was made available to the MISO market on April 30, 2021. This facility, with fast start capability, complements our wind generation with more dispatchable capacity than Hoot Lake Plant, and with projected carbon emissions 85 percent less compared to Hoot Lake Plant\u2019s 2005 emission levels.\n<\/p>\n
\n\u201cWe continue to make progress on Otter Tail Power\u2019s $60.0 million, 49.9 MW Hoot Lake Solar project, which will be constructed on and near Hoot Lake Plant property in Fergus Falls, Minnesota. We recently received approval of our Conditional Use Permit, which is our last major permit requirement. We received a favorable regulatory order from the Minnesota Public Utilities Commission (MPUC) when they approved the project in March with 100 percent allocation of costs and benefits to Minnesota customers and eligibility for recovery through the Minnesota renewable rider. The location of Hoot Lake Solar offers us a unique opportunity to re-use our existing Hoot Lake transmission rights, substation and land.\n<\/p>\n
\n\u201cBased on our current dispatch levels of Big Stone Plant and Coyote Station our target is to reduce carbon emissions from our owned generation resources approximately 50 percent from 2005 levels by 2025 and 97 percent by 2050. Up to 35 percent of our energy is projected to come from renewable resources by 2023.\n<\/p>\n
\n\u201cWe continue to work through the Minnesota rate case, and on January 1, 2021, Otter Tail Power implemented approved interim rates in Minnesota in connection with its revenue increase request filed with the MPUC in November 2020. Investment in cleaner energy generation and smarter technologies are primarily driving this request along with rising costs for providing electric service. In a filing submitted to the MPUC on April 30, 2021, Otter Tail Power lowered its requested net annual revenue increase from its initial request of $14.5 million to $8.2 million, primarily due to a reduction in operating costs from amounts included in its November 2020 filing. The cost reductions result primarily from lower depreciation expense on our wind generation assets due to the extension of depreciable lives from 25 to 35 years that was approved by the MPUC and a reduction in postretirement benefit costs. We anticipate a decision from the Minnesota Public Utilities Commission in the fourth quarter.\n<\/p>\n
\n\u201cOtter Tail Power continues to benefit from strong rate base growth investments. These investments represent over 85 percent of our total capital spending over the next five years and include regulated investments in renewable generation, technology and infrastructure, and transmission assets. We expect this to result in a projected compounded annual growth rate of approximately 5 percent in utility rate base from year-end 2020 through 2025 and to deliver value to customers and shareholders. We continue to make system investments to meet our customers\u2019 expectations, reduce operating and maintenance costs, reduce emissions and improve reliability and safety.\n<\/p>\n
\n\u201cOtter Tail Power is planning to file its Minnesota Integrated Resource Plan in all three of its jurisdictions in September 2021. We expect this filing will result in additional capital expenditures that will be incremental to our current five-year capital expenditure plan.\n<\/p>\n
\n\u201cOur Manufacturing Segment increased revenues and net income $38.3 million and $5.5 million, respectively, compared to the second quarter of 2020, due to strong end market demand and higher scrap metal sales prices at BTD Manufacturing. Steel prices, which are a pass through to customers, continue to exceed historical levels as mill capacity has been slow to come online after capacity reductions in 2020 related to COVID-19, creating supply chain challenges as the mills struggle to keep up with demand.\n<\/p>\n
\n\u201cOur Plastics Segment produced a 339% increase in quarterly earnings in the second quarter of 2021. PVC resin availability in the first quarter was constrained due to the impact of the February winter storms. These supply constraints continued into the second quarter and led to increased sales prices for PVC pipe, increased resin costs and increased operating margins resulting in a record second quarter.\n<\/p>\n
\n\u201cOur long-term focus remains on executing our growth strategies. For the utility, our strategy is to continue to invest in rate base growth opportunities and drive efficiency within our operating and maintenance expenses, which will lower our overall risk, create a more predictable earnings stream, maintain our credit quality and preserve our ability to pay dividends. Over time, we expect the electric utility business will provide approximately 70 to 75 percent of our overall earnings.\n<\/p>\n
\n\u201cThe utility is complemented by well-run, strategic manufacturing and plastic pipe businesses, which provide organic growth opportunities from new products and services, market expansion and increased efficiencies. We expect these companies will provide approximately 25 to 30 percent of our earnings over the long term.\n<\/p>\n
\n\u201cWe are increasing our 2021 earnings per share guidance to a range of $3.50 to $3.65 from our previous range announced in May 2021 of $2.47 to $2.62.\u201d\n<\/p>\n
QUARTERLY DIVIDEND<\/b><\/p>\n
\nOn August 2, 2021 the corporation\u2019s Board of Directors declared a quarterly common stock dividend of $0.39 per share. This dividend is payable September 10, 2021 to shareholders of record on August 13, 2021.\n<\/p>\n
CASH FLOWS AND LIQUIDITY<\/b><\/p>\n
\nOur consolidated cash provided by operating activities for the six months ended June 30, 2021 was $68.6 million compared with $73.9 million for the six months ended June 30, 2020.\n<\/p>\n
\nInvesting activities for the six months ended June 30, 2021 included capital expenditures of $76.9 million compared with $119.8 million for the six months ended June 30, 2020. The decrease in capital expenditures was primarily related to Astoria Station and the Merricourt Wind Energy Center (Merricourt) being under construction in the first and second quarters of 2020 with the capital spend being substantially complete for both projects by year-end 2020.\n<\/p>\n
\nFinancing activities for the six months ended June 30, 2021 included net proceeds from short-term borrowings of $47.0 million and common dividend payments of $32.4 million. The proceeds from short-term borrowings were primarily used to fund construction expenditures. Financing activities for the six months ended June 30, 2020 included proceeds of $35.0 million from the issuance of long-term debt at Otter Tail Power Company, $35.2 million in net short-term borrowings, and $27.2 million from the issuance of common stock. Proceeds from the debt and equity issuances were used to fund construction program expenditures in 2020. We paid $29.9 million in common dividends during the six months ended June 30, 2020.\n<\/p>\n
\nOn June 10, 2021, we completed a senior unsecured note offering pursuant to which we agreed to issue $230.0 million of Otter Tail Power Company senior unsecured notes, with $140.0 million to be issued in November 2021 and $90.0 million to be issued in May 2022. We intend to use the proceeds of the notes to refinance existing long-term indebtedness, including long-term debt instruments with outstanding principal balances of $140.0 million and $30.0 million, which mature in December 2021 and August 2022, respectively, and for general corporate purposes.\n<\/p>\n
\nThe following table presents the status of the corporation\u2019s lines of credit at June 30, 2021 and December 31, 2020:\n<\/p>\n