Otter Tail Corporation Announces First Quarter Earnings; Completes Sale of DMS Health Technologies, Inc. and Updates Earnings Guidance
FERGUS FALLS, Minn., May 7, 2012 (GLOBE NEWSWIRE) -- Otter Tail Corporation (Nasdaq:OTTR) today announced financial results for the quarter ended March 31, 2012.
"Overall results for the first quarter of 2012 indicate we are beginning to turn a corner. The majority of our operating companies showed measurable improvement year over year. With the sale of DMS in the first quarter of 2012, we made additional progress in realigning our portfolio of companies and, importantly, our investments in electric transmission are contributing to earnings," said Otter Tail Corporation President and CEO Jim McIntyre.
"Earnings from our Electric segment were lower than forecast as a result of unusually mild winter weather. However, despite the negative impact from the abnormal weather, net income for the Electric segment was down just 1.1% year over year, as performance was positively impacted by increased revenues from returns on CapX2020 transmission project investments. Going forward, our Electric segment will play a larger role in our growth strategy and we will continue to invest accordingly.
"Our Plastics segment benefited from higher sales volumes and better-than-expected margins this past quarter due, in part, to the warm winter for our Fargo, North Dakota-based operations and a rising market in the industry overall. These factors, and others, contributed to a $3.6 million rise in segment net income compared with last year's first quarter.
"Strong first quarter performance by Vinyltech and Northern Pipe Products, our plastic pipe companies, as well as BTD, our custom metalwork manufacturer, illustrate our intensified focus on operational excellence, risk reduction, and the ability to identify and act quickly on opportunities in the marketplace. Lean manufacturing efforts, more rigorous margin management, and the ability to take selective price increases have also played a part in the progress we've seen.
"At DMI, our wind-tower manufacturer, continued focus on process and productivity improvements in combination with attention to quality and customer requirements, drove meaningful performance improvement. In the first quarter of 2012, DMI recorded a net loss of $0.7 million, compared with a $6.2 million net loss in the same quarter last year.
"The improved earnings contributions from our Wind Energy and Plastics segments were partially offset by net losses in our Construction segment, driven by cost overruns on certain major projects of Foley Company."
McIntyre concluded, "Based on our 2012 first quarter segment performance, we are narrowing our guidance for diluted earnings per share from continuing operations to a range of $1.05 to $1.40. While there clearly are a number of reasons for optimism within our first quarter results, we remain committed to improving the performance of all our operating companies and investing in additional electric transmission and generation opportunities. We also continue to review the mix of businesses in our nonelectric portfolio."
Cash Flow from Operations and Liquidity
The corporation's consolidated cash flow from continuing operations for the quarter ended March 31, 2012 was $6.4 million compared with $3.1 million for the quarter ended March 31, 2011. The corporation's first quarter 2012 consolidated cash flow from discontinued operations was $1.4 million, compared with $3.8 million for the first quarter of 2011. Proceeds, net of selling costs, from the sale of DMS in the first quarter of 2012 of $24.1 million were used to pay down short-term borrowings and for other corporate purposes. On March 31, 2012 Otter Tail Corporation and Otter Tail Power Company had $361.3 million available under existing credit facilities to provide for working capital requirements and to help fuel future growth initiatives.
Board of Directors Declared Quarterly Dividends
As previously announced, on May 3, 2012 the Board of Directors declared a quarterly common stock dividend of $0.2975 per share. This dividend is payable June 9, 2012 to shareholders of record on May 15, 2012. The Board also declared quarterly dividends on the corporation's four series of preferred stock, payable June 1, 2012 to shareholders of record on May 15, 2012.
Segment Performance Summary
Electric revenues and net income were $90.0 million and $11.0 million, respectively, compared with $91.6 million and $11.1 million for the first quarter of 2011. A $1.5 million decrease in retail electric revenues reflects the following:
Wholesale electric revenues from company-owned generation decreased $0.7 million mainly as a result of a 21.7% decrease in the average price per wholesale kwh sold. Wholesale electric prices were down as a result of decreased demand and lower utilization of higher cost generation due to the extremely mild winter of 2012.
Other electric operating revenues increased $0.4 million as a result of:
Net mark-to-market gains on forward energy contracts increased $0.2 million between the quarters.
Fuel costs decreased $4.2 million as a result of a 23.8% decrease in kwhs generated from Otter Tail Power Company's steam-powered and combustion turbine generators, partially offset by a 3.4% increase in the cost of fuel per kwh generated. Generation levels decreased in response to lower demand due to mild weather and a forced outage at Big Stone Plant in February 2012 to repair boiler steam tube leaks.
The cost of purchased power for retail sales increased $1.8 million as a result of a 24.5% increase in kwhs purchased, partially offset by an 8.1% decrease in the cost per kwh purchased. The increase in kwhs purchased was mainly due to reduced availability of Big Stone Plant in the first quarter of 2012.
Electric operating and maintenance expenses increased $1.5 million due to the following:
OTESCO recorded an additional $0.4 million asset impairment charge related to its wind farm development rights at its Sheridan Ridge and Stutsman County sites in North Dakota as a potential sale of the rights did not occur as expected in the first quarter of 2012.
Income taxes in the Electric segment decreased $1.0 million as a result of: (1) a $1.1 million reduction in income before income taxes and (2) the reversal of $0.7 million in accrued interest on the removal of an income tax audit issue from an IRS audit currently in progress.
Wind Energy revenues and net loss were $52.1 million and $0.7 million, respectively, compared with revenues of $47.0 million and a net loss of $6.2 million for the first quarter of 2011. At DMI Industries, Inc.'s (DMI) U.S. plants, revenues increased $16.3 million due to a 22.3% increase in towers produced, while cost of goods sold increased by only $12.9 million, resulting in a $2.3 million increase in net income at those facilities due to productivity improvements, cost controls and the implementation of quality control measures that have eliminated the need for outsourced quality assurance staffing. Net losses were down $3.2 million at DMI's Canadian plant in the first quarter of 2012 compared to the first quarter of 2011 due to the plant being idled.
Manufacturing revenues and net income were $66.0 million and $2.2 million, respectively, compared with $55.4 million and $2.7 million for the first quarter of 2011.
Construction revenues and net loss were $35.6 million and $4.2 million, respectively, compared with $37.5 million and $0.3 million for the first quarter of 2011. Foley Company revenues decreased $7.1 million, while Aevenia's revenues increased $5.2 million as a result of an increase in electrical transmission, distribution and substation work facilitated by the mild weather in the first quarter of 2012. Extremely narrow margins on work completed and continued cost overruns on certain major projects at Foley Company were the primary reason for the Construction segment's net loss in the first quarter of 2012 compared with the first quarter of 2011.
Plastics revenues and net income were $34.9 million and $3.3 million, respectively, compared with revenues of $18.5 million and a net loss of $0.4 million for the first quarter of 2011. The increases in revenues and net income are the result of a 58.0% increase in pounds of pipe sold combined with a 19.5% increase in the price per pound of pipe sold, while the cost per pound of pipe sold increased by only 2.0% between the quarters. Mild winter weather resulted in an early start to the construction season, contributing to the increase in pipe sales.
Corporate expenses, net-of-tax, increased $0.5 million between the quarters as a result of higher employee benefit costs and increased costs for insurance programs and outside services.
In 2011, the corporation sold Idaho Pacific Holdings, Inc. (IPH), its food ingredient processing company and E.W. Wylie Corporation (Wylie), its trucking business. On January 18, 2012 ShoreMaster completed the sale of the assets of its wholly owned subsidiary, Aviva Sports, Inc. (Aviva), and on February 29, 2012 the corporation completed the sale of DMS. The financial position, results of operations, and cash flows of IPH, Wylie, Aviva and DMS are reported as discontinued operations in the corporation's consolidated financial statements provided at the end of this report. Following are summary presentations of the results of discontinued operations for the three month periods ended March 31, 2012 and 2011:
2012 Business Outlook
Based on year-to-date segment performance, the corporation is updating its 2012 expectations for diluted earnings per share from continuing operations to a range of $1.05 to $1.40 from its previously announced range of $1.00 to $1.40. This guidance considers the cyclical nature of some of the corporation's businesses and reflects challenges presented by current economic conditions, as well as the corporation's plans and strategies for improving future operating results. The corporation's current consolidated capital expenditures expectation for 2012 is in the range of $125 million to $135 million. This compares with $74 million of capital expenditures in 2011. The corporation plans to invest in generation and transmission projects for the Electric segment that have the potential to positively impact the corporation's earnings and returns on capital. Future Electric segment investments include the construction of a new air quality control system at Big Stone Plant to meet requirements of the Clean Air Act and regional haze regulations, investment in two MISO-determined 'multi-value' transmission projects that will serve the MISO region, and continuing investment, with other utilities, in three CapX2020 transmission projects already underway.
Segment components of the corporation's updated 2012 earnings per share guidance range are as follows:
Contributing to the earnings guidance for 2012 are the following items:
Risk Factors and Forward-Looking Statements that Could Affect Future Results
The information in this release includes certain forward-looking information, including 2012 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 energy services company, wind energy, and infrastructure businesses that include manufacturing, construction and plastics. 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.
The Otter Tail Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4958
See Otter Tail Corporation's results of operations for the three months ended March 31, 2012 and 2011 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.
CONTACT: Media contact: Michael J. Olsen, Sr. Vice President of Corporate Communications (701) 451-3580 or (866) 410-8780 Investor contact: Loren Hanson, Manager of Investor Relations (218) 739-8481 or (800) 664-1259
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