Mixed 4Q for Andersons

Zacks

The Andersons Inc. (ANDE) reported fourth-quarter 2012 earnings of 80 cents per share, a decrease of 31% from the prior year quarter’s earnings of $1.17 per share. The results missed the Zacks Consensus Estimate of 89 cents.

Anderson, which is among the leading players in the agriculture and farm products industry along with Monsanto Co (MON), Archer Daniels Midland Co (ADM) and Bunge Ltd (BG), posted earnings of $4.23 per share for full-year 2012, a decline of 17% from $5.09 posted in 2011. It also missed the Zacks Consensus Estimate of $4.33.

Operational Updates

Revenues in the reported quarter augmented 29% year over year to $1.7 billion. It was ahead of the Zacks Consensus Estimate of $1.4 billion.

Revenues for the full year increased 15% to $5.3 billion from $4.6 billion in 2011 and exceeded the Zacks Consensus Estimate of $4.9 billion.

Cost of sales increased 30.5% to $1.58 billion in the fourth quarter from $1.21 billion in the year-ago quarter. Gross profit improved 5.5% year over year to $91.2 million while gross margin contracted 120 basis points (bps) to 5.42% in the quarter.

Operating, administrative and general expenses went up 10% year over year to $69.6 million. Operating profit declined 7.2% to $21.6 million. Consequently, operating margin decreased 50 bps to 1.28% in the quarter.

Segment Performance

The Grain Group: Revenues increased 37% year over year to $1.2 billion in the reported quarter due to higher sales volume and grain pricing. Operating income dropped 33.6% to $18.1 million. The decline was due to lower space income as a result of drought.

The Ethanol Group: Revenues increased 30% year over year to $215 million. However, there was an operating loss of $0.80 million compared with an operating income of $6.5 million in the year-ago quarter due to significantly lower ethanol margins resulting from a weak gasoline demand, an oversupply of ethanol, and a rise in corn costs caused by drought.

The Plant Nutrient Group: The group reported revenues of $178 million, up 4.7% from the year-ago quarter due to higher volume. Operating income increased 88% to $4.7 million as favorable weather helped to increase nutrient application, resulting in higher volume.

The Rail Group: Revenues increased 16% to $29 million in the quarter. Operating income increased nearly four-fold to $8.6 million. The increase was due to higher sales of railcars and lease rates as well as non-recourse transactions.

The Turf & Specialty Group: The segment posted revenues of $21 million, a 16.6% year over year increase. Operating loss was $1.2 million compared with an operating loss of $1.8 million in the year-ago quarter.

The Retail Group: Revenues in the segment decreased 8.8% to $41 million. Operating loss was $0.9 million compared with the operating income of $0.5 million in the year-ago quarter.

Financial Update

Cash and cash equivalents increased nearly seven-fold year over year to $138.2 million at the end of 2012. Long-term debt was $427.2 million as of Dec 31, 2012, a 79% year-over-year increase. Debt-to-capitalization ratio increased to 41% as of Dec 31, 2012, from 31% as of Dec 31, 2011.

Outlook

Andersons said that it will focus on long-term earnings growth. It has opened a grain elevator in Anselmo and is looking forward to opening a new railcar blast and paint facility soon.

The company expects that drought conditions will negatively impact the earnings of both the Grain and Ethanol businesses through the first half of 2013.

Our view

The recent acquisition of assets from Green Plains Grain Company and Mt. Pulaski Products will boost Andersons’ top and bottom lines. However, continuing losses at the Ethanol and Turf & Specialty groups cause a great deal of concerns.

Andersons retains a short-term Zacks Rank #3 (Hold).
 

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