Shares of otter tail (OTTR -7.59%) fell today after the utilities and manufacturing company released better-than-expected results in its third-quarter earnings report, but cut its full-year guidance.
As of 10:49 a.m. ET, the stock was down 10.6%.
Otter Tail said revenue for the quarter jumped 21.3% to $383.9 million, due in part to higher utility rates and material prices. This figure easily exceeds analysts’ estimates of $357.8 million.
Sales rose at least 10% in its three business segments, with plastics recording the fastest growth at 32.4%, benefiting from a 57% rise in the price per pound of PVC pipe.
Due to these higher prices, net profit was also significantly higher in all three segments. Overall, earnings per share (EPS) jumped 60% to $2.01, beating expectations at $1.82.
What appeared to sink the stock, however, was the build-up of demand headwinds, which led management to cut its forecast.
CEO Chuck MacFarlane explained, “PVC pipe demand began to decline during the quarter due to multiple, larger than expected resin price reductions that caused pipe distributors and contractors to reduce their purchases of PVC pipe in an effort to reduce inventory levels.
Otter Tail seems to be feeling the impact of slowing demand in the home improvement market, and it looks likely to get worse.
Primarily due to resin price reductions, the company cut its full-year EPS guidance from $6.83 to $7.13 to $6.42 to $6.72. The implication is that EPS for the fourth quarter will only be $0.64 to $0.94, significantly weaker than in the third quarter, and investors seem to be expecting these headwinds to continue. until next year.
If the housing market continues to weaken, 2023 could be a tough year for the utility fleet.
. why stock tail dOtter was drop today