Andersons Beats on Earnings & Sales in Q3
The Andersons Inc. (ANDE) reported third-quarter 2013 earnings of 91 cents per share, inching up 1% from 90 cents per share earned in the year-ago quarter. However, earnings comfortably beat the Zacks Consensus Estimate of 61 cents by 49%. Record operating profit at the Ethanol and strong performance in the Grain segment led to the y-o-y improvement.
Operational Updates
Revenues in the reported quarter augmented 4% year over year to $1.18 billion. The results were ahead of the Zacks Consensus Estimate of $1.04 billion.
Cost of sales increased 5% to $1.11 billion in the quarter from $1.06 billion in the year-ago quarter. Gross profit declined 7% year over year to $73 million. Consequently, gross margin contracted 70 basis points (bps) to 6.2% in the quarter.
Operating, administrative and general expenses went up 19% year over year to $69 million. Operating profit plunged 81% to $3.9 million. Thus, operating margin reduced 150 bps to 0.3% in the quarter.
Segment Performance
The Grain Group: Revenues increased 13% year over year to $766 million in the reported quarter due to an increase in the number of bushels sold driven by lower average price per bushel. Operating income increased 33% to $14.3 million driven by increased space income and gross profit.
The Ethanol Group: Revenues edged up 2% year over year to $213 million. The segment reported record operating income of $10.9 million, a substantial improvement from a loss of $0.9 million in the year-ago quarter. Increase in the company’s earnings from its investments in the ethanol production facilities, which benefited from higher ethanol margins led to the improvement.
The Plant Nutrient Group: The group reported revenues of $96 million, down 29% from the year-ago quarter. The group reported an operating loss of $1.6 million in contrast to an operating profit of $0.7 million in the prior-year quarter. Results were affected by significantly lower volumes as customers have only been purchasing nutrients as required due to lower price trends and increased volatility in the market.
The Rail Group: Revenues declined 20% to $47.5 million in the quarter due to lower railcar sales. Operating income declined 35% to $12.4 million due to an increase in average lease rates.
The Turf & Specialty Group: The segment posted revenues of $27 million, a 28% year-over-year increase. The segment reported an operating loss of $0.08 million, narrower than the year-ago quarter’s loss of $1.6 million.
The Retail Group: Revenues in the segment decreased 10% year over year to $31.3 million. Operating loss in the quarter was $2 million, worsening from the loss of $1.8 million in the prior-year quarter.
Financial Update
Cash and cash equivalents were $134 million as of Sep 30, 2013 compared with $80 million as of Sep 30, 2012. Long-term debt amounted to $381 million as of Sep 30, 2013 compared with $312 million as of Sep 30, 2012. The debt-to-capitalization ratio stood at 38.8% as of Sep 30, 2013 compared with 36.4% as of Sep 30, 2012.
Acquisitions
In July, Andersons, in association with Lansing Trade Group, finalized the acquisition of Blenheim, Ontario-based Thompsons Limited, a grain and food-grade bean handler and agronomy input provider. Thompsons operates through 12 Andersons’ grain and nutrient businesses. The acquisition is expected to be accretive to earnings for full year 2014.
In Sep 2013, Andersons finalized the purchase of railcar repair and cleaning provider Mile Rail, LLC. The acquisition will enhance Andersons’ current railcar repair network by expanding its geographical footprint and business mix. Furthermore, the Mile Rail acquisition is expected to increase Andersons’ railcar repair revenues by 25%.
Outlook
Andersons expects to benefit from the record corn crop that is currently being harvested. The Rail Group is also expected to continue to perform well based on proficiently managed railcar portfolio. Even though margins improved in the ethanol business, the company cautions that the ethanol market will continue to be volatile.
Maumee, Ohio-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.
Rank & Peer Performance
Andersons carries a Zacks Rank #1 (Strong Buy). In the agricultural products industry, Darling International Inc. (DAR), also carrying a Zacks Rank #1, and Cosan Ltd. (CZZ) with a Zacks Rank #2 (Buy) are other stocks worth considering.
Andersons’ peer Archer Daniels Midland Company (ADM) posted adjusted earnings of 46 cents per share in the third-quarter 2013, missing the Zacks Consensus Estimate by 2 cents and dropping 13.2% from the year-ago comparable quarter’s adjusted earnings of 53 cents.
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