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The Andersons, Inc. Reports Third Quarter Results | Rural Radio Network

The Andersons, Inc. Reports Third Quarter Results

The Andersons, Inc. Reports Third Quarter Results

The Andersons, Inc. (NASDAQ: ANDE) announces financial results for the third quarter ended September 30, 2018.

The Company reports a net loss of $2.1 million, or ($0.07) per diluted share, compared to net income of $2.5 million and $0.09 per share in third quarter 2017.

  • Grain Group records a pretax loss of $8.6 million significantly impacted by mark-to-market basis adjustments to grain inventories that are expected to rebound in the near term.
  • Ethanol Group earns $9.1 million of pretax income on strong capacity utilization and timely forward hedging in a worsening margin environment.
  • Plant Nutrient Group reports a pretax loss of $8.0 million as low margins persist in its specialty nutrients product lines.
  • Rail Group earns $5.7 million of pretax income in a gradually improving market.
  • Results include a benefit of $0.14 per share from its venture capital arm, primarily related to the sale of an investment, and expenses of $0.09 per share associated with the pending Lansing Trade Group acquisition.

The Company reported a third quarter 2018 net loss attributable to The Andersons of $2.1 million, or ($0.07) per diluted share, on revenues of $686 million. Those results compared to 2017 third quarter net income of $2.5 million, or $0.09 per diluted share, on revenues of $837 million. The Company’s earnings before interest, taxes, depreciation and amortization (EBITDA) was $24.0 million for the quarter, compared to $32.0 million of EBITDA recorded in the third quarter of 2017.

“The overriding driver of our third quarter results was the mark-to-market impact on our grain inventories that we believe will substantially rebound before year-end,” said President and CEO Pat Bowe. “The Ethanol Group continued to perform well despite tough market conditions, and Plant Nutrient and Rail results were not much different than those of last year’s third quarter.”

“The current market represents an opportunity to purchase grain at historically low basis levels,” Bowe said. “Against that backdrop, the group recorded better results from risk management services, its food business, and its affiliates, and especially Lansing Trade Group. As we announced earlier, we plan to complete the acquisition of Lansing in early 2019.”

Bowe continued, “Ethanol margins were challenged year over year for the quarter despite continued strong U.S. exports, but the group benefitted from having hedged about half its production before the quarter began. Current margins remain weak, and the forward curve into the first quarter of 2019 is below last year’s level as well.”

“The Plant Nutrient Group’s margins continued to be compressed, and year-over-year volumes were somewhat lower as some September shipments were delayed. The Rail Group’s cars on lease and utilization continued their improvement from the second quarter, and the group also recorded better income from its repair business year over year,” added Bowe.

For purposes of better understanding ongoing results, the expanded pretax income and EBITDA disclosures in the table below adjust for significant amounts that are not reflective of ongoing operations.

$ in millions     

Third Quarter

Year to Date

2018

2017

Vs

2018

2017

Vs

Reported Pretax Income (Loss)

$(3.6)

$5.0

$(8.6)

$23.2

$(19.6)

$42.8

Goodwill Impairment1

42.0

(42.0)

Adjusted Pretax Income

$(3.6)

$5.0

$(8.6)

$23.2

$22.4

$0.8

EBITDA

$24.0

$32.0

$(8.0)

$111.4

$62.3

$49.1

Adjusted EBITDA

$24.0

$32.0

$(8.0)

$111.4

$104.3

$7.1

1 recorded in the second quarter by the Plant Nutrient Group

For the first nine months of the year, the Company recorded net income attributable to The Andersons of $17.7 million, or $0.62 per diluted share, compared to a net loss of $27.2 million, or ($0.96) per diluted share, and adjusted net income attributable to The Andersons of $14.8 million, or $0.52 per diluted share, during the same period last year. Total EBITDA for the first nine months of 2018 was $111.4 million; total EBITDA and adjusted EBITDA for the first nine months of 2017 were $62.3 millionand $104.3 million, respectively.

The decrease in revenues year over year was primarily the result of the Company’s adoption of new revenue recognition rules at the beginning of 2018 that have changed the accounting treatment of a significant amount of the Grain Group’s sales transactions. This change has no impact on the amount of gross profit recognized on these transactions.

Third Quarter Segment Overview

Grain Group Earnings Decline on Lower Basis Levels

The table below separates the earnings of the group’s base grain business from those of its grain affiliates. Base grain business earnings originate from grain facilities that the Company operates. The grain affiliates’ earnings originate from investments in the Company’s grain affiliates, which include Lansing Trade Group and Thompsons Limited.

$ in millions     

Third Quarter

Year to Date

Pretax Income

2018

2017

Vs

2018

2017

Vs

  Base Grain

$(10.9)

$3.4

$(14.3)

$(8.1)

$4.0

$(12.1)

  Grain Affiliates

2.3

(0.8)

3.1

9.3

0.5

8.8

Total Grain Group

$(8.6)

$2.6

$(11.2)

$1.2

$4.5

$(3.3)

EBITDA

$(2.4)

$9.2

$(11.6)

$22.5

$25.5

$(3.0)

The Grain Group generated a pretax loss of $8.6 million in the quarter, down $11.2 million from its third quarter 2017 results. It also recorded EBITDA of ($2.4) million in the third quarter of 2018.

Base grain pretax income fell by $14.3 million in the third quarter compared to 2017 results due to the impact of the significant decrease in corn and soybean basis levels. This result was caused primarily by near-record corn and soybean yields and reduced exports resulting from trade tensions with China. The situation was compounded by significant movement of grain from on-farm storage that occurred later than usual as farmers carried corn further into the summer than recent years. These low basis levels have provided the group an opportunity to fill our storage capacity at very attractive basis levels.

In addition to the impact of decreasing corn and bean basis levels, the group earned comparatively less income on its wheat positions. The market appreciated considerably more in the third quarter last year than it did this year.

Risk management and trading income and the results of the food ingredients business were much improved. Both Lansing and Thompsons logged substantially better results. In particular, Lansing’s results improved markedly in all parts of its business; the group’s share of Lansing earnings was $2.4 million, a year-over-year increase of more than $2 million.

We are very excited about the opportunity to combine the Grain Group and Lansing, which will allow us to compete more successfully, provide greater value to customers and shareholders, expand opportunities for employees and increase profitability. Pre-close integration work on the acquisition is well underway. As we announced earlier, we expect to close the transaction by the end of January.

The group is confident that the third quarter result is a timing difference that will reverse substantially in the fourth quarter. We believe that full-year results for the base grain business will be similar to the 2017 adjusted results.

Ethanol Group Manages in Challenging Margin Environment

The Ethanol Group generated pretax income of $9.1 million attributable to The Andersons in the third quarter, almost 50 percent higher than the $6.1 million pretax income attributable to The Andersons for the same period in 2017. This result is due in large part to higher sales volumes of ethanol and related coproducts resulting from the group’s productivity efforts and timely forward hedging, as well as an improvement in distiller dried grain (DDG) values.

The table below separates the results of the Ethanol Group’s unconsolidated entities at its Albion, Mich.; Clymers, Ind.; and Greenville, Ohio, plants, from the earnings of the Denison, Iowa, plant; the Colwich, Kansas, plant currently under construction; and the group’s management services income.

$ in millions     

                       Third Quarter

Year to Date

2018

2017

Vs

2018

2017

Vs

Equity in Earnings of Affiliates

$4.8

$4.4

$0.4

$10.7

$7.3

$3.4

Consolidated Operations and Service Fees

4.5

1.8

2.7

6.1

5.3

0.8

Pretax Income

9.3

6.2

3.1

16.8

12.6

4.2

Attributable to Noncontrolling Interests

0.2

0.1

0.1

(0.2)

0.1

(0.3)

Ethanol Group Pretax Income
Attributable to 
The Andersons

$9.1

$6.1

$3.0

$17.0

$12.5

$4.5

Strong industry production drove margins lower and ethanol stocks above multi-year highs during the quarter. Chinese tariffs muted what was still a strong export market. The group’s corn and natural gas costs per gallon were each lower year over year. The group’s E-85 sales volume growth continued to be very strong.

DDG values continued to be strong during the quarter relative to the comparable 2017 period because of vomitoxin problems in the earlier period.

Progress on construction of the group’s ELEMENT facility has been slowed by about 60 days due to near-record rainfall at the site. The project remains on budget, and while production is expected to commence in mid-year 2019, the realization of the benefits of the plant’s premium products may be delayed until early 2020.

The impact of several macroeconomic factors, including small refinery waivers, the new trade accord with Canada and Mexico, Chinese tariffs and the pace of adoption of E-15 blending on forward margins, remains uncertain.

Plant Nutrient Group Results Reflect Continued Lower Margins

For purposes of better understanding ongoing results, the Company has expanded the Plant Nutrient Group’s pretax income and EBITDA disclosures in the table below to adjust for the second quarter 2017 goodwill impairment associated with the wholesale fertilizer business.

$ in millions     

    Third Quarter

Year to Date

2018

2017

Vs

2018

2017

Vs

Reported Pretax Income (Loss)

$(8.0)

$(7.9)

$(0.1)

$8.2

$(27.1)

$35.3

Goodwill Impairment

42.0

(42.0)

Adjusted Pretax Income (Loss)

$(8.0)

$(7.9)

$(0.1)

$8.2

$14.9

$(6.7)

EBITDA

$0.1

$0.2

$(0.1)

$32.9

$(1.9)

$34.8

Adjusted EBITDA

$0.1

$0.2

($0.1)

$32.9

$40.1

$(7.2)

The Plant Nutrient Group recorded a pretax loss of $8.0 million in the third quarter compared to a pretax loss of $7.9 million in the third quarter of 2017. While prices improved year over year, primary nutrient volumes were down due to delayed raw material receipts in September. A significant improvement in primary margin per ton was not enough to offset continued declines in specialty margin per ton.

The group’s lawn and contract manufacturing business also suffered a setback, as margin per ton was down considerably year over year due to a change in product mix.

Rail Group Market Conditions Continue to Improve Gradually

The Rail Group earned third quarter pretax income of $5.7 million compared to $6.1 million in the same period of the prior year, and EBITDA of $15.7 million and $13.9 million for the same two periods, respectively.

$ in millions

Third Quarter

Year to Date

Pretax Income

2018

2017

Vs

2018

2017

Vs

  Lease Income

$2.5

$3.5

$(1.0)

$6.7

$7.1

$(0.4)

  Car Sales

1.9

2.6

(0.7)

1.2

7.6

(6.4)

  Services and Other

1.3

1.3

2.7

3.4

(0.7)

Total Rail Group

$5.7

$6.1

$(0.4)

$10.6

$18.1

$(7.5)

EBITDA

$15.7

$13.9

$1.8

$40.0

$40.6

$(0.6)

   Utilization Rate

92.0%

85.8%

6.2%

89.8%

84.6%

5.2%

Base leasing operations earned $2.5 million, up $0.4 million sequentially but down $1.0 million on 6 percent higher utilization year over year. Utilization averaged 92.0 percent during the quarter compared to 89.5 percent sequentially and 85.8 percent during the same period last year. The average number of cars on lease rose about 4 percent year over year. Average lease rates were down 4 percent as renewal rates were lower than some market-peak rates they replaced. In addition, interest expense was higher and income from end-of-lease settlements was lower than in the period a year ago.

The group realized $1.9 million of pretax income on railcar sales in the quarter, up from the $3.0 million sequential loss that was driven by an idle car scrap program, and down from $2.6 million in the third quarter of 2017.

Rail’s service and other pretax income was $1.3 million in the quarter compared to negligible income during the same period of 2017. The improvement arose from increased sales and the absence of unusual expenses like those accrued by the group in the comparable prior period.

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