Otter Tail Corporation Reports 2017 Diluted Earnings per Share from Continuing Operations of $1.81, Increases Quarterly Dividend 4.7 Percent, Provides 2018 Earnings Guidance from Continuing Operations of $1.80 to $1.95 per Share
FERGUS FALLS, Minn., Feb. 12, 2018 -- Otter Tail Corporation (NASDAQ:OTTR) today announced financial results for the year ended December 31, 2017.2017 Summary:2017 HighlightsConsolidated net income from continuing operations increased to $72.1 million, or $1.81 per diluted share, from $62.0 million, or $1.60 per diluted share, in 2016.Consolidated net income totaled $72.4 million, or $1.82 per diluted share, compared with $62.3 million and $1.61 per diluted share for 2016.The corporation’s board of directors increased the quarterly common stock dividend to $0.335 per share, an indicated annual dividend rate of $1.34 per share. This is a $0.06 per share increase over the 2017 rate. The dividend is payable on March 10, 2018 to shareholders of record on February 15, 2018.The corporation expects 2018 diluted earnings per share from continuing operations to be in a range of $1.80 to $1.95.1 This release includes measures of financial performance and presentations of financial information that are not defined by generally accepted accounting principles (GAAP). Management believes that presenting consolidated net income and diluted earnings per share and net income by segment on a Non-GAAP basis by excluding the impact of the 2017 tax reform tax rate reduction on deferred tax values from consolidated net income and diluted earnings per share and net income by segment will assist investors in making an evaluation of our performance against prior periods on a comparable basis. Management understands that there are material limitations on the use of non-GAAP measures. Non-GAAP measures are not substitutes for GAAP measures for the purpose of analyzing financial performance. These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. This information should not be construed as an alternative to the reported results, which have been determined and provided in accordance with GAAP.CEO Overview
“Our dedicated employees again proved to be our strongest asset as they delivered 2017 diluted earnings per share from continuing operations of $1.81,” said President and CEO Chuck MacFarlane. “These excellent results include a positive $0.09 per diluted share estimated impact from our Plastics segment’s response to hurricane-related market dynamics.“Our results also include a reduction of $0.05 per diluted share from a change in value of net deferred tax assets related to the Tax Cuts and Jobs Act signed into law on December 22, 2017. This reduction from the new tax law was not contemplated when we updated our 2017 diluted earnings per share guidance to $1.75 - $1.85. Our adjusted diluted earnings per share before the tax impact was $1.86.“Operationally, Otter Tail Power Company continued its strong performance, equaling 2016 for its lowest number of OSHA recordable injuries on record and continuing high customer satisfaction scores as measured by J.D. Power and Associates.“Otter Tail Power Company also made excellent progress on two key growth projects in 2017: Big Stone South-Brookings and Big Stone South-Ellendale, two 345 kilovolt transmission projects that the Midcontinent Independent System Operator has designated as Multi-Value Projects. We are a 50 percent owner in both projects. The Big Stone South-Brookings project was completed in September on time and under budget. The Big Stone South-Ellendale project, which Otter Tail Power Company manages, is scheduled for completion in 2019. Otter Tail expects its investment in the two projects to be approximately $200 million.“Looking forward, Otter Tail Power Company has a strong rate base growth plan driven by our renewable energy and natural gas generation projects. Both projects made good progress in their development in 2017. The Minnesota Public Utilities Commission approved our resource plan and the North Dakota Public Service Commission granted Advance Determinations of Prudence for the Merricourt wind and Astoria natural gas-fired generation projects. Overall, Otter Tail Power Company plans to spend approximately $901 million on capital projects from 2018 through 2022, including these investments in renewable energy, natural gas-fired generation and regional transmission projects.“Tax reform will benefit Otter Tail Power Company’s rate base growth. Prior to tax reform, we were forecasting a 7.2 percent compound annual growth rate between 2016 and 2021. With tax reform we are projecting this will move to 9.0 percent for the timeframe 2017 through 2022.“Also important is a positive outcome in the rate case Otter Tail Power Company filed with the North Dakota Public Service Commission in November, seeking permission to increase non-fuel base rates by approximately $13 million, or 8.72 percent. The North Dakota Public Service Commission granted an 8.64 percent interim rate increase beginning January 1, 2018, while it considers the overall request. We expect an adjustment related to tax reform legislation and a final determination by the end of this year.“Business conditions are showing signs of improvement for our manufacturing companies.“BTD Manufacturing, our custom metal fabricator, achieved year-over-year net earnings improvement. The company’s customer base in agriculture, energy, and recreational utility vehicles has begun to show economic recovery.“T. O. Plastics, our plastics thermoforming manufacturer, achieved 8 percent overall revenue growth from increased sales through deeper penetration into its primary market, horticulture containers, and a renewed focus on the life sciences market.“Northern Pipe Products and Vinyltech, our PVC pipe manufacturing companies, sold more pounds and earned higher margins, partly due to the previously mentioned hurricane-related market dynamics, which we do not expect to repeat in 2018. But general market conditions for PVC pipe also improved, and our pipe manufacturers are efficient, low cost operators.“Our strategic initiatives to grow our businesses, achieve operational and commercial excellence, and develop our talent are strengthening our position in the markets we serve. We remain confident in our ability to grow earnings per share from continuing operations in the range of 4 to 7 percent compounded annually from $1.81 in 2017, the base year.”Cash Flow from Operations and LiquidityThe corporation’s consolidated net cash provided by continuing operations in 2017 was $173.6 million compared with $163.5 million in 2016. The $10.1 million increase in cash provided by continuing operations between the years includes a $10.1 million increase in net income from continuing operations and a $10.0 million reduction in discretionary contributions to our pension plan. Changes in long-term assets and liabilities, including deferred taxes, totaling $17.4 million were more than offset by a $27.0 million increase in cash used for working capital items. The increase in cash used for working capital between the periods is primarily due to a $19.1 million increase in cash used for payables and other current liabilities between the years at Otter Tail Power Company related to the timing of payments as cash use decreased $10.3 million in 2016 compared to an increase of $8.8 million in cash used for payables and other current liabilities in 2017. Cash used for inventories increased $6.2 million between the years primarily due to increased levels of inventory in each of our business segments.The following table presents the status of our lines of credit as of December 31, 2017:On October 31, 2017 both the Otter Tail Corporation and the Otter Tail Power Company Credit Agreements were amended to extend the expiration dates by one year from October 29, 2021 to October 31, 2022.On November 14, 2017 Otter Tail Power Company entered into a Note Purchase Agreement, pursuant to which it agreed to issue to the purchasers, in a private placement transaction, $100 million aggregate principal amount of its 4.07% Series 2018A Senior Unsecured Notes due February 7, 2048 (the 2018 Notes). The 2018 Notes were issued on February 7, 2018. Proceeds from the 2018 Notes were used to repay $100 million in outstanding borrowings under the Otter Tail Power Company Credit Agreement. The borrowings under the Otter Tail Power Credit Agreement were used to retire its $33.0 million in 5.95% Senior Unsecured Series A Notes at maturity on August 20, 2017 and to finance portions of its investments in the Big Stone South-Brookings and Big Stone South-Ellendale, 345-kilovolt transmission projects.2017 Segment Performance Summary
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