The Andersons, Inc. (NASDAQ:ANDE) Q4 2023 Earnings Call Transcript
The Andersons, Inc. (NASDAQ:ANDE) Q4 2023 Earnings Call Transcript February 21, 2024
The Andersons, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to The Andersons 2023 Fourth Quarter Earnings Conference Call. My name is Rocco and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later we will facilitate a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I will now hand the presentation to your host for today Mr. Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please proceed, sir.
Mike Hoelter: Thanks, Rocco. Good morning, everyone, and thank you for joining us for The Andersons fourth quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation on our webcast, the slides and commentary will be in sync. This webcast is being recorded and the recording and supporting slides will be made available on the Investors page of our website at andersonsinc.com shortly. Please direct your attention to the disclosure statement on slide 2 of the presentation as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the Company's current views with respect to future events, financial performance and industry conditions.
These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation. As always on the call with me today are Pat Bowe, President and Chief Executive Officer and Brian Valentine Executive Vice President and Chief Financial Officer. We are also pleased to have Bill Krueger, Chief Operating Officer join our call this quarter. After our prepared remarks we will be happy to take your questions.
I will now turn the call over to Pat.
Pat Bowe: Thanks, Mike and good morning, everyone. Thank you for joining our call today to discuss our fourth quarter results and our initial outlook for 2020. First as Mike mentioned, we're pleased to welcome Bill Krueger, Chief Operating Officer to the call. As many of you know Bill brings over 30 years of ag commodity experience. He was CEO of Lansing Trade Group at the time of the acquisition in 2019 and was President of our trade and renewables segments prior to assuming the COO role last year. We look forward to him sharing his thoughts during the Q&A session later. Record fourth quarter results led to a third consecutive year of very strong earnings. Both trade and renewables contributed significantly to the quarter with renewables setting a new adjusted Q4 earnings record and trade delivered another strong quarter.
Nutrient and Industrial results were up slightly compared to last year on an adjusted basis. We ended 2023 with adjusted pre-tax income of $159 million, which was our second best year ever. Adjusted EBITDA ended the year at $405 million just behind the 2022 record adjusted EBITDA. Earlier in the year we anticipated a greater year-over-year reduction from 2022, but we were able to make up some of the shortfall to our operating performance in a strong margin environment in our renewables business. The Trade business posted a very strong fourth quarter with enhanced performance in our Eastern grain assets. These results included basis improvement after a later harvest and income earned on dry and wet grain received from farmers. Recent acquisitions in the pet food ingredient space made positive bottom-line contribution.
Our renewables business set a new fourth quarter adjusted earnings record. This was due to a combination of record total production from our four plants, an improvement in ethanol yield and much improved board crush margins. Our low carbon intensive renewable diesel feedstock and feed ingredient merchandising product lines also improved. Nutrient and Industrial improved slightly over the fourth quarter of last year on an adjusted basis on higher volumes and lower expenses. Agriculture product lines lead the gross profit improvement. Manufactured product lines continue to be impacted, by reduced consumer demand. Overall, I'm thrilled with a third consecutive year of very strong results. I'm also very proud of the team and how they optimize performance in a period of positive Ag fundamentals.
I'm now going to turn things over to Brian, to cover -- to cover some of our key financial information. When he's finished, I'll be back to discuss our earning outlook for 2024. Brian?
Brian Valentine: Thanks, Pat and good morning everyone. We're now turning to our fourth quarter results on slide 5. In the fourth quarter of 2023, the Company reported net income from continuing operations, attributable to The Andersons of $51 million or $1.49 per diluted share and adjusted net income of $55 million or $1.59 per diluted share. This compares to adjusted net income of $34 million or $0.98 per diluted share in the fourth quarter of 2022. Overall, fourth quarter gross profit of $218 million was up more than 25%, compared to $170 million in 2022. Both Trade and Renewables showed increases partially offset by Nutrient & Industrial. For the full year gross profit of $745 million increased 9%, from $684 million in 2022.
Adjusted EBITDA for the fourth quarter was $135 million, up more than $30 million, compared to $104 million in the fourth quarter of 2022. Full year adjusted EBITDA was $405 million, just below the $412 million we achieved in 2022. We recorded taxes for the quarter at a 15% effective tax rate, and for the full year, at 22%. Our effective tax rate varies each quarter based primarily on, the amount of income attributable to non-controlling interests. Now let's move to slide 6, to review our cash flows and liquidity. We generated fourth quarter cash flow from operations before working capital changes of $122 million 2023, compared to $90 million in 2022. Full year cash flow of $330 million increased $15 million year-over-year. This strong cash flow generation and our continued focus on working capital management, combined with lower commodity prices resulted in negligible short-term borrowings at year end.
We ended the year with cash of $644 million which was in excess of our total debt. Next let's turn to slide 7, to review our capital spending and long-term debt. We continued to take a disciplined responsible approach to capital spending and investments which were in line with our expectations at $152 million for the year. Our long-term debt-to-EBITDA ratio is 1.5 times, still well below our stated target of less than 2.5 times. We continue to evaluate growth projects and acquisitions and have a strong balance sheet that will support those investments that meet our strategic and financial criteria. Now we'll move on to review of each of our three segments, beginning with Trade on slide 8. Trade reported fourth quarter pre-tax income of $44 million and adjusted pre-tax income of $47 million, compared to adjusted pretax income of $52 million in the same period of 2022.
Our grain assets had a good fourth quarter with strong elevation margins and drying income from a wet corn harvest. The Premium Ingredients business had a significant improvement from the prior year, including good results from recent capital investments and our recent acquisitions of Bridge Agri and ACJ International. Our merchandising portfolio delivered solid results, with a mix of market challenges and opportunities across the commodities and geographies in which we merchandise. Challenges include ongoing geopolitical impacts and general weakness in the Middle East and North Africa region. As expected, we were able to resolve substantially all of the remaining Egyptian currency issues during the fourth quarter. Trade's adjusted EBITDA for the quarter was $62 million compared to adjusted EBITDA of $72 million in the fourth quarter of 2022.
Adjusted EBITDA for the full year was $155 million in 2023 compared to $199 million in 2022. Moving to slide 9. Renewables generated record fourth quarter pretax income attributable to the company of $33 million compared to $13 million in 2022. Outstanding operating performance in our four ethanol plants resulted in record ethanol production and improved yields in a strong crush margin environment, improved renewable diesel feedstock and feed ingredient merchandising volumes, also added to earnings. For the full year, our team sold approximately £1.3 billion of renewable diesel feedstocks, an increase of 60% when compared to 2022. Renewables had EBITDA of $73 million in the fourth quarter of 2023, more than double when compared to $36 million in the fourth quarter of 2022.
For the full year, renewables generated adjusted EBITDA of $230 million in 2023, up $50 million compared to $180 million in 2022. Turning to slide number 10, the nutrient and industrial business reported fourth quarter adjusted pretax income of $2 million, which was a slight increase from the fourth quarter of 2022. Agriculture product sales volume increased approximately 3% in the quarter with comparable per ton margins. Manufactured Products had improved results in our turf business, but continued to experience lower demand in the contract manufacturing business. Results also include a $2 million charge relating to a standstill agreement for an acquisition that we elected not to pursue. Nutrient and Industrial's adjusted EBITDA for the quarter was $11 million, just above the fourth quarter of 2022.
For the full year, nutrient and industrial recorded EBITDA of $62 million, a decline of $11 million from 2022's record performance. And with that, I'll turn things back over to Pat, for some comments about our early 2024 outlook.
Pat Bowe: Thanks, Brian. Coming off another strong year, we remain optimistic about our growth prospects, but acknowledge a shift in the ag fundamentals, as global supply has replenished the low stocks of the last few years and commodity prices have declined. Over these three strong years, we've made investments in our core assets, as well as successfully completing several small bolt-on acquisitions in key product lines. We've also grown organically through new merchandising tests, focusing on new commodities and geographies with expected growth. Now as we've seen a reduction in commodity prices, our teams are prepared to meet these new fundamentals by leveraging our balanced portfolio of assets and merchandising product lines.
Our Trade business outlook remains positive, but is likely to have a slower start to the year, as farmers have been reluctant to make forward sales on lower market prices. In addition, expectations for higher wheat storage income have faded given the large export purchases China made in the fourth quarter. With our strong North American asset network, we are well positioned to handle grain when it is brought to market and are in space income. We expect some shifts in the mix of US crops for 2024, but still anticipate significant quantities of corn in our key dry areas. Our mix of assets and merchandising should continue to provide us with opportunities for handling large grain harvest, as well as opportunistic commodity merchandising. We have continued to grow our premium ingredients business and expect it to become a larger component of the overall trade segment.
Seasonally weak demand has reduced ethanol crush margins into the first quarter as is typical for our renewables segment. We believe that industry maintenance shutdowns and spring driving miles may positively influence crush margins beginning in the second quarter. Weaker corn prices are expected to reduce feed volumes. We should acknowledge that the industry's ethanol plants continue to age leading to longer shutdowns and lower plant efficiencies, but our continued commitment to maintaining our plants should set our assets apart. We continue to make investments in our plants to improve their efficiency and reliability, as well as to improve both the quality and yield of distillers corn oil, a low carbon intensive input for the renewable diesel industry.
We're also exploring a number of investments that will help to lower the carbon intensity of our ethanol production allowing us to participate in future sustainable aviation fuel initiatives. This includes exploring carbon sequestration opportunities for our three Eastern plants where the geology is favorable, and additional combined heat and power generation to run our plants more efficiently. Finally, we expect to continue to grow our renewable diesel feedstock merchandising through offtake and supply agreements with third parties. Even with an expected reduction in farmer income, we continue to anticipate solid demand for the fertilizers and specialty liquids that we supply in our Nutrient and Industrial segments. Our fertilizer and related product offerings are critical to maximizing production for farmers in the areas we serve.
And we believe that the current grain prices will still support application of fertilizers and specialty crop inputs. As always, weather and the planting season will impact timing in our margin opportunity, but we continue to have good supplier support as we sell through our own retail farm centers, as well as third parties. In our turf product lines, we are taking steps to improve our operations and continue to look for further opportunities in this space. We continue to explore North American agricultural growth opportunities. I've highlighted a number of growth areas that we're exploring in each of our three segments, and we'll continue to remain disciplined in our approach. As a reminder, in late 2017, we established an EBITDA goal of $300 million by 2020, which was approximately double our 2017 results.
We exceeded this goal on a run rate basis, and then increased our EBITDA target to $350 million to $375 million by 2023, which we exceeded each of the last two years. This growth was only possible through the focus on strategy, a mix of organic and acquisition growth, and our team's hard work, and successful execution. We remain focused on achieving our 2025 run-rate EBITDA target of $475 million, which will be reliant on both internal growth and the successful completion of acquisitions. We'll continue to make responsible decisions that benefit our customers and maximize shareholder value, while executing our growth strategy. And now, we'll be happy to take your questions.
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