Otter Tail 4Q24 and Full Year Write-Up: Thesis Confirming

Full Year

Revenue: (1.4%) y/y

EPS: 2.4% y/y

Plastics Earnings: 6.9% y/y

Quarterly

Revenue: (3.6%) y/y

EPS: (5.2%) y/y

Guidance

EPS: $5.68 - $6.08

ROE: 13.8% - 14.6%

Otter Tail released fourth quarter and full year earnings this morning. The stock has reacted positively, and it should finish trading up around 6% on the day. They beat on EPS and the plastics fundamentals have remained strong, which was exactly inline with my thesis.

The majority of the positive reaction to the earnings print seems to be coming from the guidance, which was well above what the street had anticipated for FY25. Consensus anticipated earnings to come in just over $5 a share next year, and OTTR is now guiding to a midpoint of $5.88 a share. This optimistic guidance is a result of plastics volumes, which are offsetting much of the earnings losses from compressing prices.

I began questioning my position in Otter Tail in December, after I had some conversations with more seasoned investors. I don't think it's necessarily smart to be invested in a company with the thesis of "things are going to get worse, but I think things will not be as bad as others think." This would mean that the multiple will have to expand in a major way to make up for the eventual decline in plastics earnings. That is simply not a bet I feel comfortable making right now.

I think this earnings print sees the thesis being realized. The market has now been told that there will be a much softer landing, and it has been priced in. I am heavily considering leaving the position, and will consult with Brigham Capital tonight in order to get a better feel for what to do with the position.