Tonight, tiny conglomerate Otter Tail (NASDAQ:OTTR) reports earnings for the fourth quarter and full fiscal year of 2006. Let's have a closer look at what lies ahead for the aquatic mammal.

What analysts say:

  • Buy, sell, or waffle? Only four analysts follow Otter Tail, and they're evenly split between "sell" and "hold" recommendations. In our Motley Fool CAPS investor community, it's a three-star stock (out of five) with 132 active ratings.
  • Revenues. The analysts agree that sales should land close to the $300 million mark for the quarter, up 5% over last year's $285 million.
  • Earnings. The average forecast calls for $0.36 per share, down from $0.42 a year ago. Management guidance includes plenty of wiggle room, and ranges from $0.23 to $0.43 per share.

What management says:
In the latest earnings report, CEO John Erickson said that plastics, manufacturing, and construction all look strong, while there are operational challenges in the electric utility market, as well as the health-care and food-ingredient arenas.

What management does:
Last quarter, profits took a year-over-year plunge as the power-generation business ran into tough comparisons and a maturing Midwest energy sector with more efficient competition. All things considered, margins are rather stable across the board, and you'd expect no less from such a diverse business profile. The strong cash flow margin is a testament to conservative accounting practices, and also goes to show just how much of the operating expenses go toward depreciation of those expensive power plants.

Margins

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

25.7%

26.5%

25.4%

25.4%

25.2%

24.3%

Operating

9.4%

10.3%

9.5%

9.7%

9.6%

8.6%

Net

6.4%

6.7%

6.0%

6.2%

5.0%

4.6%

FCF/Revenue

10.4%

12.9%

14.9%

12.3%

14.2%

14.8%

Y-O-Y Growth

6/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Revenue

15.2%

18.9%

22.1%

24.5%

22.5%

18.6%

Earnings

31.7%

61.6%

30.1%

30.3%

21.9%

-7.2%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As long as the Midwest keeps growing, there will be demand for Otter Tail's plastic pipes and heavy construction services. The company is also growing its power generation business, to the point where it's pushing for a new coal-fired plant to meet the future needs of the Great Lakes market. The health-imaging group is facing some tough competition from a hungry Philips (NYSE:PHG) with a newfound focus on that market, and it's hard to predict the fortunes in the freeze-dried potato field. It's been an unseasonably warm winter across the country, which is likely to hurt electric revenues -- but there's always another segment ready to pick up the slack.

The Tail covers a wide range of economies, each of which has the ability to scale up under the right market conditions, when backed by the stable revenues of power generation, and with an opportunistic management team always on the lookout for accretive acquisitions in new markets. It's a fun little company to follow, but more importantly, it runs a very stable business and pays out a generous dividend. No wonder our Motley Fool Hidden Gems analyst extraordinaire Bill Mann (a.k.a. TMF Otter) likes Otter Tail so much.

Related companies:

  • TECO Energy (NYSE:TE)
  • FPL Group (NYSE:FPL)
  • Firstenergy (NYSE:FE)
  • Constellation Energy Group (NYSE:CEG)
  • Wisconsin Energy (NYSE:WEC)

Otter Tail is a Motley Fool Hidden Gems pick, and Constellation Energy is an Income Investor selection.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is good for what ails ya.