What happened

Shares of Otter Tail (OTTR -0.86%) were sliding today after the utilities and manufacturing company posted better-than-expected results in its third-quarter earnings report but cut its guidance for the full year.

As of 10:49 a.m. ET, the stock was down 10.6%.

So what

Otter Tail said that revenue in the quarter jumped 21.3% to $383.9 million in part due to higher utility rates and materials prices. That figure easily beat analyst estimates at $357.8 million.

Sales were up at least 10% in all three of its business segments, with plastics recording the fastest growth at 32.4%, benefiting from the 57% rise in price per pound of PVC pipe. 

As a result of those higher prices, net income was also substantially higher in all three segments. Overall, earnings per share (EPS) jumped 60% to $2.01, which topped expectations at $1.82. 

What seemed to sink the stock, though, was demand headwinds forming, which led management to reduce its guidance. 

CEO Chuck MacFarlane explained, "Demand for PVC pipe began to decline in the quarter due to multiple, larger than anticipated, resin price reductions which caused pipe distributors and contractors to reduce PVC pipe purchases in an effort to reduce inventory levels."

Otter Tail appears to be feeling the impact of slowing demand in the home improvement market, and that seems likely to get worse.

Now what

Due primarily to the resin price reductions, the company cut its full-year EPS guidance from $6.83-$7.13 to $6.42-$6.72. The implication is that EPS for the fourth quarter will be just $0.64-$0.94, significantly weaker than the third quarter, and investors seem to be expect those headwinds to extend to next year.

If the housing market continues to weaken, 2023 could be a tough year for the utility stock.