Otter Tail Corporation Reports Quarterly Results for the Period Ended March 31, 2025

Otter Tail Corporation’s Diverse Business Segments Perform Amidst Economic Challenges

Otter Tail Corporation, a diversified group of businesses, has reported its financial results for the first quarter of 2025. The company operates in three main segments: Electric, Manufacturing, and Plastics.

Economic Conditions Impact the Business

Otter Tail is navigating the effects of changes in U.S. trade and tariff policies, which have led to increased costs for steel and other materials. This has impacted the company’s capital expenditures in the Electric segment and the operating results of the Manufacturing segment. Broader economic conditions, such as rising inflation and the risk of recession, could also negatively affect Otter Tail’s business through higher costs and reduced customer demand.

Consolidated Financial Performance

Otter Tail’s consolidated operating revenues decreased by $9.7 million, or 2.8%, primarily due to lower sales volumes in the Manufacturing segment, partially offset by increased revenues in the Electric segment. Operating expenses increased by $1.3 million, or 0.5%, due to higher purchased power costs and depreciation in the Electric segment, as well as increased sales volumes in the Plastics segment.

Interest expense increased by $1.7 million, or 17.3%, mainly from the issuance of $120 million in long-term debt by the Electric segment in March 2024. Income tax expense decreased by $7.7 million, or 43.4%, due to an increase in production tax credits (PTCs) at the Electric segment and a decrease in income before taxes.

Overall, Otter Tail’s net income decreased by $6.2 million, or 8.4%, compared to the same period in the prior year.

Segment Performance

Electric Segment The Electric segment’s operating revenues increased by $8.2 million, or 5.8%, primarily due to higher fuel recovery revenues, the impact of favorable weather, and increased customer demand in North Dakota. Production fuel costs decreased by $3.4 million, or 19.1%, due to a shift in generation mix towards more wind power. However, purchased power costs increased by $8.3 million, or 37.1%, to serve higher customer demand.

Depreciation and amortization expense increased by $2.5 million, or 12.5%, due to additional assets being placed in service. Interest expense increased by $1.7 million, or 19.0%, due to the issuance of long-term debt. The segment’s net income increased by $2.2 million, or 10.0%, compared to the prior year.

Manufacturing Segment The Manufacturing segment’s operating revenues decreased by $17.7 million, or 17.8%, primarily due to a 13% decline in sales volumes, particularly in the recreational vehicle, agriculture, and construction end markets. Cost of products sold decreased by $12.6 million, or 16.4%, driven by the lower sales volumes and steel costs. However, gross profit margins decreased due to reduced leveraging of fixed manufacturing costs and increased labor costs.

The segment’s net income decreased by $3.7 million, or 70.9%, compared to the same period in the prior year.

Plastics Segment The Plastics segment’s operating revenues decreased by $0.3 million, or 0.2%, due to an 11% decrease in sales prices, partially offset by a 13% increase in sales volumes. Cost of products sold increased by $2.3 million, or 6.0%, primarily due to the higher sales volumes, partially offset by a 9% decrease in the cost of PVC resin and other input materials.

Selling, general, and administrative expenses increased by $1.4 million, or 35.6%, mainly due to costs associated with ongoing litigation regarding PVC pipe pricing. The segment’s net income decreased by $3.3 million, or 7.1%, compared to the prior year.

Corporate Costs Corporate costs, which include unallocated general corporate expenses, increased by $1.6 million, or 32.7%, primarily due to higher employee health insurance claim costs.

Regulatory Matters

Otter Tail’s Electric segment has been involved in several regulatory proceedings, including a general rate case in North Dakota that was approved in December 2024. The key provisions of the order include a revenue requirement of $225.6 million, based on a return on rate base of 7.53% and an allowed return on equity (ROE) of 10.10% on an equity ratio of 53.5%. The order also established an earnings-sharing mechanism, where 70% of actual earnings in excess of a 10.20% ROE would be returned to customers.

The company has also filed various rate rider applications in Minnesota and the Dakotas to recover costs related to energy conservation, transmission projects, and other investments.

Liquidity and Capital Resources

Otter Tail maintains a strong financial position, with $607.2 million in total available liquidity as of March 31, 2025, including $322.4 million in available credit facilities and $284.8 million in cash and cash equivalents.

The company’s capital expenditure plan includes investments in electric generation, transmission and distribution, as well as equipment for the Manufacturing and Plastics segments. Otter Tail issued $50 million in long-term debt at the Electric segment in March 2025 to fund capital expenditures and support operating activities.

Otter Tail paid $22.0 million in dividends to shareholders in the first quarter of 2025, and the company’s Board of Directors continues to review the dividend policy on a quarterly basis.

Outlook and Conclusion

Otter Tail Corporation’s diverse business segments have faced various challenges, including the impact of trade and tariff policies, broader economic conditions, and regulatory changes. The Electric segment has performed well, with increased revenues and net income, while the Manufacturing and Plastics segments have experienced declines in operating results.

The company’s strong financial position, with ample liquidity and access to capital markets, provides it with the flexibility to navigate these challenges and continue investing in its operations. Otter Tail’s management remains focused on optimizing the performance of its business segments and positioning the company for long-term success.