Otter Tail's Earnings Call: Settlement Timing, Pricing Claims Don't Match

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Date of Call: Aug 4, 2026

Financials Results

• EPS: $1.66 per diluted share, down 10% YOY

Guidance:

• Adjusted diluted EPS guidance increased to $5.68-$6.08, excluding after-tax impact of PVC legal settlement.
• Electric segment guidance maintained, assuming 14% earnings increase YOY.
• Manufacturing segment guidance increased due to higher volumes and improved margins expected in H2.
• Plastic segment guidance raised as price decline moderated; expects 2026 avg sales price down ~15% YOY.
• Corporate costs expected to increase due to lower investment income and tax benefit from settlements.

Business Commentary:

Earnings and Financial Outlook:

• Otter Tail Corporation reported adjusted diluted earnings per share of $1.66 for Q2 2026, a 10% decrease from the same period last year.
• The decline was primarily driven by performance in the plastic segment due to a 14% decrease in the average sales price of PVC pipe, although sales volumes increased by 15%.
• The company raised its full-year guidance to an adjusted diluted earnings per share range of $5.68 to $6.08, reflecting improved expectations for the manufacturing and plastic segments.

Strategic Initiatives and Regulatory Developments:

• Otter Tail Power secured route permits for two large regional transmission projects and filed a 15-year integrated resource plan with the Minnesota Public Utilities Commission.
• The IRP recommends adding renewable energy sources, including a 50 megawatt natural gas facility by 2031-2032 and wind facilities in 2035 and 2040.
• The strategic focus is on maintaining reliable and low-cost electric service while advancing regulatory approvals to support future growth.

Manufacturing and Market Conditions:

• The manufacturing segment's earnings increased by 38%, driven by favorable product mix and higher sales volumes in construction, recreational vehicle, and horticulture markets.
• Industry conditions are improving, particularly in construction and industrial markets, although agriculture remains challenging due to economic factors.
• The company's expanded capacity in Georgia allowed it to capitalize on increased demand, stabilizing the recreational vehicle and lawn and garden markets.

PVC Pipe Market and Legal Settlement:

• The plastic segment's average sales price for PVC pipe decreased by 14%, but sales volumes increased by 15% due to customers securing inventory before anticipated resin price increases.
• The company settled antitrust litigation for $103.5 million, which does not affect current pricing dynamics or customer relationships.
• The settlement provides clarity and reduces legal uncertainties, allowing the company to focus on operational priorities.

Capital Investments and Growth Plan:

• Otter Tail Power's five-year capital investment plan totals $1.9 billion, focusing on customer-oriented projects to support electric rate growth and reliability.
• The company plans to fund growth without external equity, utilizing debt issuance and strong liquidity, with over $600 million in available liquidity.
• Continued execution on capital projects, such as solar and battery storage, is expected to align with the long-term strategic growth objectives.

Sentiment Analysis:

Overall Tone: Positive

• CEO states 'our team advanced our strategic initiatives' and 'we remain confident in our ability to deliver on our growth plan.' CFO notes 'we are in a position of financial strength' with strong liquidity and balance sheet to fund growth without equity. Guidance raised across electric, manufacturing, and plastic segments.

Q&A:

• Question from Tate Sullivan (Maxson Group): As a manufacturing business, I think historically you've pointed to a net profit margin of 5% to 7% range in that business. Can you comment on that going forward given the strength in the US PMI recently and other considerations, please?
  Response: Current net income return is about 5%; opportunities exist to improve via increased volumes, fixed cost leveraging, and operating efficiencies.

• Question from Tate Sullivan (Maxson Group): In terms of the manufacturing capacity footprint of BTD currently, I mean, are you operating close to that capacity level or do you still have room to grow?
  Response: Still have room to grow; recent Georgia facility expansion provides additional capacity for targeted growth.

• Question from Tate Sullivan (Maxson Group): Shifting to the PVC business too, and you've previously announced most of these settlements and then adjusted the guidance today. Does it change the pricing dynamic with the distributors going forward? Was the relationship with customers part of the consideration of settling?
  Response: No change to pricing or customer relationships; settlement does not impact them.

• Question from Tate Sullivan (Maxson Group): Is one way to look at the settlements is looking at taking out the $100-odd million from the historical net income in the PVC business, and that's sort of the adjusted pricing, where pricing would have been? Or is that an incorrect way to look at the settlements?
  Response: Cannot make that determination yet.

• Question from Tate Sullivan (Maxson Group): And then last, did you say during the comments, too, that the payment potentially, depending on the court approval, potentially made all three payments by the end of the year? Is that the right way to look at timing for the cash?
  Response: Full $103.5M payment made into escrow by end of July; funds remain there until final court approval in Q4.

• Question from Michael Pelletier (KeyBank): Just on the large load pipeline included meaningful additions this quarter. Just curious on what's driving the step up and then to what extent are customers increasingly looking to your service territory as alternative regions face interconnection constraints and moratoriums?
  Response: Diversity in pipeline (data centers, clean fuel, thermal storage) is a strength; some customer interest driven by feedback on interconnection challenges in other regions.

• Question from Michael Pelletier (KeyBank): And then just on the timing and cadence of the capital investments contemplated in the IRP, I guess, specifically with the natural gas gen, would this be incremental to the $759 opportunity? And then when could you see those opportunities begin to materialize?
  Response: Yes, incremental to the $750M identified; expects IRP approval by end of Q2 2027, with development beginning and investment opportunities possibly emerging late in the five-year plan period.

Contradiction Point 1

Timing for PVC Settlement Fund Release

Contradiction on when the settlement funds will be released from escrow.

Tate Sullivan (Maxson Group) - Tate Sullivan (Maxson Group)

2026Q2: The full $103.5 million settlement payment was made into an escrow account by the end of July... until final court approval is received. - Tyler(CFO)

Will the settlement payment be made by the end of the year, pending court approval? - Tate Sullivan (Maxim Group)

2026Q2: The full settlement payment... will be released only after final court approval in Q4 2026. - Tyler(CFO) & Chuck(CEO)

Contradiction Point 2

Impact of PVC Legal Settlement on Pricing and Customer Relationships

Contradiction on whether the settlement alters pricing dynamics or customer relationships.

Tate Sullivan (Maxson Group) - Tate Sullivan (Maxson Group)

2026Q2: The settlement does not change any pricing or customer relationships. The company does not view it as impacting those dynamics. - Chuck McFarland(CFO)

Does the PVC legal settlement alter pricing dynamics with distributors or impact customer relationships going forward? - Christopher Ellinghaus (Siebert Williams Shank & Co., L.L.C.)

2026Q1: The conflict is impacting U.S. domestic resin export prices, driving up domestic prices. - Chuck MacFarlane(CFO)

Contradiction Point 3

Manufacturing Growth Capacity and Expansion Plans

Contradiction on the capacity and growth prospects at the Georgia facility.

What are your thoughts on Maxson Group's earnings performance? - Tate Sullivan (Maxson Group)

2026Q2: There is still room to grow. The company recently expanded its facility in Georgia, and that facility has additional capacity for growth... - Tyler(CFO)

Are you operating near manufacturing capacity or is there room for growth? - Tate Sullivan (Maxim Group)

2026Q2: There is still room for growth, particularly at the recently expanded facility in Georgia, which was a targeted investment for existing customer growth. - Tyler(CFO)

Contradiction Point 4

Availability and Nature of Q&A Session

Contradiction on whether a formal Q&A session occurred.

Tate Sullivan (Maxson Group) - Tate Sullivan (Maxson Group)

2026Q2: Here are the identified questions and answers from the earnings call transcript... - [Unspecified Analyst]

Will the company maintain its historical net profit margin of 5% to 7% going forward? - Operator (re: Call flow)

2025Q4: There are currently no questions in the queue... I will turn the call back to Chuck for his closing remarks. - Operator

Contradiction Point 5

Timing of Minnesota Rate Case Hearing

Contradiction on the expected timing for the next key step in the rate case process.

Tate Sullivan (Maxson Group) - Tate Sullivan (Maxson Group)

2026Q2: The next key step is intervenor testimony, expected in the second quarter. - Timothy Rogelstad(CEO)

Can you provide an update on the Minnesota rate case process and share what the next major hurdle is for the company? - Christopher Ellinghaus (Siebert Williams Shank & Co., L.L.C.)

2026Q1: The process is in the discovery phase... The next step is intervenor testimony, expected in the second quarter. - Timothy Rogelstad(CEO)

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