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Otter Tail NASDAQ: OTTR reported second-quarter adjusted diluted earnings per share of $1.66, down from $1.85 a year earlier, as lower PVC pipe pricing weighed on its plastics segment. The company raised its full-year adjusted earnings guidance to a range of $5.68 to $6.08 per share, excluding the after-tax effect of a legal settlement related to PVC pipe antitrust litigation.Chief Executive Officer Chuck MacFarlane said the company advanced utility regulatory and infrastructure initiatives during the quarter while its manufacturing and plastics businesses benefited from higher sales volumes. The updated guidance compares with Otter Tail's original 2026 adjusted EPS outlook of $5.22 to $5.62.
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Plastics pricing declines, while volume rises Otter Tail's adjusted plastics segment earnings fell $0.14 per share, or 11% from a year earlier, primarily because PVC pipe selling prices declined. The average PVC pipe sales price was down 14% year over year during the second quarter, although the rate of decline moderated, according to management.
Sales volumes increased 15% and exceeded the company's expectations. MacFarlane said customers appeared to have purchased additional pipe ahead of announced PVC resin price increases. Otter Tail responded by using added capacity at its Phoenix facility, selling more pipe in the quarter than it had in any prior quarter, he said.
For the full year, Otter Tail now expects average PVC pipe prices to decline about 15% from the 2025 average. It expects softer volumes in the second half following the second-quarter order pull-forward, though its full-year volume assumption is largely unchanged.
The company raised its plastics guidance after second-quarter adjusted results surpassed its expectations and after it revised pricing assumptions for the balance of the year. Chief Financial Officer Tyler Nelson said average PVC pipe prices increased sequentially from the first quarter to the second quarter amid strong demand, though the company does not expect that trend to continue through the rest of 2026.
PVC litigation settlement awaits final approval Otter Tail entered settlement agreements with three classes in U.S. PVC pipe antitrust litigation during the quarter. The court has preliminarily approved the agreements, and the company expects final approval in the fourth quarter.
Without admitting wrongdoing, fault or liability, Otter Tail agreed to pay $103.5 million to resolve the litigation. The settlement charge had an after-tax impact of $1.84 per share and was excluded from adjusted results and updated guidance.
Nelson said the company had deposited the full $103.5 million into an escrow account by the end of July. The funds remain on Otter Tail's balance sheet until final court approval, at which point the company will no longer have access to them.
MacFarlane said the settlement would not change the company's pricing dynamics or customer relationships. He said resolving the claims reduced uncertainty, distraction, costs and exposure associated with the litigation.
Utility investments and large-load pipeline expand Otter Tail Power secured route permits for both of its MISO Tranche 1 345-kilovolt transmission projects during the second quarter. The two reliability-focused transmission lines span nearly 200 miles in total. The company also said its Solway Solar project remains on track for operation in the first half of 2027, while Abercrombie Solar is targeted for 2028. Its battery storage project is also targeted for a 2028 in-service date.
The utility filed a 15-year integrated resource plan with the Minnesota Public Utilities Commission in May. Its preferred plan includes a 50-megawatt natural gas facility in 2031 or 2032, followed by 50-megawatt wind facilities in 2035 and 2040. The company expects a hearing and final order on the plan in the second quarter of 2027.
President Tim Rogelstad said the natural gas project would be incremental to the company’s previously identified $750 million of incremental investment opportunities. If approved, development work could begin next year, with investment potentially appearing late in the company’s current five-year planning period.
Otter Tail reaffirmed its expected five-year rate base compound annual growth rate of 10% and said it expects utility earnings to grow at a similar rate. Its $1.9 billion customer-focused utility capital plan remains unchanged.
The company’s phase-one large-load pipeline increased by about 350 MW to 1,400 MW. About 35% of the opportunity is associated with a data center, while the balance is tied to clean fuel and thermal-storage projects. Management said it filed large-load tariffs in Minnesota, North Dakota and South Dakota designed to require long-term contracts and financial guarantees and to directly assign new-load costs to the new customers.
Manufacturing outlook improves Manufacturing segment earnings increased $0.03 per share, or 38%, driven by favorable product mix and increased sales volumes in construction, recreational vehicle and horticulture markets. Higher operating costs, including performance-based compensation, partly offset those gains.
Otter Tail raised manufacturing guidance, citing improving end-market conditions, stronger expected second-half volumes, improved price realization and better absorption of fixed costs. Nelson said the manufacturing business generated about a 5% net income return during the first six months and that management sees potential for improvement through higher volumes, efficiencies and productivity gains.
The company said it has additional capacity available at its Georgia manufacturing facility following a recent expansion. Management described recreational vehicle and lawn-and-garden demand as largely stabilized, construction demand as improving and industrial demand as strong, while agricultural conditions remained challenging because of elevated costs, lower relative commodity prices and trade disruption.
Otter Tail ended June with an equity layer equal to 60% of total capital and more than $600 million in available liquidity, including $278 million of cash and cash equivalents. Nelson said the company expects to fund its current rate-based growth plan without issuing external equity. It also plans to retire, rather than refinance, $80 million of parent-level debt maturing in the fourth quarter.
About Otter Tail (NASDAQ:OTTR)Otter Tail Corporation, through its primary subsidiary Otter Tail Power Company, is a regulated electric utility engaged in the generation, transmission and distribution of electricity. The company operates a diversified portfolio of owned and contracted power generation facilities, including coal, natural gas, wind and hydroelectric units, supplemented by long-term power purchase agreements. In addition to utility operations, Otter Tail provides related engineering, construction and maintenance services to support grid reliability and efficiency.
The company's service territory covers a predominantly rural footprint in the Upper Midwest, including communities in west-central Minnesota, eastern North Dakota, northwest Wisconsin and small portions of South Dakota.
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