Andersons' Q1 Earnings and Revs Miss Ests - Analyst Blog

Shares of The Andersons Inc. ANDE tumbled 15% and closed at $52.60 on May 8, after the company reported first-quarter 2014 results which were weaker than expected due to lower grain prices and weak results in the Grain Group and Plant Nutrient Group due to the severe weather. The company's earnings per share increased 78% to 80 cents from 45 cents but missed the Zacks Consensus Estimate of $1.02 by a margin of 22%.

Operational Updates

Revenues in the reported quarter plunged 21% year over year to $1 billion. Results were way short of the Zacks Consensus Estimate of $1.38 billion.

Cost of sales fell 22% to $1.47 billion from $926 million in the year-ago quarter. Gross profit declined 3% year over year to $77 million. Consequently, gross margin contracted 150 basis points (bps) to 7.7% in the quarter.

Operating, administrative and general expenses went up 14% year over year to $71 million. Operating profit went down 66% to $5.8 million. Thus, operating margin contracted 80 bps to 0.6% in the quarter.

Segment Performance

The Grain Group: Revenues decreased 30% year over year to $583 billion due to lower grain prices, which decreased almost 30%. Operating income increased 36% to $11 million.

The Ethanol Group: Revenues decreased 5% year over year to $189 million. The segment, however, reported a record operating income of $19.8 million, a substantial improvement from $2.5 million earned in the year-ago quarter. Improved performance of the ethanol limited liability company investments, which benefited from strong ethanol margins, mainly led to the year-over-year improvement. Improved production rates, ongoing service fees, and increased co-product sales of corn oil, E-85, and distillers dried grains also contributed to the performance.  

The Plant Nutrient Group: The segment reported revenues of $108 million, down 4% from the year-ago quarter due to weather-related delays in fieldwork. The segment reported an operating loss of $1.4 million, worse than the loss of $0.6 million in the prior-year quarter as a result of a slow start to the planting season.

The Rail Group: Revenues rose 13% year over year to $52 million. Operating income increased 3% to $15 million from $14 million in the year-ago quarter. The group benefited from higher lease rates and increased income from car sales.

The Turf & Specialty Group: The segment posted revenues of $44 million, a 7% year-over-year decline. It reported an operating profit of $1.4 million, a 66% drop from the year-ago quarter profit of $4 million.

The Retail Group: Revenues in the segment decreased 10% year over year to $27.6 million. Operating loss in the quarter was $2.3 million compared with the loss of $3.2 million in the prior-year quarter.

Financial Performance

Andersons ended the first quarter with cash and cash equivalents of $44 million, down substantially from $309 million as of 2013 end. The long-term debt of the company decreased to $306 million as of Mar 31, 2014 from $375 million as of Dec 31, 2013. Debt-to-capitalization ratio was at 46% as of Mar 31, 2014 compared with 37% as of Dec 31, 2013.

Our Take

Andersons will continue to benefit from acquisitions in the past year. The acquisition of Blenheim, Ontario-based Thompsons Ltd., a grain and food-grade bean handler and Mile Rail, LLC, a provider of agronomy input as well as railcar repair and cleaning equipment, will be accretive to earnings for full-year 2014.

The Ethanol and Rail groups have performed well in 2013 and in the first quarter. The momentum is expected to continue in the balance of 2014. The Ethanol Group worked diligently to increase its production in the first quarter in contrast to other ethanol plants which were forced to reduce production. The Rail Group's healthy performance persists and it continues to increase both lease and utilization rates over time. Even though the Plant Nutrient Group was impacted by adverse weather in the first quarter, it is expected to benefit from an anticipated significant corn crop planting in the second quarter.

Maumee, OH-based Andersons is a diversified company operating in six different business segments ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs.

Peer Performance

Among Andersons' peers, Bunge Limited BG reported first-quarter adjusted loss per share of 12 cents as against earnings of $1.15 in the year-ago quarter. Results fell way short of the Zacks Consensus Estimate of $1.46.

Andersons currently carries a short-term Zacks Rank #2 (Buy).  Other stocks worth considering in the sector include Syngenta AG SYT and Wilmar International Limited (WLMIY). Both the companies carry the same rank as Andersons.