Narrows 2014 Earnings Guidance Range to $1.65 to $1.80 per Share
Board of Directors Declares Quarterly Dividend
FARGO, N.D., Aug. 4, 2014 (GLOBE NEWSWIRE) -- Otter Tail Corporation (Nasdaq:OTTR) today announced financial results for the quarter ended June 30, 2014.
Summary:
CEO Overview
"Our strong 2014 first quarter performance has continued in the second quarter," said Otter Tail Corporation CEO Jim McIntyre. "This quarter's consolidated revenues are up more than 10% compared with second quarter last year and consolidated net income from continuing operations is up 33%."
"We continue to see earnings growth from our capital investments at the utility. Regulatory mechanisms in North Dakota, South Dakota, and Minnesota allow for a return on the funds we've invested in five large regional transmission projects and the environmental upgrade at Big Stone Plant. Those earnings were augmented this quarter by increased electricity sales to pipeline and commercial customers.
"We also continue to see positive results from our focus on operational excellence at our manufacturing and infrastructure companies. I'm especially pleased that profitability at both Foley and Aevenia continued to improve this quarter, thanks to better project management aligned with increased construction activity.
"On the strength of our year-to-date results, we are narrowing our overall guidance range for 2014 diluted earnings per share to $1.65 to $1.80 from our previously announced range of $1.60 to $1.80."
Cash Flow from Operations, Liquidity and Financing
The corporation's consolidated cash provided by continuing operations was $4.4 million for the six months ended June 30, 2014 compared with $48.8 million for the six months ended June 30, 2013. Contributing to the $44.4 million decrease between the periods was a $32.0 million increase in cash used for working capital items associated with year over year revenue growth and a $10.0 million increase in discretionary contributions to the corporation's pension plan. The following table presents the status of the corporation's lines of credit as of June 30, 2014:
(in thousands) |
Line Limit |
In Use On June 30, 2014 |
Restricted due to Outstanding Letters of Credit |
Available on June 30, 2014 |
Otter Tail Corporation Credit Agreement | $ 150,000 | $ 25,273 | $ 309 | $ 124,418 |
Otter Tail Power Company Credit Agreement | 170,000 | 2,870 | 2,330 | 164,800 |
Total | $ 320,000 | $ 28,143 | $ 2,639 | $ 289,218 |
During the quarter ended June 30, 2014 the corporation sold 86,909 shares of common stock and received net proceeds of $2.5 million through its At-the-Market offering program. Our financing plans are subject to change depending on capital expenditures, internal cash generation and general market conditions.
Board of Directors Declared Quarterly Dividend
On August 1, 2014 the corporation's Board of Directors declared a quarterly common stock dividend of $0.3025 per share. This dividend is payable September 10, 2014 to shareholders of record on August 15, 2014.
Segment Performance Summary
Electric
Electric revenues and net income were $92.9 million and $5.2 million, respectively, compared with $82.9 million and $3.6 million for the second quarter of 2013.
The following table shows Heating Degree Days as a percent of normal:
Three Months ended June 30, | |
2014 | 2013 |
128% | 159% |
Retail electric revenues increased $11.1 million as a result of:
offset by:
Wholesale electric revenues from company-owned generation decreased $1.7 million as a result of a 49% reduction in wholesale kwh sales. The decrease in wholesale kwh sales was related to a 12.4% decrease in kwhs generated by Otter Tail Power Company generating units, mainly as a result of the extended maintenance shutdown of Hoot Lake Plant, which was offline for most of the second quarter of 2014.
Net revenue from energy trading activities, including net mark-to-market losses and gains on forward energy contracts, decreased $0.2 million as a result of decreased trading activity.
Other electric operating revenues increased $0.8 million mainly due to an increase in Midcontinent Independent System Operator, Inc. (MISO) tariff revenues resulting from increased investment in regional transmission lines and returns on and recovery of Capacity Expansion 2020 (CapX2020) and MISO-designated Multi-Value Project (MVP) investment costs and operating expenses.
Production fuel costs decreased $3.0 million as a result of a 14.7% decrease in kwhs generated from Otter Tail Power Company's steam-powered and combustion turbine generators in combination with a 5.3% decrease in the cost of fuel per kwh generated. The decreases in kwh generation and the cost of fuel per kwh generated were mainly due to the extended maintenance shutdown of Hoot Lake Plant in the second quarter of 2014.
The cost of purchased power to serve retail customers increased $5.2 million due to a 42.8% increase in kwhs purchased and a 2.6% increase in the cost per kwh purchased. The increase in kwhs purchased was driven by the need to make up for the reduction in generation from Hoot Lake Plant and increased demand from retail—mainly pipeline—customers.
Electric operating and maintenance expenses increased $4.3 million as a result of:
offset by:
Interest expense increased $1.8 million as a result of the February 27, 2014 issuance of Otter Tail Power Company's $60 million aggregate principal amount of 4.68% Series A Senior Unsecured Notes due February 27, 2029 and $90 million aggregate principal amount of its 5.47% Series B Senior Unsecured Notes due February 27, 2044, offset by the February 27, 2014 retirement of its $40.9 million Unsecured Term Loan which bore interest at 1-Month Libor plus 0.875%.
Manufacturing
Manufacturing revenues and net income were $53.4 million and $2.3 million, respectively, compared with $49.8 million and $2.0 million for the second quarter of 2013.
Plastics
Plastics revenues and net income were $48.1 million and $3.4 million, respectively, compared with $44.8 million and $3.9 million for the second quarter of 2013. The $3.3 million increase in revenues is the result of a 6.8% increase in pounds of polyvinyl chloride (PVC) pipe sold combined with a 0.6% increase in the price per pound of pipe sold. States with significant increases in sales were California, Minnesota, North Dakota, Montana, New Mexico, Nevada, and Colorado. Cost of products sold increased by $4.1 million due to the increase in sales volume and a 4.6% increase in the cost per pound of pipe sold related to higher PVC resin costs. The decline in net income between the quarters is due to an increase in PVC resin costs along with a $0.2 million increase in operating expenses. The increased resin costs could not be fully recovered through increased pipe prices due to competitive market conditions.
Construction
Construction revenues and net income were $40.2 million and $1.9 million, respectively, compared with $35.0 million and $0 for the second quarter of 2013.
Corporate
Corporate costs, net-of-tax, increased $0.8 million as a result of recording a $1.5 million net-of-tax charge related to the early termination of an airplane lease, as recent divestitures reduced the need for the airplane. The increase in expense related to the lease termination charge was partially offset by a $0.7 million net-of-tax decrease in interest expense related to the early retirement, in November 2013, of $47.7 million of the corporation's outstanding 9.0% notes due December 15, 2016.
2014 Business Outlook
The corporation is narrowing its consolidated diluted earnings per share guidance for 2014 to be in the range of $1.65 to $1.80 from its previously announced range of $1.60 to $1.80. This guidance reflects the current mix of businesses owned by the corporation. It considers the cyclical nature of some of the corporation's businesses and reflects challenges, as well as the corporation's plans and strategies for improving future operating results.
Segment components of the corporation's 2013 earnings per share and 2014 earnings per share guidance ranges are as follows:
2013 | February 2014 | May 2014 EPS | Current 2014 | ||||
EPS by | EPS Guidance | Guidance | EPS Guidance | ||||
Segment | Low | High | Low | High | Low | High | |
Electric | $1.05 | $1.19 | $1.23 | $1.21 | $1.25 | $1.23 | $1.26 |
Manufacturing | $0.32 | $0.29 | $0.33 | $0.29 | $0.33 | $0.30 | $0.33 |
Plastics | $0.38 | $0.25 | $0.29 | $0.27 | $0.31 | $0.26 | $0.29 |
Construction | $0.04 | $0.07 | $0.11 | $0.07 | $0.11 | $0.10 | $0.13 |
Corporate | ($0.25) | ($0.25) | ($0.21) | ($0.24) | ($0.20) | ($0.24) | ($0.21) |
Subtotal – Continuing Operations | $1.54 | $1.55 | $1.75 | $1.60 | $1.80 | $1.65 | $1.80 |
Corporate – Loss on Debt Extinguishment | ($0.17) | ||||||
Total – Continuing Operations | $1.37 | $1.55 | $1.75 | $1.60 | $1.80 | $1.65 | $1.80 |
Contributing to the corporation's updated earnings guidance for 2014 are the following items:
The corporation reviews its portfolio of companies at least annually to see where additional opportunities exist to improve its risk profile, improve credit metrics and generate additional sources of cash to support the future capital expenditure plans of its Electric segment.
The following table shows the corporation's 2013 capital expenditures, 2014-2018 projected electric utility average rate base and updated 2014-2018 anticipated capital expenditures reflecting additional expenditures in 2018 for a generation facility to replace Hoot Lake Plant, expected reductions in costs for the Big Stone Plant AQCS and an acceleration of expenditures for transmission line construction:
(in millions) | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Capital Expenditures: | ||||||
Electric Segment: | ||||||
Transmission | $ 55 | $ 55 | $ 98 | $ 63 | $ 63 | |
Environmental | 73 | 50 | -- | -- | -- | |
Other | 34 | 43 | 45 | 41 | 80 | |
Total Electric Segment | $ 149 | $ 162 | $ 148 | $ 143 | $ 104 | $ 143 |
Manufacturing and Infrastructure Segments | 15 | 23 | 19 | 26 | 20 | 24 |
Total Capital Expenditures | $ 164 | $ 185 | $ 167 | $ 169 | $ 124 | $ 167 |
Total Electric Utility Average Rate Base | $ 885 | $ 991 | $1,062 | $1,120 | $1,152 |
Execution on the currently anticipated electric utility capital expenditure plan is expected to grow rate base and be a key driver in increasing utility earnings over the 2014 through 2018 timeframe.
CONFERENCE CALL AND WEBCAST
The corporation will host a live webcast on Tuesday, August 5, 2014, at 10:00 a.m. CDT to discuss the company's financial and operating performance.
The presentation will be posted on the corporation's website before the webcast. To access the live webcast go to www.ottertail.com/presentations.cfm and select "Webcast". Please allow extra time prior to the call to visit the site and download any necessary software that may be needed to listen to the webcast. An archived copy of the webcast will be available on our website shortly following the call.
If you are interested in asking a question during the live webcast, the Dial-In Number is: 877-312-8789.
Risk Factors and Forward-Looking Statements that Could Affect Future Results
The information in this release includes certain forward-looking information, including 2014 expectations, made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the corporation believes its expectations are based on reasonable assumptions, actual results may differ materially from those expectations. The following factors, among others, could cause actual results for the corporation to differ materially from those discussed in the forward-looking statements:
For a further discussion of other risk factors and cautionary statements, refer to reports the corporation files with the Securities and Exchange Commission.
About The Corporation: Otter Tail Corporation has interests in diversified operations that include an electric utility and manufacturing and infrastructure businesses consisting of its Manufacturing, Plastics and Construction segments. Otter Tail Corporation stock trades on the NASDAQ Global Select Market under the symbol OTTR. The latest investor and corporate information is available at www.ottertail.com. Corporate offices are located in Fergus Falls, Minnesota, and Fargo, North Dakota.
See Otter Tail Corporation's results of operations for the three and six months ended June 30, 2014 and 2013 in the following financial statements: Consolidated Statements of Income, Consolidated Balance Sheets – Assets, Consolidated Balance Sheets – Liabilities and Equity, and Consolidated Statements of Cash Flows. For a further discussion of other risk factors and cautionary statements, refer to reports the corporation files with the Securities and Exchange Commission.
Otter Tail Corporation | ||||
Consolidated Statements of Income | ||||
In thousands, except share and per share amounts | ||||
(not audited) | ||||
Quarter Ended June 30, | Year-to-Date June 30, | |||
2014 | 2013 | 2014 | 2013 | |
Operating Revenues by Segment | ||||
Electric | $ 92,911 | $ 82,862 | $ 211,999 | $ 183,872 |
Manufacturing | 53,370 | 49,793 | 108,805 | 102,959 |
Plastics | 48,090 | 44,761 | 88,573 | 82,161 |
Construction | 40,247 | 34,994 | 65,753 | 61,419 |
Corporate Revenue and Intersegment Eliminations | (7) | (21) | (47) | (68) |
Total Operating Revenues | 234,611 | 212,389 | 475,083 | 430,343 |
Operating Expenses | ||||
Fuel and Purchased Power | 29,079 | 26,848 | 72,894 | 61,440 |
Nonelectric Cost of Goods Sold (depreciation included below) | 114,059 | 103,937 | 210,360 | 195,999 |
Electric Operating and Maintenance Expense | 43,161 | 38,814 | 80,754 | 74,177 |
Nonelectric Operating and Maintenance Expense | 15,104 | 12,176 | 28,665 | 25,954 |
Depreciation and Amortization | 14,969 | 14,835 | 29,749 | 29,755 |
Total Operating Expenses | 216,372 | 196,610 | 422,422 | 387,325 |
Operating Income (Loss) by Segment | ||||
Electric | 9,745 | 6,528 | 36,662 | 26,952 |
Manufacturing | 4,435 | 4,232 | 9,826 | 10,581 |
Plastics | 5,801 | 6,808 | 11,572 | 13,525 |
Construction | 3,246 | 149 | 2,028 | (1,550) |
Corporate | (4,988) | (1,938) | (7,427) | (6,490) |
Total Operating Income | 18,239 | 15,779 | 52,661 | 43,018 |
Interest Charges | 7,627 | 6,877 | 14,222 | 13,857 |
Other Income | 858 | 696 | 2,681 | 1,557 |
Income Tax Expense – Continuing Operations | 1,486 | 2,094 | 9,774 | 7,980 |
Net Income (Loss) by Segment – Continuing Operations | ||||
Electric | 5,242 | 3,583 | 21,895 | 15,514 |
Manufacturing | 2,300 | 2,045 | 5,196 | 5,363 |
Plastics | 3,433 | 3,925 | 6,893 | 7,812 |
Construction | 1,853 | 24 | 1,233 | (1,068) |
Corporate | (2,844) | (2,073) | (3,871) | (4,883) |
Net Income from Continuing Operations | 9,984 | 7,504 | 31,346 | 22,738 |
Discontinued Operations | ||||
Income - net of Income Tax Expense (Benefit) of $1, $131, $50 and ($74) for the respective periods |
9 | 197 | 77 | 116 |
Gain on Disposition - net of Income Tax Expense of $6 for the six months ended June 30, 2013 |
-- | -- | -- | 210 |
Net Income from Discontinued Operations | 9 | 197 | 77 | 326 |
Net Income | 9,993 | 7,701 | 31,423 | 23,064 |
Preferred Dividend Requirement and Other Adjustments | -- | -- | -- | 513 |
Balance for Common | $ 9,993 | $ 7,701 | $ 31,423 | $ 22,551 |
Average Number of Common Shares Outstanding | ||||
Basic | 36,409,753 | 36,170,353 | 36,325,052 | 36,122,742 |
Diluted | 36,652,684 | 36,373,606 | 36,568,030 | 36,325,527 |
Basic Earnings Per Common Share: | ||||
Continuing Operations (net of preferred dividend requirement and other adjustments) | $ 0.27 | $ 0.21 | $ 0.87 | $ 0.61 |
Discontinued Operations | -- | -- | -- | 0.01 |
$ 0.27 | $ 0.21 | $ 0.87 | $ 0.62 | |
Diluted Earnings Per Common Share: | ||||
Continuing Operations (net of preferred dividend requirement and other adjustments) | $ 0.27 | $ 0.21 | $ 0.86 | $ 0.61 |
Discontinued Operations | -- | -- | -- | 0.01 |
$ 0.27 | $ 0.21 | $ 0.86 | $ 0.62 |
Otter Tail Corporation | ||
Consolidated Balance Sheets | ||
ASSETS | ||
in thousands | ||
(not audited) | ||
June 30, | December 31, | |
2014 | 2013 | |
Current Assets | ||
Cash and Cash Equivalents | $ -- | $ 1,150 |
Accounts Receivable: | ||
Trade—Net | 101,088 | 83,572 |
Other | 11,531 | 9,790 |
Inventories | 82,698 | 72,681 |
Deferred Income Taxes | 43,342 | 35,452 |
Unbilled Revenues | 16,222 | 18,157 |
Costs and Estimated Earnings in Excess of Billings | 5,505 | 4,063 |
Regulatory Assets | 18,423 | 17,940 |
Other | 13,528 | 7,747 |
Assets of Discontinued Operations | 10 | 38 |
Total Current Assets | 292,347 | 250,590 |
Investments | 8,875 | 9,362 |
Other Assets | 30,056 | 28,834 |
Goodwill | 38,808 | 38,971 |
Other Intangibles—Net | 12,839 | 13,328 |
Deferred Debits | ||
Unamortized Debt Expense | 4,330 | 4,188 |
Regulatory Assets | 77,168 | 83,730 |
Total Deferred Debits | 81,498 | 87,918 |
Plant | ||
Electric Plant in Service | 1,507,065 | 1,460,884 |
Nonelectric Operations | 195,302 | 194,872 |
Construction Work in Progress | 210,960 | 187,461 |
Total Gross Plant | 1,913,327 | 1,843,217 |
Less Accumulated Depreciation and Amortization | 695,276 | 676,201 |
Net Plant | 1,218,051 | 1,167,016 |
Total | $ 1,682,474 | $ 1,596,019 |
Otter Tail Corporation | ||
Consolidated Balance Sheets | ||
LIABILITIES AND EQUITY | ||
in thousands | ||
(not audited) | ||
June 30, | December 31, | |
2014 | 2013 | |
Current Liabilities | ||
Short-Term Debt | $ 28,143 | $ 51,195 |
Current Maturities of Long-Term Debt | 194 | 188 |
Accounts Payable | 108,589 | 113,457 |
Accrued Salaries and Wages | 17,436 | 19,903 |
Billings In Excess Of Costs and Estimated Earnings | 4,717 | 13,707 |
Accrued Taxes | 9,652 | 12,491 |
Derivative Liabilities | 5,513 | 11,782 |
Other Accrued Liabilities | 8,695 | 6,532 |
Liabilities of Discontinued Operations | 3,353 | 3,637 |
Total Current Liabilities | 186,292 | 232,892 |
Pensions Benefit Liability | 50,516 | 69,743 |
Other Postretirement Benefits Liability | 45,683 | 45,221 |
Other Noncurrent Liabilities | 22,248 | 25,209 |
Deferred Credits | ||
Deferred Income Taxes | 218,981 | 195,603 |
Deferred Tax Credits | 27,381 | 28,288 |
Regulatory Liabilities | 78,695 | 73,926 |
Other | 754 | 718 |
Total Deferred Credits | 325,811 | 298,535 |
Capitalization | ||
Long-Term Debt, Net of Current Maturities | 498,591 | 389,589 |
Cumulative Preferred Shares | -- | -- |
Cumulative Preference Shares | -- | -- |
Common Equity | ||
Common Shares, Par Value $5 Per Share | 183,117 | 181,358 |
Premium on Common Shares | 263,048 | 255,759 |
Retained Earnings | 108,834 | 99,441 |
Accumulated Other Comprehensive Loss | (1,666) | (1,728) |
Total Common Equity | 553,333 | 534,830 |
Total Capitalization | 1,051,924 | 924,419 |
Total | $ 1,682,474 | $ 1,596,019 |
Otter Tail Corporation | ||
Consolidated Statements of Cash Flows | ||
In thousands | ||
(not audited) | ||
For the Six Months Ended June 30, |
||
In thousands | 2014 | 2013 |
Cash Flows from Operating Activities | ||
Net Income | $ 31,423 | $ 23,064 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||
Net Gain from Sale of Discontinued Operations | -- | (210) |
Net Income from Discontinued Operations | (77) | (116) |
Depreciation and Amortization | 29,749 | 29,755 |
Deferred Tax Credits | (907) | (955) |
Deferred Income Taxes | 14,850 | 9,882 |
Change in Deferred Debits and Other Assets | 129 | 7,519 |
Discretionary Contribution to Pension Plan | (20,000) | (10,000) |
Change in Noncurrent Liabilities and Deferred Credits | (936) | 4,971 |
Allowance for Equity/Other Funds Used During Construction | (759) | (567) |
Change in Derivatives Net of Regulatory Deferral | 95 | 486 |
Stock Compensation Expense – Equity Awards | 736 | 786 |
Other—Net | (1,264) | 867 |
Cash (Used for) Provided by Current Assets and Current Liabilities: | ||
Change in Receivables | (18,148) | (10,126) |
Change in Inventories | (10,057) | (4,075) |
Change in Other Current Assets | (2,673) | (783) |
Change in Payables and Other Current Liabilities | (20,469) | (1,362) |
Change in Interest and Income Taxes Receivable/Payable | 2,664 | (313) |
Net Cash Provided by Continuing Operations | 4,356 | 48,823 |
Net Cash Used in Discontinued Operations | (185) | (1,971) |
Net Cash Provided by Operating Activities | 4,171 | 46,852 |
Cash Flows from Investing Activities | ||
Capital Expenditures | (80,749) | (51,153) |
Proceeds from Disposal of Noncurrent Assets | 3,184 | 1,603 |
Net Increase in Other Investments | (1,639) | (25) |
Net Cash Used in Investing Activities - Continuing Operations | (79,204) | (49,575) |
Net Proceeds from Sale of Discontinued Operations | -- | 12,842 |
Net Cash Provided by Investing Activities - Discontinued Operations | 7 | 193 |
Net Cash Used in Investing Activities | (79,197) | (36,540) |
Cash Flows from Financing Activities | ||
Change in Checks Written in Excess of Cash | 2,785 | -- |
Net Short-Term (Repayments) Borrowings | (23,051) | 1,117 |
Proceeds from Issuance of Common Stock | 8,452 | 1,462 |
Common Stock Issuance Expenses | (310) | -- |
Payments for Retirement of Capital Stock | (459) | (15,723) |
Proceeds from Issuance of Long-Term Debt | 150,000 | 40,900 |
Short-Term and Long-Term Debt Issuance Expenses | (516) | (52) |
Payments for Retirement of Long-Term Debt | (40,993) | (25,222) |
Dividends Paid and Other Distributions | (22,029) | (22,097) |
Net Cash Provided by (Used in) Financing Activities - Continuing Operations | 73,879 | (19,615) |
Net Cash Used in Financing Activities - Discontinued Operations | (11) | -- |
Net Cash Provided by (Used in) Financing Activities | 73,868 | (19,615) |
Net Change in Cash and Cash Equivalents – Discontinued Operations | 8 | (784) |
Net Change in Cash and Cash Equivalents | (1,150) | (10,087) |
Cash and Cash Equivalents at Beginning of Period | 1,150 | 52,362 |
Cash and Cash Equivalents at End of Period | $ -- | $ 42,275 |