Otter Tail Corporation (OTTR) Q2 2021 Earnings Call Transcript

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Otter Tail Corporation (OTTR 2.21%)
Q2 2021 Earnings Call
Aug 3, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Otter Tail Corporation's Q2 2021 Earnings Conference Call. [Operator Instructions].

I will now turn the call over to the company for their opening comments.

Loren Hanson -- Assistant Secretary

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 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 two, 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 the 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.

Charles S. MacFarlane -- President And Chief Executive Officer

Thank you, Loren, and good morning, everyone, and 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 community we operate. We also continue to monitor and follow guidance and recommendations from the CDC, our states, local public health officials and OSHA. As of today, 5% of our employees continue to work remotely. Throughout the course of the past 1.5 years, 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 four as I begin my comments on Q2 results. We earned $1.01 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 Plastics 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 -- a brief overview of the Q2 results.

The Electric segment had a record second quarter with earnings per share increasing $0.04. This was primarily driven by recovery of investments in Astoria Station and Merricourt Wind Energy Center. Approved interim rates going into effect January 1, in conjunction with Otter Tail Power's Minnesota General Rate case filing and increased revenues from C&I customers, as sales volumes recover from the negative impacts of COVID.

Our Manufacturing segment 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 Plastics segment had another record-breaking quarter with earnings per share increasing $0.42. This was driven by higher pipe sales and higher pipe prices and 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 plastics 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 27 this year, marking the end of 100 years of coal-fired energy generation at the site. On July '21, we joined current and former plant employees and others involved in plant operations to commemorate the plant's legacy and its dependable innovative employees.

Hoot Lake plant, 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 Mid-Continent 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.

A storage 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 as 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, storm water 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 began a purchase power agreement in 2013 with Nextera Energy for energy delivered to the Otter Tail Power System from the Ashtabula three wind farm located near Laverne, North Dakota. This agreement includes the option to buy the assets of Ashtabula 3, converting from a purchase power agreement to a rate based facility in 2023. This wind farm is a 62.4-megawatt facility with a net capacity of 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 Hays 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 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 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 2. 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, utilities 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 and 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 loads and other loads 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 of 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. Industrywide demand for manufacturing talent has increased and lingering COVID-19 impact continue to impact 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 the customer, steel availability could impact production for some OEMs.

Our Plastics 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 deliveries.

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 project that 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 2010.

Now, I'll turn it over to Kevin for the financial perspective.

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Well, thanks, and good morning, everyone. Second quarter sales were up 48% and net earnings increased 148%. These results were primarily driven by unique market conditions in our plastics segment, resulting from PVC resin supply constraints that caused an acceleration of sales pipe prices 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 million 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 expense.

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 expense due to recent capital additions, higher interest expense 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. And also, a reduction in other income due to lower amounts of equity funds used during construction due to the completion of the Astoria Station. And 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 our 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 Plastics 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.

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 note 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 plastics 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 are 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 plastics segment. We are 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 expense 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 improved an interim rate increase of 3.2% or $6.9 million. These items were partially offset by increased non-labor OEM expenses related to planned outages at Big Stone plant and increased post-retirement expense related to a decrease in the discount rate and long-term rate of return on plan assets.

We are increasing our previous 2021 earnings guidance for our 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 is 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 into 2022. And 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 reflective of the improving economy.

We are raising the 2021 guidance for our Plastics 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 and municipal markets. And our corporate costs, net of tax, are expected to be higher, driven by 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 nonelectric businesses and most significantly by the unique market conditions in our plastics 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 Plastics segment 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 in earnings per share using 2020 as the base year, along with our current dividend yield. Looking forward, we would expect to grow the dividend, aligned 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 are now ready to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Ladies and gentlemen, After the Q&A, Chuck will return with a few closing remarks. Your first question comes from the line of Chris Ellinghaus from Siebert Williams. Your line is open.

Chris Ellinghaus -- Siebert Williams -- Analyst

...

Operator

For Mr. Chris Ellinghaus you may now ask your question.

Chris Ellinghaus -- Siebert Williams -- Analyst

Hi guys. How are you?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Good morning Chris.

Chris Ellinghaus -- Siebert Williams -- Analyst

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?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Chris, this is Kevin. We've got roughly $0.05 a share is what's included in this updated guidance for a potential contribution to the foundation this year. So compared to last year, that would -- when you look at the foundation between -- or the contribution between the power company that they contributed to their foundation and then plastics also made a contribution to the Otter Tail Corporation foundation, it's less this year than last year.

Chris Ellinghaus -- Siebert Williams -- Analyst

Okay. The way you describe the plastics market today, I'm a little confused. You're talking about probably selling more pounds. So that suggests that your ability or your allocation of the resin market is the same or better. So that doesn't, to me, sounds like you have a resin constraint per se. Does that mean that some of your competitors have bigger constraints and that's allowing for this supply demand imbalance to allow higher prices? Or I'm a little confused on where the resin supply problem is.

Charles S. MacFarlane -- President And Chief Executive Officer

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.

Chris Ellinghaus -- Siebert Williams -- Analyst

So really, if I think about this, it's is really extraordinary demand that can't be met with supply is more in my mind where the margin is 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?

Charles S. MacFarlane -- President And Chief Executive Officer

Yes, it would have.

Chris Ellinghaus -- Siebert Williams -- Analyst

Okay. So this is 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?

Charles S. MacFarlane -- President And Chief Executive Officer

Yes. Chris, we're -- as we look at it today, we're expecting that the resin supply will return to more normal type levels in 2022 as such, then to meet the demand -- more easily to meet the demand that's out there and that we would start to see then this -- these conditions that drove the high sales prices and margins would return back to kind of more normal levels that we've seen historically.

Chris Ellinghaus -- Siebert Williams -- Analyst

Okay. Can you give us a little color on what your July weather looked like?

Charles S. MacFarlane -- President And Chief Executive Officer

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

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

I think we're five degrees above average for July.

Chris Ellinghaus -- Siebert Williams -- Analyst

Okay. Thank you.

Operator

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

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Good morning Brian.

Brian Russo -- Sidoti -- Analyst

So just a follow-up on the Plastics 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, etc, that -- or all your competitors seeing the same unprecedented outsized margins right now?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Brian, this is Kevin. I would -- we certainly believe we have a competitive advantage as it relates to our ability to quickly react to customer demands and needs when some of our competitors are not able to do that. We certainly saw that in 2020 as we kept our plants open, lines running, while other competitors did temporary shutdowns during the first couple of quarters of COVID impacting us.

Having said that, though, I would also tell you that we are seeing competitors who are making announcements to raise sales prices of pipe pretty significantly as well. Even since the end of the quarter here, we've seen competitors come out with price announcements as they continue to raise prices given there's just a -- even though the plants are back up running in terms of everybody's still having to be on resin allocation, there is a demand out there for product, and we're seeing competitors raise prices as well as we go through this. And we're seeing that occur also in the -- with our customers, where they are now starting to not be able to maybe honor some of the prices that had been out there, given that the supply side is raising prices. They're having to not be able to honor their prices to the end users as well and having to raise prices. So it's affecting a lot of the market.

Brian Russo -- Sidoti -- Analyst

Understood. So competitors raising PVC pipe prices. Is that a leading indicator to your Plastics 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?

Charles S. MacFarlane -- President And Chief Executive Officer

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

Brian Russo -- Sidoti -- Analyst

Understood. And then on slide 25. Go ahead.

Charles S. MacFarlane -- President And Chief Executive Officer

That's it.

Brian Russo -- Sidoti -- Analyst

Yes. So on slide 25, the spread relationship. Any willingness to share what that spread is?

Charles S. MacFarlane -- President And Chief Executive Officer

No. We have confidentiality provisions in our supply agreements with our resin suppliers, so such that we just aren't able to kind of go down that pathway.

Brian Russo -- Sidoti -- Analyst

Yes. No, understood. In this bipartisan infrastructure bill, I think there's nearly $55 billion allocated to water infrastructure. Is your plastic segment leveraged to that spend?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

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 U.S., which is not a big amount of our pipe going there, but it will put a positive, I think, on the entire sector or pipe manufacturing business.

Brian Russo -- Sidoti -- Analyst

Okay. And then at the BTD segment, obviously, a lot of OEM or end market demand, inventory levels, dealership inventory levels are historically low. So just hearing some of your customers, they can't eat the demand because of supply constraints. But it seems that your -- I'm trying to get a sense of what your volume growth was like in the second quarter versus just revenue because revenue reflects the higher price of steel, which is a pass-through. So I'm just trying to get a sense for what's kind of the actual growth rate in terms of units sold versus the top line revenue.

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

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-add that we're doing to our customers.

Brian Russo -- Sidoti -- Analyst

Got it. That's very helpful. So with some of your end market customers on recent conference calls, have noted supply chain issues, etc. 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?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Yes. I mean 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 it's -- I think you see whether it's Polaris, you look at Toro, 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, and 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.

Brian Russo -- Sidoti -- Analyst

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

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

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

Brian Russo -- Sidoti -- Analyst

Okay. Great. 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, etc.?

Charles S. MacFarlane -- President And Chief Executive Officer

Brian, I think we don't usually include any of the transmission investments in that IRP. Those are generally will come out of the MISO plan. And right now, we're just going to wait until we file it in September, such that our regulators get the first review of the plan and what's in it. And we are still finalizing that. So it's a little early to bring those out.

Brian Russo -- Sidoti -- Analyst

Okay. Got it. Thank you very much.

Operator

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

Sophie Karp -- KeyBanc -- Analyst

Hi. Good morning. Thank you for taking my question.

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Good morning.

Sophie Karp -- KeyBanc -- Analyst

So obviously, guys, you have a really strong performance in the plastics and manufacturing segments, right, driven by all of these market conditions. My question is, it's almost a windfall, right? If we look at the numbers. My question is, what are the users -- how are you planning to use this sort of unexpected, if you will, revenue and the cash flows that it ultimately translates into? Would that sort of offset maybe your equity needs, and we should start thinking about that? Or is there a share buyback? Or is it just getting reinvested? So is there any kind of special views that we should be thinking about?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Yes. Sophie, thanks for the question. It's Kevin. I mean, 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 plan to help the funded status there. We also have additional capital investments that create additional organic growth for us. Specifically in the plastics segment that we've been looking at that would -- that extra cash would help us fund those things and allow us to have additional organic growth opportunities going forward.

Sophie Karp -- KeyBanc -- Analyst

Got it. And so I'll take it that you not considering maybe selling those segments at this point, given the valuations must be very attractive?

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

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

Sophie Karp -- KeyBanc -- Analyst

Awesome. Terrific. Well great quarter and thank you so much for taking my question. That's all I have.

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Thank you.

Operator

[Operator Instructions] And there are no other questions over the phone line at this time.

Charles S. MacFarlane -- President And Chief Executive Officer

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

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Yes. I just -- we've got a momentous occasion here today on the press release that I'd like to cover here, and I'd like to recognize Loren Hanson, our Manager of Investor Relations. Today is as Loren's last Otter Tail earnings call as he has announced his retirement. He's been with us for 40 years and leading our Investor Relations group since 1986. He has shown an unwavering commitment to our company and has been a strong advocate for our shareholders. Loren, it's been an absolute pleasure to work with you and appreciate all you have done to provide outstanding service to our shareholders and Otter Tail. Congratulations on an outstanding career, and thanks for the lasting contributions that you have made. You have touched many lives over the years.

I'd like to also introduce Tyler Akerman, who is replacing Loren on his retirement. Tyler joined Otter Tail Corporation in June. He comes to us from Otter Tail Power Company, where he spent over eight years in business planning. Tyler's experience at the utility positions him well to lead the Investor Relations function going forward and to continue Otter Tail s tradition of service to our shareholders. Welcome, Tyler.

Charles S. MacFarlane -- President And Chief Executive Officer

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 the long-term success.

We're also pleased to announce our carbon emissions from owned 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 $1 or $3.50 to $3.65 from our previous guidance of $2.49 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.

Operator

[Operator Closing Remarks].

Duration: 51 minutes

Call participants:

Loren Hanson -- Assistant Secretary

Charles S. MacFarlane -- President And Chief Executive Officer

Kevin G. Moug -- Chief Financial Officer And Senior Vice President

Chris Ellinghaus -- Siebert Williams -- Analyst

Brian Russo -- Sidoti -- Analyst

Sophie Karp -- KeyBanc -- Analyst

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