Otter Tail Corp Q2 FY2021 Earnings Call

Good morning, and welcome to the Otter Tail Corporation's Q2 2021 Earnings Conference Call. Today's call is being recorded and we will hold a question-and-answer session after the prepared remarks. I will now turn the call over to the company for their opening comments.

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage Otter Tail's Investor Relations area. Last night we announced our second quarter 2021 earnings results. Our complete earnings release and the slides accompanying this call are available on our website at ottertail.com. A recording of the call will be available on our website later today. With me on the call today are Chuck MacFarlane, Otter Tail Corporation's President and CEO; and Kevin Moug, Otter Tail Corporation's Senior Vice President and Chief Financial Officer. Before we begin, I want to remind you that we will be making forward-looking statements during this call. As noted on Slide 2, these statements represent our current judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially. So please be advised about placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments, or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thank you, Loren. Good morning, everyone. Welcome to our second quarter 2021 earnings call. Otter Tail Corporation continues to support all the locations we serve with collective efforts to mitigate the spread of COVID. As most of our employees return to the office from working remotely, we continue to monitor case activity with vaccination rates in the communities we operate. We also continue to monitor and follow guidance and recommendations from the CDC, our state's local public health officials, and OSHA. As of today, 5% of our employees continue to work remotely. Throughout the course of the past year and a half, our companies and employees have done an excellent job managing the highs and lows from COVID-related impacts, including adjustments to staffing levels, navigating supply chain constraints, managing commodity pricing, and supporting increased customer demand. Please refer to Slide 4 that I began my comments on Q2 results. We're under $1 per share for the quarter, which is a 141% increase over the $0.42 per share earned in Q2 of 2020. All of our businesses had improved results led by our plastic segment, which had another outstanding quarter. Kevin will provide a more detailed discussion of our financial performance in his comments. But here are a few brief overview of the Q2 results. The electric segment hit a record second quarter with earnings per share increasing $0.04. This was primarily driven by the recovery of investments in Astoria Station and Merricourt Wind Energy Center. Approved interim rates going into effect January 1st in conjunction with Otter Tail Power’s Minnesota general rate case filing and increased revenues from commercial and industrial customers as sales volumes recover from the negative impacts of COVID. Our manufacturing segment's earnings per share increased $0.13 due to increased sales volumes at BTD and T.O. Plastics. BTD experienced increased demand across all its end markets as major OEMs continue to rebuild depleted inventories created by strong end market sales and production and supply chain issues. Our plastic segment had another record-breaking quarter with earnings per share increasing $0.42. This was driven by higher pipe sales and higher pipe prices, as well as improved operating margins, resulting from positive unique market conditions driven by PVC resin supply constraints. We do anticipate operating margins to return to more historic levels in 2022. Based on our strong year-to-date performance, especially in the plastic segment and our updated view for the remainder of the year, we are raising our 2021 diluted earnings per share guidance to be in the range of $3.50 to $3.65 from our previously announced guidance of $2.47 to $2.62. This is a 50% to 56% increase over last year’s $2.34 a share. Turning to some highlights for the quarter, we retired Hoot Lake plant on May 27th this year, marking the end of 100 years of coal-fired energy generation at the site. On July 21st, we joined current and former plant employees and others involved in plant operations to commemorate the plant's legacy and dependable innovative employees. Hoot Lake plant, a 140-megawatt coal-fired generating facility in Fergus Falls, Minnesota, played a vital role in our company's history of generating reliable and affordable energy. We continue to grow Otter Tail Power through capital investments in generation, transmission, and technology projects. On Slide 12, after years of planning and two years of construction and testing, Astoria Station is now part of the Midcontinent Independent System Operator, or MISO energy market. This allows MISO to economically dispatch the unit. This $152 million investment complements our wind generation by providing a reliable backstop when the wind is not blowing, and it has flexible operating options and low emissions. Astoria Station provides 245 megawatts of dispatchable capacity compared to Hoot Lake plant’s 140 megawatts with projected 85% less carbon emissions than historic Hoot Lake plant levels. We announced in September 2020 the $60 million Hoot Lake Solar project that is shown on Slide 13. This is a 49-megawatt project to be built on previously owned and newly purchased land around Hoot Lake plant. Hoot Lake Solar will generate enough energy to power approximately 10,000 homes each year. This project offers us a unique opportunity to reuse our existing Hoot Lake transmission interconnection along with substation and plant land after recently retiring the Hoot Lake coal plant. This spring, the Minnesota PUC approved our request to authorize 100% of Hoot Lake solar’s output to be allocated for use by Minnesota customers and 100% of our investment in the Hoot Lake Solar to be eligible for future cost recovery for Minnesota customers through our renewable resource rider. In early July, the Fergus Falls city council approved our conditional use permit, which outlines our plans for the site, including screening, vegetative management, stormwater management, and decommissioning. To qualify for the 26% investment tax credit, we have secured Safe Harbor equipment and currently anticipate the project to be completed in 2023. As noted on Slide 14, we've had a purchase power agreement in 2013 with NextEra Energy for energy delivered to the Otter Tail power system from the Ashtabula III wind farm located near Luverne, North Dakota. This agreement includes the options to buy the assets of Ashtabula III, converting from a purchase power agreement to a rate-based facility in 2023. This wind farm is a 62.4-megawatt facility with a 40% net capacity factor. We expect to purchase the facility in early 2023. Regulatory approvals will be obtained over the next several months. We will be filing our next Minnesota integrated resource plan in September of 2021 as noted on Slide 15. This plan will identify the most cost-effective combination of resources to reliably meet customers' needs during the next 15 years. We will file the plan in all three state jurisdictions. As required by the Minnesota PUC, the plan will address compliance with the EPA's Regional Haze Rule. Our last integrated resource plan was filed in June of 2016 and approved in April of 2017. We filed our Minnesota general rate case on November 2, 2020 as shown on Slide 16. Our last Minnesota rate review was filed in 2016. The primary driver for this request is to place Astoria Station into our base rates in Minnesota. This project was approved in our most recent IRP and has been earning AFUDC during the construction period. Additionally, our new customer information system, which focuses on enhancing the customer experience by allowing customers more access and options related to their energy use, was also a driver for this request. Recognizing the economic impact to customers of the ongoing pandemic and with input from commission staff, we agreed to reduce our interim rate request by approximately half to $6.9 million or 3.2%. This was done in conjunction with the approval of our annual depreciation filing, which extended our wind asset lives from 25 to 35 years. This change in depreciation expense and a reduction in pension expense drove the decrease to the interim rate request. In December, the commission approved our interim rate request beginning in January 2021. In late April, we filed a substantial reduction to our original request incorporating the lower depreciation rates approved by the commission, lower borrowing rates, lower pension and benefit costs, and other refinements identified during the discovery phase of the case. The new request is for $8.2 million or a 3.8% increase versus the original request of $14.5 million or a 6.8% increase. Evidentiary hearings were held in early June and the administrative law judge is scheduled to issue his recommendation to the PUC by September 2nd. We anticipate a decision in late 2021. Even with this increase, Otter Tail Power residential customers will continue to have some of the lowest rates in the country. As shown on Slide 18, the utility's rate base is expected to grow by an annual rate of 5% between 2020 and 2025 in a constructive regulatory environment and will be a key driver for future earnings growth. We anticipate updating our CapEx rate base forecast in future earnings calls after filing our Minnesota IRP in September and as more information on the MISO regional transmission plan is known. Additionally, the utility has entered into electric service agreements with industrial customers in the water pumping and soybean crushing areas. These new loans and other loans under development are expected to be commercially operational between 2022 and 2024. Turning to our manufacturing segment, BTD, our contract metal fabricator, continues to experience increased customer demand and improved sales across all their end markets as major OEMs rebuild depleted inventories. They continue to be challenged with securing staffing levels to keep up with the increased demand. Industry-wide demand for manufacturing talent has increased and lingering COVID-19 impacts continue to affect the number of available applicants. Also, steel prices are exceeding historic levels, driven by strong demand and limited product availability as mills are slow to recover from capacity reductions in 2020 related to COVID. Even though BTD is able to pass increased material costs to their customer, steel availability could impact production for some OEMs. Our plastic segment continues to deliver extraordinary results in a tight pipe market due to PVC resin supply constraints that have significantly driven up PVC pipe prices. PVC resin constraints resulted from abnormally cold weather in February that impacted the Gulf Coast region. Resin constraints remain due to high demand as PVC resin plants continue to recover from shutdowns. While we expect PVC resin supply constraints to remain for the rest of the year, both of our PVC companies remain agile and reliable with on-time delivery. Looking ahead, Otter Tail Power continues to be innovative as we modernize our energy grid, enhance customer experiences, and work toward a cleaner energy future. We projected by 2023 our customers will receive approximately 35% of their energy from renewable sources based on current dispatch levels of both Big Stone and Coyote Station, our target is to reduce carbon emissions from generation sources we own 50% from 2005 levels by 2025 and 97% by 2050. We will achieve these targets while keeping residential rates among the lowest in the nation. With growing concern about companies generating more than 25% of revenues from thermal coal, please note Otter Tail Corporation's percentage of revenue from coal assets is significantly below that threshold. The percentage of consolidated revenues from our coal assets was 12% in 2020. Now I'll turn it over to Kevin for the financial perspective.

Well, thanks and good morning, everyone. Second quarter sales were up 48%, and net earnings increased to 148%. These results are primarily driven by unique market conditions in our plastics segment, resulting from PVC resin supply constraints that caused an acceleration of sales prices for pipe well in excess of the increase in resin costs. Let me provide a detailed review of the quarter results as shown on Slides 27 and 28. The electric segment set a new record for second quarter net earnings as we continue to see our largest business execute on its rate base growth strategy. Net earnings increased $2.1 million quarter-over-quarter, driven by a $1.5 million increase in net retail revenues related to the interim rate increase effective January 1, 2021 associated with our current Minnesota rate case; a $1.5 million increase in retail revenues from commercial and industrial customers, primarily due to increased sales compared to the second quarter of 2020, which was negatively impacted by COVID; a $1.4 billion increase in revenues related to the recovery of Merricourt operating expenses and Astoria Station project costs; recovery of increased CIP program spending in Minnesota and South Dakota and transmission rider revenues. These items were offset by increased operating expenses due to the Merricourt wind farm and Astoria Station being commercially operational, increased transmission tariff expenses, increased CIP expenditures, which are being recovered through retail rates, and higher vegetative and plant maintenance expenses. These expense increases were offset in part by lower bad debt expense due to improving customer collections as the economic impact of COVID-19 has eased. Other items impacting earnings were higher depreciation and property tax expenses due to recent capital additions, higher interest expenses due to new long-term debt issuances in 2020, higher short-term borrowings in 2021, and a lower level of capitalized interest, resulting from the placement of the Astoria Station in service in the first quarter. Income taxes were favorably impacted mainly due to production tax credits earned on Merricourt in 2021. Net earnings for the manufacturing segment increased $5.5 million due to higher parts revenues at BTD from increased demand across all their end markets. This resulted in increased sales volumes and improved operating margins. Steel prices continue to exceed historical levels as mill capacity has been slow to recover to pre-pandemic levels, creating supply chain challenges. Scrap revenues were higher primarily due to increased scrap metal pricing. Our scrap volumes were higher as well in comparison to the same quarter a year ago. Cost of goods sold were higher due to increased sales volumes and higher material costs that were passed on to customers. Our selling, general and administrative costs were higher related to increases in incentive compensation given BTD’s current year financial performance and increased travel and recruitment costs necessary to support higher revenues. At T.O. Plastics, our net earnings improved due to increases in product pricing, higher levels of horticultural sales, and improved gross margins resulting from increased production volumes. Our plastic segment earnings increased $7.4 million, primarily due to higher pricing of PVC pipe sales in excess of higher product costs. This dynamic resulted in operating margins not previously experienced. Increased sales volume also contributed to the improvement. The significant increase in pipe prices was driven by PVC resin supply constraints due to resin plant shutdowns that started during the first quarter of 2021. These conditions continued into the second quarter along with significant global demand for PVC resin and limited pipe inventory across the country. The resin spread, as shown on Slide 25, which is the difference between the sales price of PVC pipe and the cost of resin in the second quarter of 2021, has increased approximately 65% compared with the first quarter of 2020. Our corporate costs net of tax were basically unchanged quarter-over-quarter. In June, we completed a $230 million senior unsecured loan offering for Otter Tail Power with a delayed drop of $140 million to be issued in November of this year and $90 million to be issued in May of 2022. The proceeds will be used to refinance existing long-term debt and for general corporate purposes. We continue to generate strong cash flows and have appropriate levels of liquidity under our credit facilities to support our business operations. We expect operating cash flows in 2021 will be much stronger than originally anticipated, resulting from our plastic segment performance. These strong cash flows will allow us to look at investment opportunities, such as additional contributions to our pension plan to improve funded status and opportunities for additional capital investments to continue to grow organically. We're raising our 2021 overall diluted earnings per share guidance range to $3.50 to $3.65, as shown on Slide 31. The midpoint of the revised 2021 earnings per share guidance range of $3.58 reflects an approximate 53% growth rate off of 2020 diluted earnings per share of $2.34. The primary drivers are the exceptional performance and improved outlook of our plastic segment. We're also raising our manufacturing segment guidance based on strong first-half performance along with end markets that are continuing to improve. Our forecast reflects our expectations that supply constraints and inflation are not going away nor will they improve materially in 2021. Our revised guidance reflects the impact of continued labor challenges as we look to increase wage rates across certain of our businesses in order to attract the needed workforce to support growing volumes. Let me review the items contributing to our revised segment guidance for 2021. We are maintaining our previous guidance for the electric segment and continue to expect earnings will exceed 2020 levels, driven by the Merricourt and Astoria projects being commercially operational, and our $410 million total investment in these projects being fully reflected in rate base. Both projects have recovery mechanisms in all three of our jurisdictions, partially offset by increased operating and maintenance, depreciation and property tax expenses associated with these investments and increased interest expense due to the 2020 debt issuances. The impact of our Minnesota rate case that was filed in November of 2020, the Minnesota Public Utility Commission has approved an interim rate increase of 3.2% for $6.9 million. These items were partially offset by increased non-labor O&M expenses related to planned outages at Big Stone plant and increased post-retirement expenses related to a decrease in discount rate and long-term rate of return on plan assets. We are increasing our previous 2021 earnings guidance for manufacturing segment and continue to expect earnings to be higher than 2020 based on the strong year-to-date performance at BTD, driven by the increased sales volumes across all end markets and improved operating margins as our customers continue to rebuild inventories to fill the shortages created by the pandemic. The strong year-to-date recoveries in our end markets are certainly indicative of the economic recovery. However, we believe growth could be more robust if not for the challenges associated with continued supply constraints and labor shortages. Scrap revenues are expected to be higher based on higher scrap metal prices. Decreased steel mill capacity due to COVID has created product availability issues. While capacity continues to improve, mills are struggling to keep up with demand to get the steel needed to meet customer demands and continue to keep steel prices elevated above historic levels. We currently expect steel prices to remain high in 2022. We continue to work on increasing staffing levels to keep up with demand and to mitigate the impacts of lower productivity and increased expedited freight costs. We expect higher earnings at T. O. Plastics mainly due to their strong year-to-date performance, increased sales to horticultural end markets, and improving operating margins and productivity enhancements. Backlog for the manufacturing segment is approximately $128 million for 2021 compared with $93 million one year ago. Our increased backlog is indicative of the improving economy. We are raising the 2021 guidance for our plastic segment from our previous guidance due to operating margins being higher than expected during the first six months, driven by unique market conditions resulting from PVC supply constraints. These market conditions continued into the second quarter and resulted in higher than planned PVC pipe sales prices. Sales prices are predicted to remain elevated for the rest of the year. Resin suppliers continue to increase raw material prices in response to market conditions, such as availability constraints related to feedstock supplies for resin and a strong export market, which has higher resin prices than the domestic market. We currently expect the supply constraints to continue for the remainder of the year and return to more normal levels next year. Pounds of pipes sold in 2021 are now expected to be higher than in 2020, driven by strong construction in municipal markets. Our corporate costs net of tax are expected to be higher due to higher employee benefit costs and potential contributions to the Otter Tail Corporation Foundation. Our expected 2021 financial results show 48% of our consolidated earnings per share coming from the electric segment. This is a departure from our 70% to 75% expected earnings from the electric segment. The 2021 results are clearly being driven by the economic recovery in our non-electric businesses and most significantly by the unique market conditions in our plastic segment that are not expected to continue over the long-term. We continue to expect our electric segment to contribute 70% to 75% of our overall earnings over the long term. It will continue to deliver reliable performance along with rate-based investment opportunities over the next five years to allow for growing revenues, earnings, and cash flows. The manufacturing and plastic segments will also provide organic growth over the long-term. These two segments are expected to provide around 25% to 30% of our earnings over time. We expect to deliver total shareholder return of 8% to 10% over the long-term, consisting of our expected 5% to 7% compounded annual growth rate and earnings per share using 2020 as the base year along with our current dividend yield. Looking forward, we would expect to grow the dividend in line with our earnings per share growth while maintaining a dividend payout ratio between 60% to 70% over the long-term. Our business model continues to serve us well, and we remain positioned to fund our rate base growth opportunities at the utility with our strong balance sheet, ample liquidity to support our businesses, and strong investment grade corporate credit ratings. We're now ready to take your questions.

Your first question comes from Chris Ellinghaus at Siebert Williams.

The foundation donation potential, should we sort of expect that to be similar to the magnitude of 2020, or given the earnings level this year, should we expect that to be bigger?

The updated guidance includes approximately $0.05 per share for a potential contribution to the Foundation this year. Compared to last year, this is less than what was contributed by the power company to their foundation and the contribution made by plastics to the Otter Tail Corporation Foundation.

I'm a bit confused by your description of the plastics market today. You're indicating that you might be selling more pounds, which implies that your allocation of the resin market is stable or improving. This doesn't suggest to me that you are facing a resin constraint. Does this indicate that some of your competitors are experiencing greater constraints, creating a supply-demand imbalance that allows for higher prices? I'm unclear about the specific resin supply issues.

The plants are pretty much back to full levels, but they continue to keep customers, us and our competitors, on resin allocations. So we're getting the resin we need but we aren't getting all the resin we could certainly use. And so our inventory levels are significantly lower today than they have been in previous years. And so what we're getting in terms of allocation, we’re pretty much producing and selling through.

So really if I think about, this is really extraordinary demand that can't be met with supply is more in my mind where the margins coming from. In prior years where you didn't have the February disruption, would the resin market have been able to adjust its volume to supply you that incremental capacity?

Yes, it would have.

So the sort of a combination of factors that are causing these margins. What are you expecting in 2022? You're talking about a return to normal. But is there a reason to think that the construction market will ease, or are you simply thinking that the resin supply will increase to meet that demand?

Chris, as we see it today, we expect the resin supply to return to more normal levels in 2022, which will make it easier to meet the existing demand. We anticipate that the conditions that contributed to the high sales prices and margins will also revert to more typical levels that we have historically observed.

Can you give us a little color on what your July weather looks like?

July weather has been, I would say, it's probably a little bit warmer than normal.

I think, we're 5 degrees above average for July.

Your next question comes from the line of Brian Russo from Sidoti.

So just to follow-up on the plastic segment. I mean, do you have a competitive advantage in this market, or is it just a spread business? Meaning when demand is outstripping supply, your margins expand. Or are you able to secure more resin inventory than competitors maybe due to location, et cetera? Or are all your competitors seeing the same unprecedented outsized margins right now?

We believe we have a competitive advantage in our ability to quickly respond to customer demands while some of our competitors struggle to do so. This was particularly evident in 2020 when we kept our plants operational and production lines running, whereas others temporarily shut down during the early months of COVID, which affected them. However, it’s important to note that we are observing competitors announcing significant price increases for pipe. Since the end of the last quarter, we’ve seen these price announcements continue as competitors raise prices in response to revenue changes. Despite the fact that plants are operational again, there remains resin allocation issues, and demand for products is strong. Competitors are adjusting their prices upward, and we are also witnessing similar adjustments from our customers who are now having difficulty maintaining previously established prices. As the supply side raises prices, they, too, need to increase their prices for end users, which is impacting the broader market.

So competitors raising PVC pipe prices. Is that a leading indicator to your plastic segment performance? Meaning it's an indication of increasing demand and therefore widening spreads relative to an increase in the actual raw material or resin.

Well, it could be, Brian. I think what we're seeing too though is we're seeing our competitors raise prices. We're also seeing announced resin price increases coming from the suppliers here.

In this bipartisan infrastructure bill, I think there's nearly $55 billion allocated to water infrastructure. Is your plastic segment leveraged to that spend?

I think we have not put that in our forecast yet. We are aware of the lead replacement in the bill, a lot of that has to do with areas in the Eastern US, which is not a big amount of our pipe going there. But it'll put a positive, I think, on the entire sector or pipe manufacturing business.

In the BTD segment, there is significant demand from OEMs and the end market, with inventory levels at dealerships being historically low. Some of your customers are unable to meet the demand due to supply constraints. I'm trying to understand your volume growth in the second quarter compared to revenue, as the revenue increase is influenced by higher steel prices, which are passed through. What is the actual growth rate in units sold compared to top-line revenue?

Let me try and break it down for you this way, Brian, and see if it helps. But as we compare to 2020 revenues at BTD to our current view, we're seeing about a $96 million increase in revenues. So that's 47%, but of that $56 million is material pricing between our 2020 results in revenues and what we are forecasting this year. So then there's $40 million of, if you will, growth as it relates to the value added that we're doing to our customers.

So when some of your end market customers on recent conference calls have noted supply chain issues, et cetera. It's not you that they're facing supply shortages from, it's elsewhere for other products that go into these off-road vehicles, I guess?

Brian, I would say it's a combination of all. I mean, we certainly are experiencing supply constraints as well that then impact our ability to get product to our customers. But I think you see whether it's Polaris or Toro, and others, this supply constraint is an issue for a lot of industrial companies. And we're experiencing higher expedited freight costs. We've been having to have employees work overtime to try and meet the demand that our customers are putting on us. We're working through that. We're trying to hire more labor to help improve some of that productivity. But we're certainly seeing an impact in the P&L as it relates to just higher labor costs and expedited freight costs as we work to get product to them.

What is the utilization rate at the plant at BTD? I think you got one in Minnesota and one in Georgia?

While we have the Washington, Illinois, we have the Georgia facility and then the Minnesota facility, I think, in general, we're somewhere around 70% capacity level.

And then just switching gears to the utility. Any insight into the IRP in terms of transmission or renewables, or scenarios surrounding environmental compliance at Coyote or maybe repowering, et cetera?

Brian, we typically don't incorporate any of the transmission investments in that Integrated Resource Plan. Those usually originate from the MISO plan. For now, we'll wait until we file it in September so our regulators can review the plan and its contents first, and we are still finalizing that. Therefore, it's a bit premature to discuss those details.

Your next question comes from the line of Sophie Karp from KeyBanc.

You have shown impressive performance in the plastics and manufacturing segments due to favorable market conditions. My question is regarding the unexpected revenue and cash flows generated. How do you plan to utilize this windfall? Will it help address any equity needs we should consider, or are you planning a share buyback, or will it be reinvested? Is there a specific purpose for this revenue that we should be aware of?

We don't have in our, I think we talked about this on the first quarter call, but we don't have any equity needs in the five year plan. And so right now, as we look and as I mentioned, I think in my opening comments, as it relates to the stronger cash flows, we certainly have the opportunity to look at some additional contributions to our pension plans. They help the funded status there. We also have additional capital investments that create additional organic growth for us, specifically in the plastic segment that we've been looking at that that extra cash would help us fund those things and allow us to have additional organic growth opportunities going forward.

So I will take it that you're not considering maybe selling those segments at this point given the revelations must be very attractive?

As we continue to communicate, the two platform strategy between the utility and the manufacturing consisting of manufacturing and plastic segment, we like the business model, and we think it’s performing well and continue to expect to execute on that.

And there are no other questions over the phone line at this time.

All right. I'll turn it over here to Kevin for a second.

We have an important occasion today regarding the press release that I'd like to discuss. I want to acknowledge Loren Hanson, our Manager of Investor Relations, as today marks his last Otter Tail earnings call due to his retirement. Loren has dedicated 40 years to our company and has been leading our Investor Relations group since 1986. His commitment to our organization and advocacy for our shareholders has been steadfast. Loren, it has been a true pleasure working with you, and I am grateful for all you have done to provide exceptional service to our shareholders and Otter Tail. Congratulations on your remarkable career, and thank you for the enduring contributions you have made; you have impacted many lives over the years. I would also like to introduce Tyler Akerman, who will take over for Loren upon his retirement. Tyler joined Otter Tail Corporation in June and previously spent over eight years in business planning at Otter Tail Power Company. His experience in the utility sector makes him well-suited to lead the investor relations function moving forward and to uphold Otter Tail's tradition of serving our shareholders. Welcome, Tyler.

I'd also like to offer my thanks, and congratulations to Loren. He's been a positive fixture, as Kevin mentioned, in Otter Tail Investor Relations for 35 years. All the best in your retirement, and welcome Tyler. As I wrap up here, thank you for all your questions and interest in Otter Tail Corporation. Our outstanding year-to-date results reflect the collective efforts of the people of Otter Tail Corporation and unique market conditions. We remain focused on our strategic initiatives to grow the business, achieve operational and commercial excellence, and develop our people and provide value to our shareholders and position us for long-term success. We're also pleased to announce that carbon emissions from our own generation are now targeted to be 50% less by 2025 and 97% less by 2050 compared to 2005 levels. We remain committed to making system investments that provide clean, reliable and affordable energy solutions for our customers while improving the communities where we live and work. Based on our strong year-to-date results and our updated view of the remainder of the year, we are raising our 2021 diluted earnings per share to $3.50 to $3.65 from our previous guidance of $2.47 to $2.62. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation, and we look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today's conference call. We thank you all for participating. You may now disconnect.