Otter Tail Q3 EPS Falls 24% on Plastics Weakness; 2026 Outlook Maintained

Otter Tail Corporation (Nasdaq: OTTR) reported a 24% decline in third-quarter earnings as weaker pricing and higher costs reduced results at its Plastics segment, while the Electric business remained stable. The company maintained the $5.88 midpoint of its 2026 adjusted diluted earnings-per-share guidance and narrowed the range to $5.73 to $6.03.

Third-quarter net income fell to $59.5 million from $78.3 million a year earlier. Diluted EPS declined to $1.41 from $1.86. For the first nine months of 2026, adjusted net income was $201.7 million, down 10% from $224.1 million, while adjusted diluted EPS decreased to $4.79 from $5.32. The adjusted figures exclude the after-tax impact of a legal settlement expense recognized in the second quarter.

Otter Tail reported a trailing-12-month adjusted return on equity of 13.3%, compared with GAAP return on equity of 9.4%. The company had a 61% equity share in its capital structure as of Sept. 30.

Plastics pricing weighs on quarterly earnings

Plastics contributed $0.69 per diluted share in the quarter, down from $1.03 a year earlier. Lower product pricing accounted for the largest portion of the decrease, with lower sales volume, higher material costs and other manufacturing expenses also reducing earnings.

Average PVC pipe selling prices were 9% lower year over year in the third quarter, while sales volumes declined 5% and material input costs increased 10%. For the year to date, average prices were down 14%, although volumes increased 6% and material costs declined 2%. The presentation indicated that PVC pipe prices have trended downward since late 2022.

Year-to-date adjusted Plastics EPS fell to $2.59 from $3.33. Otter Tail expects the segment to generate adjusted 2026 EPS of $2.95 to $3.11. Its longer-term assumptions include Plastics net income of $45 million to $50 million in 2028, reflecting continued product-price declines, higher sales volume and inflationary increases in input costs.

Manufacturing generated quarterly EPS of $0.06, compared with $0.09 in the prior-year period, as benefits from sales volume and production costs were offset by higher selling, general and administrative expenses. Year-to-date Manufacturing EPS rose to $0.27 from $0.21. The company described conditions across its end markets as mixed, with agriculture remaining challenged despite early signs of improvement and dealer inventories largely normalized.

Electric earnings hold steady as investment program advances

Electric segment EPS was unchanged at $0.65 in the third quarter. Higher electric rates, capital-recovery revenue and favorable weather were offset by increased operating and maintenance, depreciation and interest expenses. For the first nine months, Electric EPS increased to $1.93 from $1.69, supported by rates and capital recovery associated with riders and allowance for funds used during construction.

The company continued to advance renewable generation, battery storage and transmission projects. Its five-year capital plan calls for $2.05 billion of spending from 2026 through 2030, including $1.92 billion for the Electric segment. Otter Tail projects rate base will increase from $2.11 billion in 2025 to $3.42 billion in 2030, representing a 10% compound annual growth rate. About 90% of planned capital investment is expected to be recovered through riders and existing rates.

Major projects include the estimated $80 million Solway Solar facility, scheduled for completion in 2027; the $120 million Hoot Lake battery project and $450 million Abercrombie Solar facility, both targeted for 2028; and several transmission investments extending through 2034. The company also identified an additional $850 million of potential Electric investment tied to as much as 300 megawatts of wind generation and infrastructure for new large customers. Those opportunities are not included in the current capital forecast.

Otter Tail said it has about 1,400 megawatts of prospective large-load demand at the letter-of-intent stage, including data centers and other projects. None had advanced to a term sheet or electric service agreement, and the potential additions are excluded from its load-growth and capital-spending forecasts.

In Minnesota, the company modified its requested annual net revenue increase to $38.7 million from $42.3 million. The request seeks a 10.65% return on equity and a 53.5% equity layer. An administrative law judge’s report is expected in January 2027, followed by a regulatory decision in April and final rate implementation in the second half of 2027. Interim annual revenue of $28.6 million took effect at the start of 2026 and remains subject to refund.

Guidance and financing

Otter Tail’s current adjusted EPS guidance consists of $2.62 to $2.68 from Electric, $0.32 to $0.36 from Manufacturing and $2.95 to $3.11 from Plastics, partly offset by a corporate loss of $0.12 to $0.16 per share. The consolidated adjusted range of $5.73 to $6.03 excludes $1.84 per share associated with the second-quarter legal settlement. Unadjusted diluted EPS guidance is $3.89 to $4.19.

The company expects to finance its utility investment program without issuing external equity through at least 2030. Its plan includes a net debt increase of $548 million over the 2026-2030 period, primarily through Otter Tail Power Company.

Otter Tail’s outlook remains subject to regulatory outcomes, project execution, PVC pipe pricing and volumes, raw-material availability and costs, demand conditions in manufacturing markets, inflation, weather, energy-market conditions and access to capital. The company’s longer-term targets also depend on Electric EPS growth approximating its projected rate-base growth and Plastics reaching its assumed 2028 earnings level.