Otter Tail Misses, Lowers Guidance Again

By Travis Johnson, Stock Gumshoe, November 4, 2008


Otter Tail (OTTR) released earnings on Monday afternoon, coincidentally right after I wrote about them as the “Idea of the Month” … and it was almost a repeat of the last two quarters:  Weak results, and lowered guidance.

Earnings per share came in about 30% below expectations — which is better than last quarter’s 80% miss, I suppose, but still not terribly exciting.  And the reasons were almost the same, they could have lifted the text from the August earnings announcement and no one would have blinked an eye.  The weak economy is cutting significantly into business at their recreational waterfront products division, and their PVC pipe business is suffering because of the drop in new construction, again, no surprise.  The electric utility performed slightly worse than expected, largely because the summer was a bit cooler than expected, so that’s not a particularly big deal — weather moves both ways.

A large reason for their poor performance remains DMI, for pretty much the same reasons.  Here’s the quote from the press release:

“DMI Industries, Inc. recorded an increase of $17.0 million in revenue due to increased production, but less than optimal productivity rates associated with ramping up operations at DMI’s Oklahoma plant, higher costs due to steel surcharges, increased depreciation expense and higher interest costs contributed to a $2.0 million reduction in DMI’s net income between the quarters.”

So, my opinion about Otter Tail hasn’t changed — I still think that they have the potential for growth next year at DMI as they get their expansion under control (there should probably be an “IF” in there), and I think the utliity should provide some ballast in the form of steady performance as we wait for their more cyclical businesses to show a recovery.

The earnings forecast for the year has been cut again, as it has been a few times this year — down another 20 cents, so expectations are currently for $1.05-$1.30 per share for 2008, following about 69 cents earned to this point in the first three quarters — which means that the fourth quarter would still have to be the best quarter of the year to make even the low end of that guidance. They have kept the dividend steady, so the yield remains above 5%.

On the positive front, it seems fairly clear to me that this weak performance at DMI, and ...

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