Otter Tail's Q1 2025: Navigating Contradictions in Plastics Volume, Competitor Dynamics, and Revenue Growth

Volume assumptions for the Plastics Segment, Competitor capacity expansion, Volume and revenue growth assumptions, Impact of competitor capacity expansion, Volume assumptions for the Plastics Segment are the key contradictions discussed in Otter Tail's latest 2025Q1 earnings call.



Financial Performance and Earnings:
- Otter Tail Corporation reported diluted earnings per share of $1.62 in the first quarter, showing an 8% decline from the same period last year but aligning with expectations for 2025 annual guidance.
- The decline was primarily due to industry conditions impacting manufacturing and plastics segments, while earnings from the electric segment grew by 10% due to favorable weather and increased sales volumes.

Tariff Exposure and Trade Policy:
- The company is monitoring the landscape of trade and tax policy, acknowledging tariff exposure mainly on materials and components used in capital investments.
- Increased costs could impact the timing or requested amount of recovery on investments, but any customer impact would be spread over the asset's life, with a focus on minimizing disruption and taking advantage of potential opportunities.

Capital Investment and Rate Base Growth:
- Otter Tail Power affirmed its Electric segment capital investment and rate base growth projections through 2029, expecting a compounded annual growth rate and rate base of 9%.
- This growth is anticipated to convert into earnings per share growth on approximately a 1:1 ratio, driven by customer-focused investments aimed at producing more affordable energy for customers.

Manufacturing Segment Challenges:
- Manufacturing segment earnings decreased by $0.09 per share due to lower sales volumes, increased production costs, and unfavorable product mix.
- The decline was attributed to soft end market demand, particularly in the recreational vehicle and agricultural equipment markets, but the segment remains positioned for future growth opportunities with ongoing capacity expansions.

Plastics Segment Pricing and Volumes:
- Sales prices of PVC pipe in the Plastics segment have steadily declined, dropping by 11% in the first quarter of 2025 compared to the same period last year.
- Sales volumes increased by 13% in the quarter due to strong distributor and end market demand, as well as the incremental volume from capacity expansions.