Otter Tail Corporation (OTTR) Bundle
Understanding Otter Tail Corporation (OTTR) Revenue Streams
Understanding Otter Tail Corporation’s Revenue Streams
The Otter Tail Corporation generates revenue through multiple segments, including Electric, Manufacturing, and Plastics. Below is a detailed breakdown of these revenue sources, along with key statistics reflecting year-over-year growth and segment contributions.
Breakdown of Primary Revenue Sources
-
Electric Segment:
- Retail Revenues: $331,673,000 (2024) vs. $340,667,000 (2023) - Decrease of 2.6%
- Transmission Services Revenues: $39,805,000 (2024) vs. $40,606,000 (2023) - Decrease of 2.0%
- Wholesale Revenues: $8,273,000 (2024) vs. $9,260,000 (2023) - Decrease of 10.7%
- Other Electric Revenues: $4,945,000 (2024) vs. $5,464,000 (2023) - Decrease of 9.5%
-
Manufacturing Segment:
- Operating Revenues: $275,961,000 (2024) vs. $309,936,000 (2023) - Decrease of 11.0%
-
Plastics Segment:
- Operating Revenues: $366,780,000 (2024) vs. $328,920,000 (2023) - Increase of 11.5%
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, the consolidated operating revenues were $1,027,437,000, a slight decrease of 0.7% compared to $1,034,853,000 in the same period of 2023. The primary factors contributing to this decline include:
- Decreased sales prices in the Plastics segment.
- Decreased sales volumes in the Manufacturing segment.
- Unfavorable weather impacting Electric segment revenues.
Contribution of Different Business Segments to Overall Revenue
| Segment | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Change (in thousands) | % Change |
|---|---|---|---|---|
| Electric | $384,696 | $395,997 | $(11,301) | (2.9)% |
| Manufacturing | $275,961 | $309,936 | $(33,975) | (11.0)% |
| Plastics | $366,780 | $328,920 | $37,860 | 11.5% |
| Total | $1,027,437 | $1,034,853 | $(7,416) | (0.7)% |
Analysis of Significant Changes in Revenue Streams
In 2024, the Electric segment experienced a decrease in retail revenues primarily due to unfavorable weather conditions and a decline in wholesale sales volumes. The Manufacturing segment’s revenues decreased significantly due to lower demand in key markets such as recreational vehicles and agriculture.
Conversely, the Plastics segment saw growth in revenues, attributed to a 28% increase in sales volumes despite declining sales prices. This segment's resilience highlights its capability to adapt to market demands effectively.
The overall revenue landscape for the company reflects mixed results across its segments, with significant contributions from the Plastics segment offsetting declines in Electric and Manufacturing sectors.
A Deep Dive into Otter Tail Corporation (OTTR) Profitability
A Deep Dive into Otter Tail Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit was $313,426 thousand, compared to $307,839 thousand for the same period in 2023, reflecting a 1.8% increase in gross profit.
Operating Profit Margin: The operating income for the nine months ended September 30, 2024 was $246,812 thousand, up from $236,424 thousand in 2023, marking a 4.4% increase.
Net Profit Margin: The net income for the third quarter of 2024 was $85,479 thousand, compared to $91,974 thousand in the same quarter of 2023, indicating a decrease of 7.1%.
| Metric | Q3 2024 | Q3 2023 | % Change |
|---|---|---|---|
| Gross Profit | $313,426 | $307,839 | 1.8% |
| Operating Income | $246,812 | $236,424 | 4.4% |
| Net Income | $85,479 | $91,974 | -7.1% |
Trends in Profitability: The overall trends indicate a stable gross and operating profit margin, while net income saw a decline in Q3 2024 compared to Q3 2023. The effective tax rate for the first nine months of 2024 was 18.8%, down from 19.7% in the previous year, contributing to the increase in net income despite the decline in Q3 performance.
Profitability Ratios Comparison: The company’s gross margin stands at approximately 30.5% for 2024, compared to the industry average of 28%. Operating margin is around 24%, slightly above the industry average of 22%. The net profit margin is 8.6%, which is lower than the industry average of 9%.
| Ratio | Otter Tail Corporation | Industry Average |
|---|---|---|
| Gross Margin | 30.5% | 28% |
| Operating Margin | 24% | 22% |
| Net Profit Margin | 8.6% | 9% |
Operational Efficiency Analysis: The company has demonstrated effective cost management, with operating expenses decreasing by 1.8% to $714,011 thousand for the nine months ended September 30, 2024, down from $727,014 thousand in 2023. This decrease is attributed to lower sales volumes in the manufacturing segment and reduced fuel costs in the electric segment.
Gross Margin Trends: The gross margin for the electric segment was 26.3% for the nine months ended September 30, 2024, compared to 25.5% in 2023. The plastics segment gross margin improved to 59.8%, up from 57.0%. In contrast, the manufacturing segment faced challenges, with a decrease in gross margin from 15.3% to 10.4%.
| Segment | Gross Margin Q3 2024 | Gross Margin Q3 2023 |
|---|---|---|
| Electric | 26.3% | 25.5% |
| Plastics | 59.8% | 57.0% |
| Manufacturing | 10.4% | 15.3% |
Debt vs. Equity: How Otter Tail Corporation (OTTR) Finances Its Growth
Debt vs. Equity: How Otter Tail Corporation Finances Its Growth
Long-Term and Short-Term Debt Levels
As of September 30, 2024, the total long-term debt of the company was $947 million, which includes various senior unsecured notes. The breakdown of the long-term debt is as follows:
| Debt Instrument | Interest Rate | Maturity Date | Principal Amount (in thousands) |
|---|---|---|---|
| OTC Guaranteed Senior Notes | 3.55% | 12/15/2026 | $80,000 |
| OTP Series 2007C Senior Unsecured Notes | 6.37% | 08/02/2027 | $42,000 |
| OTP Series 2013A Senior Unsecured Notes | 4.68% | 02/27/2029 | $60,000 |
| OTP Series 2024A Senior Unsecured Notes | 5.48% | 04/01/2034 | $60,000 |
| OTP Series 2024B Senior Unsecured Notes | 5.77% | 04/01/2054 | $60,000 |
In addition, the company reported short-term borrowings amounting to $67.4 million under its credit agreements as of the same date.
Debt-to-Equity Ratio and Industry Comparison
The debt-to-equity ratio as of September 30, 2024, was 0.38, indicating a balanced approach to financing. This is below the industry average of approximately 0.60, suggesting a relatively conservative capital structure.
Recent Debt Issuances and Credit Ratings
In March 2024, the company issued $120 million in senior unsecured notes, comprising $60 million of 5.48% notes due in 2034 and $60 million of 5.77% notes due in 2054. The proceeds were allocated to repay short-term borrowings and fund capital expenditures.
The company's credit ratings remain strong, supported by its ability to maintain financial covenants, including a minimum interest coverage ratio of 1.50.
Balancing Debt Financing and Equity Funding
The company employs a strategic balance between debt financing and equity funding. As of September 30, 2024, total shareholders' equity was $1.633 billion, reflecting a robust equity base to support ongoing operations and capital investments.
Furthermore, the company has an Automatic Dividend Reinvestment and Share Purchase Plan, allowing shareholders to reinvest dividends into additional shares, enhancing equity funding.
Overall, the financial structure of the company showcases a prudent approach to leveraging debt while maintaining a solid equity position, positioning it well for future growth and operational flexibility.
Assessing Otter Tail Corporation (OTTR) Liquidity
Assessing Liquidity and Solvency
Current Ratio: As of September 30, 2024, the current ratio is 2.17, calculated as total current assets of $650,313,000 divided by total current liabilities of $299,590,000.
Quick Ratio: The quick ratio stands at 1.66, derived from current assets (excluding inventories of $153,233,000) totaling $497,080,000, divided by current liabilities of $299,590,000.
Analysis of Working Capital Trends
The working capital as of September 30, 2024, is $350,723,000, indicating a positive trend compared to $260,413,000 as of December 31, 2023.
Cash Flow Statements Overview
Net Cash Provided by Operating Activities: For the nine months ended September 30, 2024, net cash provided was $322,775,000, a slight increase from $318,495,000 for the same period in 2023.
Net Cash Used in Investing Activities: This increased significantly to $312,166,000 in 2024 from $232,018,000 in 2023, primarily due to investments in U.S. treasuries and capital expenditures.
Net Cash Provided by Financing Activities: This figure improved to $39,038,000 in 2024 from a net cash used of ($16,259,000) in 2023.
Liquidity Concerns or Strengths
As of September 30, 2024, total available liquidity is $543,800,000, which includes $263,827,000 from credit facilities and $280,020,000 in cash and cash equivalents. This shows an increase from $468,100,000 in September 2023, reflecting a strengthened liquidity position.
| Liquidity Metrics | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Current Assets | $650,313,000 | $570,170,000 |
| Current Liabilities | $299,590,000 | $309,757,000 |
| Working Capital | $350,723,000 | $260,413,000 |
| Cash and Cash Equivalents | $280,020,000 | $230,373,000 |
| Total Available Liquidity | $543,800,000 | $468,100,000 |
| Net Cash Provided by Operating Activities | $322,775,000 | $318,495,000 |
| Net Cash Used in Investing Activities | ($312,166,000) | ($232,018,000) |
| Net Cash Provided by Financing Activities | $39,038,000 | ($16,259,000) |
The financial covenants indicate compliance, with the interest-bearing debt to total capitalization ratio at 0.38, well below the maximum limit of 0.60, and an interest and dividend coverage ratio of 10.4, significantly above the minimum requirement of 1.50.
Is Otter Tail Corporation (OTTR) Overvalued or Undervalued?
Valuation Analysis
The financial health of the company can be assessed through various valuation metrics, including the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, and Enterprise Value-to-EBITDA (EV/EBITDA) ratio. These ratios provide insight into whether the company is overvalued or undervalued in the current market.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 16.5, calculated based on a trailing twelve-month (TTM) earnings per share (EPS) of $5.87. This ratio is below the industry average of 18.5, indicating that the stock may be undervalued relative to its peers.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 1.6 with a book value per share of $27.30. The industry average P/B ratio is approximately 2.0. This further suggests that the stock could be undervalued compared to its industry counterparts.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is recorded at 9.2, which is lower than the industry average of 10.5. This indicates that the company may offer good value relative to its earnings before interest, taxes, depreciation, and amortization.
Stock Price Trends
Over the past 12 months, the stock has experienced a 15% increase, moving from a price of $70 to approximately $80.50. The stock price has shown resilience despite market volatility, which can be a positive indicator for investors.
Dividend Yield and Payout Ratios
The current dividend yield is 1.75%, with an annual dividend payout of $1.4025 per share. The payout ratio is approximately 24%, indicating that the company retains a significant portion of its earnings for reinvestment while still providing a return to shareholders.
Analyst Consensus
Analyst consensus on the stock is predominantly a "Buy," with a majority of analysts rating it as such due to its solid fundamentals and growth prospects. A few analysts have placed a "Hold" rating, citing concerns over market conditions.
| Valuation Metric | Company Value | Industry Average |
|---|---|---|
| P/E Ratio | 16.5 | 18.5 |
| P/B Ratio | 1.6 | 2.0 |
| EV/EBITDA | 9.2 | 10.5 |
| Stock Price (12 months ago) | $70 | |
| Current Stock Price | $80.50 | |
| Dividend Yield | 1.75% | |
| Payout Ratio | 24% |
Key Risks Facing Otter Tail Corporation (OTTR)
Key Risks Facing Otter Tail Corporation
Otter Tail Corporation faces several internal and external risks that could impact its financial health.
Industry Competition
The competitive landscape in the electric utility and manufacturing sectors is intense. The company must contend with both regulated and deregulated competitors, which can impact pricing strategies and market share. Additionally, advancements in renewable energy technologies present both opportunities and challenges for traditional utility models.
Regulatory Changes
Changes in environmental regulations and energy policies can significantly affect operational costs and compliance requirements. Recent filings indicate a request for a net increase in annual revenue of $22.5 million or 10.9% in North Dakota, reflecting ongoing regulatory adjustments.
Market Conditions
Fluctuations in market conditions, such as energy prices and demand for products, can impact revenues. For instance, operating revenues decreased by $7.4 million in the last reported period due to decreased sales prices and volumes.
Operational Risks
Unfavorable weather conditions have a direct impact on energy demand. For example, heating degree days decreased by 24.9% year-over-year, leading to a decrease in retail kWh sales. The Electric segment's revenues were affected by a 21.5% drop in wholesale kWh sales due to reduced generation.
Financial Risks
The company has experienced an increase in interest expenses, amounting to $31.2 million for the last period, up from $28.3 million. This increase is attributed to additional long-term debt issued to support capital expenditures and operations.
Strategic Risks
Strategic decisions regarding capital expenditures and acquisitions can pose risks. The company recently announced an agreement to acquire assets of a solar facility for $23.6 million, which will require careful integration and management.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies:
- Investment in Renewable Energy: The acquisition of solar assets aligns with the transition to sustainable energy sources.
- Regulatory Engagement: Active participation in regulatory proceedings to ensure favorable outcomes in rate cases.
- Operational Efficiency Initiatives: Continuous improvement in operational processes to reduce costs and enhance service reliability.
| Risk Type | Details | Financial Impact (if applicable) |
|---|---|---|
| Industry Competition | Intense competition in utility and manufacturing sectors | Potential loss of market share |
| Regulatory Changes | Changes in environmental regulations | Request for $22.5 million increase in revenue |
| Market Conditions | Fluctuations in energy prices and product demand | Decrease in operating revenues by $7.4 million |
| Operational Risks | Impact of weather on energy demand | Decrease in heating degree days by 24.9% |
| Financial Risks | Increase in interest expenses | Interest expenses up to $31.2 million |
| Strategic Risks | Acquisition of solar facility | Acquisition cost of $23.6 million |
Future Growth Prospects for Otter Tail Corporation (OTTR)
Future Growth Prospects for Otter Tail Corporation
Analysis of Key Growth Drivers
The company is focusing on several key growth drivers including:
- Product Innovations: The Plastics segment reported an operating revenue increase of $37.9 million or 11.5% for the nine months ended September 30, 2024, primarily driven by a 28% increase in sales volumes.
- Market Expansions: The company has announced plans to expand its manufacturing facilities in Arizona and Georgia, contributing to its operational capacity and market reach.
- Acquisitions: An agreement to acquire a solar facility under development for $23.6 million, expected to close in the second half of 2025, aligns with the company’s renewable energy strategy .
Future Revenue Growth Projections and Earnings Estimates
For the full year 2024, analysts project revenue growth driven by stable demand in the Plastics and Electric segments. The Electric segment reported total operating revenues of $384.7 million for the nine months ended September 30, 2024, although it saw a decrease of $11.3 million or 2.9% compared to the same period in 2023 .
Net income for the nine months ended September 30, 2024, was $246.8 million, reflecting a growth of 4.4% from $236.4 million in the previous year . Earnings per share (EPS) estimates for 2024 stand at approximately $5.91 .
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Regulatory Filings: The company filed a request for an increase in revenue of $22.5 million or 10.9% in North Dakota, which, if approved, will enhance cash flows .
- Renewable Energy Investments: Continued investment in wind and solar generation, with an expected increase in production tax credits (PTCs) contributing positively to future earnings .
Competitive Advantages That Position the Company for Growth
The company's competitive advantages include:
- Diverse Revenue Streams: The integration of Electric, Plastics, and Manufacturing segments provides a buffer against market volatility.
- Strong Financial Position: The company reported net cash provided by operating activities of $322.8 million for the nine months ended September 30, 2024 .
- Investment Grade Credit Ratings: This allows for favorable borrowing conditions, essential for funding capital expenditure plans .
Financial Overview Table
| Financial Metric | 2024 (9 Months) | 2023 (9 Months) | Change | % Change |
|---|---|---|---|---|
| Operating Revenues | $1,027,437 | $1,034,853 | ($7,416) | (0.7%) |
| Operating Income | $313,426 | $307,839 | $5,587 | 1.8% |
| Net Income | $246,812 | $236,424 | $10,388 | 4.4% |
| Earnings Per Share (Diluted) | $5.87 | $5.63 | $0.24 | 4.3% |
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Updated on 16 Nov 2024
Resources:
- Otter Tail Corporation (OTTR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Otter Tail Corporation (OTTR)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Otter Tail Corporation (OTTR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.