Acquisition
Otter Tail Power Completes Acquisition of Abercrombie Solar Development Assets
•February 17, 2026
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Participants
Why It Matters
The results demonstrate Otter Tail's capacity to fund growth without external equity while the dividend increase and renewable investments signal financial resilience and alignment with decarbonization trends, influencing utility investors and regional power markets.
Key Takeaways
- •EPS $6.55, down 9% YoY.
- •Dividend raised 10% to $2.31 per share.
- •Rate‑base growth target 10% CAGR, adding battery storage.
- •Manufacturing earnings fall 16% amid PVC price decline.
- •2026 EPS guidance midpoint $5.42, electric segment up 14%
Pulse Analysis
Otter Tail Corporation delivered a solid fourth‑quarter performance despite a modest earnings dip, reporting diluted earnings per share of $6.55, down 9% from the prior year but comfortably inside its guidance corridor. The utility’s balance sheet remains robust, with $386 million in cash and a utility‑sector‑leading return on equity of 16% on a 63% equity base. A 10% dividend increase to $2.31 per share marked the second consecutive double‑digit hike, reinforcing the company’s long‑standing commitment to shareholder returns and signaling confidence in its cash‑flow generation.
The company’s growth engine centers on an aggressive rate‑base expansion strategy, targeting a 10% compounded annual growth rate through a $1.9 billion five‑year capital plan. Key projects include the completion of a 75‑megawatt, four‑hour battery storage facility near the Hoot Lake solar site, wind repowering that lifts output by 20%, and two solar developments slated for operation by 2027. These renewable investments not only qualify for tax credits but also feed into interim rate revenues approved in Minnesota and South Dakota, positioning Otter Tail to capture higher earnings while supporting decarbonization goals.
Conversely, the manufacturing and plastics segments face headwinds as PVC pipe prices have fallen 15%‑20% from 2024 levels, dragging segment earnings down 16% and 15% respectively. Volume gains from expanded Vinyltech capacity and a new BTD Georgia facility partially offset price pressure, yet the outlook remains cautious amid soft end‑market demand. Otter Tail’s diversified business model, however, allows the utility side to subsidize these challenges, preserving a projected 7%‑9% long‑term EPS growth and a 10%‑12% total shareholder return target. Investors will watch whether the utility’s rate‑base gains can continue to fund capital needs without external equity through 2030.
Deal Summary
Otter Tail Power announced that it completed the acquisition of development assets for Abercrombie Solar in January 2026. The deal expands Otter Tail's solar development pipeline and supports its renewable generation growth plans. Deal value was not disclosed.
Article
Source: Yahoo Finance – News Index
Otter Tail (OTTR) Q4 2025 Earnings Call Transcript
Motley Fool Transcribing, The Motley Fool
Tue, February 17 2026 at 12:10 PM EST
Date
Tuesday, Feb. 17 2026 at 11 a.m. ET
Call participants
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President and Chief Executive Officer — Charles S. MacFarlane
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Senior Vice President and Chief Financial Officer — Todd R. Wahlund
Full Conference Call Transcript
Charles S. MacFarlane: Please refer to Slide 4 as I begin my remarks with an overview of recent highlights. We are pleased with our 2025 financial results as they exceeded our original expectations for the year. Our team members continue to deliver for our customers and shareholders amidst dynamic market conditions, and I am grateful for their efforts throughout the year. Otter Tail Power continued to deliver on our significant rate‑base growth plan while executing on our regulatory priorities. Interim rates went into effect December 1 in South Dakota, and we obtained approval from the Minnesota Public Utilities Commission to implement interim rates beginning on January 1. Phase two of final tech expansion project continued to progress as well.
We expect the new line to be fully operational in early 2026, and we look forward to bringing this incremental capacity online. Earlier this year, we increased our dividend by 10 %, producing an annual indicated dividend of $2.31 per share. This was the second year in a row we announced a double‑digit increase to our dividend, reflecting our financial health and commitment to delivering value and returning capital to our shareholders. 2026 will mark the 88th consecutive year we have paid dividends to our shareholders without interruption or reduction. Slide 5 provides a summary of our quarter‑to‑date and annual earnings. For the year, we produced diluted earnings per share of $6.55, a decrease of 9 % from last year.
The decrease in earnings was expected as our earnings from our segment receded from record levels achieved last year. We ended 2025 in a position of financial strength with a strong balance sheet and ample liquidity to fund our customer‑focused growth plan. We are initiating our 2026 diluted earnings per share guidance range with a midpoint of $5.42. Following my operational update, Todd will provide a more discussion of our 2025 financial results and our outlook for 2026. Transitioning now to our operational update for Otter Tail Power. As noted on Slide 7, we received approval from the Minnesota Public Utilities Commission to implement interim rate revenues of $28,600,000 effective 01/01/2026.
Interim rates are subject to refund at the conclusion of the proceeding. The procedural schedule has been set, and we continue to anticipate final rates being implemented in mid‑2027. Turning to Slide 8. Our South Dakota rate case continues to progress. Interim rate revenues of $5,700,000 went into effect on December 1, subject to refund. There were no intervenors in our South Dakota rate case, and earlier this year, we reached settlement in principle with the South Dakota Public Utilities Commission staff. We continue to work towards finalizing the settlement and appreciate the collaboration with the commission staff to date. Turning to Slide 9. Our customer‑focused rate‑base growth continues to be robust.
We refreshed Otter Tail Power’s five‑year capital spending plan with the total remaining unchanged. Key changes to the plan include the addition of a battery storage project, the acceleration of solar investment, and the shifting of a portion of our transmission investment outside the planning period due to updated project timing. Todd will provide more details as it relates to our five‑year capital spending plan in a moment. We are reaffirming our five‑year rate‑base compounded annual growth rate of 10 % and continue to expect Otter Tail Power to convert rate‑base growth into earnings per share growth near a one‑to‑one ratio. Slides 10 and 11 provide an overview of ongoing and future capital projects.
We recently completed our wind repowering project, upgrading the wind towers at four of our owned wind energy centers. These upgrades are expected to result in a 20 % increase in output and, due to the benefit of an additional ten years of renewable energy tax credits, are very economical for our customers. Our two solar development projects are underway. Solway Solar is in the early stages of construction, and in January 2026, we completed the acquisition of development assets for Abercrombie Solar. We continue to expect Solway to be operational toward 2026 or early 2027, and Abercrombie in 2028.
Throughout 2025, our team members evaluate options for a battery storage project that would meet the requirements of our approved Minnesota integrated resource plan, which authorized us to add up to 75 megawatts of battery storage by 2029. Near the 2025, we identified an opportunity to add this battery near our Hoot Lake Solar facility. We advanced this project so it would be operational in the approved timeline and qualify for available tax credit, making it economical for our Minnesota customers.
The battery project is under development and is expected to have a storage capacity of 75 megawatts and a storage duration of four hours. Our total capital investment associated with the project is approximately $120,000,000, and in November 2025, we received Minnesota commission approval for rider recovery. We currently expect the battery storage facility to be operational in 2028. Turning to our transmission projects. Development work continues in our MISO Tranche 1, MISO Tranche 2.1, and JPIQ portfolio projects. We continue to work through landowner and local‑government resistance associated with siting and certain permits for one of our MISO Tranche 1 projects.
We continue to monitor a FERC complaint filed in mid‑2025 against MISO’s Tranche 2.1 portfolio of projects, citing a concern with benefit calculation. We currently expect the projects to move forward due to their reliability‑related benefits, but believe there could be delays. Turning to Slide 12. We refreshed our large‑load pipeline, removing the 155 megawatt load that went into service in 2025. We continue to engage with companies looking to add large loads to our system. We believe we have attractive opportunities to add new customers, but we are being prudent in our approach to mitigate potential adverse implications to our existing customer base. We remain optimistic about the 430 megawatt data‑center opportunity currently sitting in phase two.
We continue to engage with the customer in an effort to advance this load to a signed electric service agreement. As a reminder, we have not made any adjustments to our load‑growth forecast for the opportunities sitting in phase one and two of our pipeline. Further, our current five‑year capital spending plan does not include any capital related to new large loads. We remain committed to providing low‑cost electric service to our customers and have demonstrated our ability to do so for many years. Slide 13 illustrates Otter Tail Power’s electric rates have remained well below the national average and regional average for many years.
Our 2025 residential electric rates were 34 % below the national average and 19 % below the regional peers. Looking ahead, we remain committed to managing customer bills. We currently project bills to increase between 3 %–4 % on a compounded annual growth rate over the current five‑year planning period. This is made possible by MISO system‑wide recovery of regional transmission and the availability of renewable energy credits, reduced energy costs, and other factors. There could be some variability in terms of annual bill increases with some years experiencing higher increases and others lower. This is due to the timing of rate‑case filings, capital spend, and related recovery. We also expect that the five‑year CAGR may vary between jurisdictions.
Transitioning to our manufacturing platform, Slide 15 provides an overview of the industry conditions impacting our Manufacturing segment. BTD continues to face end‑market demand‑related headwinds as sales volumes remain below historic levels. End‑market demand continues to be negatively impacted by higher levels of new and used inventory at the dealer level, as well as a challenging economic environment. The end markets most heavily impacted by these dynamics include lawn and garden and agriculture. The construction and recreational‑vehicle end markets seem to be improving as inventory levels are normalizing at the retail level. The industrial end market remains strong, as our products are ultimately used to support the growing energy demand. We have seen some improvements in T.O. Plastics’ horticulture end market but continue to face competition from low‑cost importers.
Slide 16 provides an overview of our Plastics segment pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 15 % from the 2024 average. The rate of decline accelerated during 2025, with the average sales price being 20 % lower than the same time last year. The rate of price decline can be impacted by a variety of factors, including product mix and seasonal demand patterns. Sales volumes increased 8 % from 2024 levels. The increase was largely driven by the incremental capacity added at Vinyltech in late 2024. Material input costs, including PVC resin, decreased 14 % from 2024 levels as domestic supply remains elevated.
Turning to Slide 17. Our manufacturing platform remains well positioned to support future growth opportunities. Our new BTD Georgia facility is ready to support our customers in the Southeast United States, and phase two of our Vinyltech expansion project is nearly complete. Further, Northern Pipe Products is also pursuing a project to increase their nameplate production capacity by approximately 20,000,000 pounds by enhancing the efficiency of an existing line. We expect this incremental capacity to be available beginning in 2028. I will now turn the call over to Todd for the financial results.
Todd R. Wahlund: Thank you, Chuck, and good morning, everyone. Turning to Slide 19, we are pleased with our consolidated 2025 financial results. We generated $6.55 of diluted earnings per share, which was towards the upper end of our 2025 earnings guidance range. Please follow along on Slides 20 and 21 as I provide an overview of annual financial results by segment. Electric segment earnings increased over 7 % year over year with an increase of $0.16 per share. The increase in earnings was driven by recovery of our increased rate‑base investments, higher residential and commercial sales volumes, the impact of favorable weather relative to 2024, and lower operating and maintenance expenses through prudent cost‑management‑related efforts.
While weather conditions were slightly negative in 2025 compared to normal levels, they were much closer to normal levels than the mild 2024. These drivers were partially offset by higher depreciation and interest expense related to our rate‑base investments and associated financing costs. Manufacturing segment earnings decreased $0.06 per share, or 16 % year over year, primarily driven by lower sales volumes, the impact of product mix on average pricing, and higher SG&A expenses. Sales volumes were negatively impacted by soft end‑market demand and inventory management efforts by manufacturers and dealers throughout 2025. These drivers were partially offset by lower production costs as our team members did a great job aligning our cost structure with the current demand environment.
We finished the year strong with higher year‑over‑year sales volumes in Q4, and this momentum is carrying into 2026. Turning to Slide 21. Plastics segment earnings decreased $0.72 per share, or 15 % year over year, as earnings receded from the historic high reached in 2024. The decrease in earnings was largely driven by lower average sales prices. Sales prices decreased 15 % from the 2024 average. We continue to offset some of this decrease in average pricing with higher sales volumes and lower input material costs. Turning to Slide 22. We ended the year in a position of financial strength with $386,000,000 of cash on hand.
We produced a utility sector‑leading return on equity of 16 % on an equity layer of 63 %. Our balance sheet continues to be capable of funding our significant customer‑focused growth plan without external equity through at least 2030. On Slide 23, we are initiating our 2026 diluted earnings per share guidance range of $5.22 to $5.62. The midpoint of our 2026 earnings guidance is expected to continue producing an above‑average return on equity of 12 %. Our 2026 earnings guidance is premised on the following assumptions by segment.
Electric segment earnings are expected to increase 14 % in 2026 due to higher returns generated from an increase in average rate‑base of 14 %, as well as interim revenues from our Minnesota general rate case. The double‑digit increase in average rate‑base is primarily driven by our wind repower and solar investments. We expect these drivers of increased earnings to be partially offset by higher operating and maintenance expenses as well as increased depreciation and interest expense.
We expect Manufacturing segment earnings to increase 7 %, primarily due to an improved sales outlook across the segment. The projected sales growth is being driven by a modest increase of sales volumes at BTD Manufacturing and higher sales volumes of horticulture products. We also expect improved productivity to be a positive contributor to earnings in 2026. For BTD, we anticipate a strong first half of sales relative to 2025, but are being more cautious on our projection for the second half of the year due to continued challenges with certain end markets.
Plastics segment earnings are expected to decrease 36 %, as average PVC pipe prices continue to recede from the peak reached in 2022. This is expected to be partially offset by the impact of higher sales volumes driven by the phase two capacity coming online at Vinyltech in early 2026. Input material costs, including the cost of resin, are expected to be largely flat year over year.
Corporate costs are expected to increase in 2026, driven by lower investment income and higher labor costs. We updated Otter Tail Power’s five‑year capital spending plan, which is included on Slide 24. Despite the updates made, Otter Tail Power’s five‑year capital spending plan continues to total $1,900,000,000 and continues to be expected to produce a rate‑base compound annual growth rate of 10 %. Our updates included increasing the investment amount for renewable generation and battery storage to include the Hoot Lake battery project. We shifted approximately $140,000,000 of transmission‑related investments outside the current five‑year planning period due to updated timing of capital spend. Additionally, we continue to have potential incremental investment opportunities for Otter Tail Power.
We have approval in Minnesota to add up to 200 megawatts of additional wind generation and continue to seek the least‑cost option for our customers, whether that be a power purchase agreement or a rate‑base investment. With our large transmission projects, there is still some uncertainty on the precise timing of some of the spend, so there could be some shifting of spend back into this five‑year planning period. We also could have incremental investment opportunities if we successfully secure new large loads. We continue to project every additional $100,000,000 incremental capital investment opportunity increases Otter Tail Power’s rate‑base compounded annual growth rate by approximately 65 basis points. Slide 25 summarizes our updated five‑year financing plan.
Even with our significant utility capital spending plan, we do not have any external equity needs through at least 2030. We plan to issue debt at Otter Tail Power on an annual basis to help fund the investment plan and maintain its authorized capital structure. We have $80,000,000 in parent‑level debt that matures later this year and expect to retire and not replace this debt. We will have no outstanding parent‑level debt upon retirement.
On Slide 26, we are reaffirming our expected long‑term Plastics earnings profile. We believe Plastics segment earnings will continue to decline through 2027 such that 2028 is our first full year of earnings within our $45,000,000 to $50,000,000 range. This assumption is based on the average sales price of our PVC pipe continuing to decline at a rate similar to what we experienced towards 2025, higher sales volumes due to our expanded production capacity, and cost changes generally in line with the rate of inflation. For 2026, we expect our average sales price of PVC to be approximately 20 % lower than the 2025 average. Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty long‑term Plastics segment earnings. The timing or level of earnings could vary materially from this projection.
However, our Plastics segment is an important component to our overall strategy, with the enhanced returns, cash flow, and earnings it generates. Even as earnings continue to recede, we expect the segment to produce an accretive return and incremental cash to help fund our electric utility’s rate‑base growth plan.
Slide 27 summarizes our investment targets. Underpinned by the significant growth in our electric segment, we continue to target a long‑term earnings per share growth rate of 7 % to 9 %, resulting in a targeted total shareholder return of 10 % to 12 %. We anticipate delivering on those targets once Plastics segment earnings normalize in 2028.
As we continue to execute on our customer‑focused growth plan, we are well positioned to deliver on our investment targets over the long term. Otter Tail Power continues to be a high‑performing electric utility, converting its rate‑base growth into earnings per share growth at near a one‑to‑one ratio. Our Manufacturing and Plastic Pipe businesses consistently produce accretive returns and incremental cash, enabling us to fund our rate‑base growth plan without any external equity needs through at least 2030. It is this intentional strategic diversification that has and will continue to provide benefits to our customers and investors over the long term.
We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We will now open for questions.
Operator: Thank you. As a reminder, to ask a question, please press. There are currently no questions in the queue, but we will wait a brief moment in case anyone is experiencing technical difficulties. As there are still no questions in the queue, I will turn the call back to Chuck for his closing remarks.
Charles S. MacFarlane: Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our investor relations team. We look forward to speaking with you next quarter.
Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
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