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| 8-K - 8-K - Andersons, Inc. | a8kq22017earningsrelease.htm |
NEWS RELEASEThe Andersons, Inc. Reports Second Quarter Results
Maumee, Ohio, August 3, 2017 - The Andersons, Inc. (NASDAQ: ANDE) announces financial results for the second quarter which ended June 30, 2017.
The Company reports a net loss of $26.7 million, or ($0.94) per diluted share, and adjusted net income of $15.3 million, or $0.54 per diluted share, up six percent over the prior year. Reported results include $3.5 million in pretax costs associated with exiting the Retail business. Adjusted results exclude a $42 million goodwill impairment charge in the Plant Nutrient Group.
• | Grain Group records pretax income of $6.9 million, a nearly $20 million year-over-year improvement, on continued solid space income. |
• | Ethanol Group earns $4.7 million of pretax income attributable to the Company despite weaker year-over-year margins. |
• | Plant Nutrient Group reports a pretax loss of $25.8 million after a $42 million goodwill write down and earns adjusted pretax income of $16.2 million due to persistent low prices, decreased volumes and low margins. |
• | Rail Group earns $5.9 million of pretax income in a slightly improving market. |
• | Retail Group records a $6.7 million pretax loss, including the pretax exit costs, as it closed its remaining four stores. |
The Company reported a second quarter 2017 net loss attributable to The Andersons of $26.7 million, or $0.94 per diluted share, on revenues of $1 billion. During the second quarter of 2017, the Company recorded a non-cash and nondeductible goodwill impairment charge of $42 million or $1.48 per share related to the Plant Nutrient segment. Adjusted net income attributable to the Company for the period of $15.3 million, or $0.54 per diluted share, was a six percent improvement over the net income of $14.4 million, or $0.51 per diluted share, on revenues of $1.1 billion recorded in the same period of 2016.
“For the third successive quarter, our Grain Group recorded significantly improved year-over-year results. The second quarter improved by approximately $20 million, primarily because the group continued to earn better space income,” said CEO Pat Bowe. “These results have transpired even as low grain prices have discouraged growers from selling old crop corn, and the market is encouraging the group to hold grain to earn storage income farther into the season. The Grain Group’s affiliates also improved their performance year-over-year.”
Bowe continued, “Ethanol margins were lower year-over-year for the quarter as supply outpaced demand, and the group is still dealing with both vomitoxin-related discounts and otherwise low distilled dry grain with solubles (DDGS) values relative to corn. The Rail Group’s base leasing income and utilization improved sequentially, perhaps signaling a modest market upturn. We closed our four retail stores and have now incurred most of the costs of exiting the business.
The Plant Nutrient Group’s margins and volumes both suffered from persistently low prices and fieldwork delays during a key stretch of the primary fertilizer application window. Recent performance and
continued softness in the broader fertilizer market resulted in a write-down of goodwill associated with the wholesale fertilizer business.”
For purposes of better understanding ongoing results, the Company has expanded its Company pretax income disclosure in the table below to adjust for amounts that are not reflective of ongoing operations. Specifically, an adjustment has been made for the goodwill impairment charged in the second quarter of 2017 associated with the Plant Nutrient Group.
$ in millions | Second Quarter | Year to Date | |||||||||||
2017 | 2016 | Vs | 2017 | 2016 | Vs | ||||||||
Reported Pretax Income (Loss) | $(19.1) | $23.1 | $(42.2) | $(24.6) | $0.2 | $(24.8) | |||||||
Goodwill impairment | $42.0 | $ - | $42.0 | $42.0 | $ - | $42.0 | |||||||
Adjusted Pretax Income | $22.9 | $23.1 | $(0.2) | $17.4 | $0.2 | $17.2 | |||||||
For the first six months of the year, the Company recorded a net loss of $29.8 million, or $1.05 per diluted share and adjusted net income of $12.3 million, or $0.43 per diluted share, compared to net loss of $273,000, or $0.01 per diluted share during the same period last year.
Second Quarter Segment Overview
Grain Group Operating Income Increases Significantly Compared to Prior Year
The Grain Group generated pretax income of $6.9 million in the quarter, or almost $20 million better than the $13 million pretax loss the group incurred in the same period last year.
The base grain business drove about 70% of the improvement, while the group’s affiliates accounted for the rest. Base grain pretax income improved by $13.9 million in the second quarter compared to 2016 results. Space income improved by more than $15 million. Wider carries in the group’s markets kept its end users largely sidelined from covering their needs in deferred months.
The table below separates the results of the base grain business, which comprises grain facilities that the Company operates, from the earnings from investments in the Company’s grain affiliates, which include Lansing Trade Group and Thompsons Limited.
$ in millions | Second Quarter | Year to Date | ||||||||
Pretax Income | 2017 | 2016 | Vs | 2017 | 2016 | Vs | ||||
Base Grain | $4.1 | $(9.8) | $13.9 | $0.6 | $(23.1) | $23.7 | ||||
Grain Affiliates | $2.8 | $(3.2) | $6.0 | $1.3 | $(7.3) | $8.6 | ||||
Total Grain Group | $6.9 | $(13.0) | $19.9 | $1.9 | $(30.4) | $32.3 | ||||
Ethanol Group Operates Well in Challenging Environment
The Ethanol Group produced pretax income of $4.7 million attributable to the Company in the second quarter, $1.5 million lower than the $6.2 million pretax income attributable to the Company it earned in the same period in 2016, primarily due to lower margins. Robust production and stocks were the main contributors to the softer margin environment even as the export market stayed strong.
The four ethanol plants combined for second quarter and first half production records of more than 116 million and 214 million gallons, about 19 percent and 12 percent over the comparable periods in 2016, respectively, in part because the new Albion capacity came on line in March, 2017.
The group continued to incur discounts on DDGS during the quarter due to problems with vomitoxin in the vicinities of the group’s three eastern facilities, though at a lower rate than in the first quarter. Lower international demand for DDGS also continued to pressure pricing and margins.
Plant Nutrient Group Impacted by Lower Volumes and Margins; Group Records Non-Cash Goodwill Impairment Charge of $42 Million
For purposes of better understanding ongoing results, the Company has expanded the Plant Nutrient Group’s pretax income disclosure in the table below to adjust for the second quarter goodwill impairment associated with the wholesale fertilizer business.
$ in millions | Second Quarter | Year to Date | ||||||||
2017 | 2016 | Vs | 2017 | 2016 | Vs | |||||
Reported Pretax Income | $(25.8) | $23.5 | $(49.3) | $(19.2) | $25.2 | $(44.4) | ||||
Goodwill impairment | $42.0 | $ - | $42.0 | $42.0 | $ - | $42.0 | ||||
Adjusted Pretax Income | $16.2 | $23.5 | $(7.3) | $22.8 | $25.2 | $(2.4) | ||||
The Plant Nutrient Group recorded adjusted pretax income of $16.2 million in the second quarter compared to pretax income of $23.5 million in the second quarter of 2016.
Fieldwork delays persisted well into the quarter in the Eastern Corn Belt and through most of the primary application window, further pressuring historically low margins, especially in the value added product segment. The quarter was characterized by low prices, oversupply and unstable markets.
Base nutrient (NPK) volumes were down about three percent year-over year, while higher-margin value added nutrient tons (low salt starter fertilizers, micro nutrients) were down 12 percent. Volumes for products in the group’s other businesses (Farm Centers, Lawn and Cob) were flat.
Margins were considerably lower in both base nutrients and value added products, finishing down 12 percent and almost 18 percent year-over-year, respectively. Margins improved modestly for the farm centers and the lawn fertilizer business, and by 13 percent in the cob business year-over-year. Those volume and margin changes combined to reduce gross profit by almost $10 million.
As a result of these continuing adverse conditions, especially through the prime earning season, management assessed goodwill associated with the wholesale fertilizer business and recorded a $42 million goodwill charge associated with that business. As the goodwill charge related to stock acquisitions, none of the impairment expense is deductible for tax purposes.
Rail Group End Market Conditions Slightly Improving
The Rail Group earned second quarter pretax income of $5.9 million compared to $6.6 million in the same period of the prior year.
$ in millions | Second Quarter | Year to Date | ||||
2017 | 2016 | Vs | 2017 | 2016 | Vs | |
Lease Income | $2.9 | $2.7 | $0.2 | $3.5 | $7 | (3.5) |
Utilization Rate | 84.4% | 88.6% | (4.2)% | 84.0% | 90.0% | (6.0)% |
Car Sales | $1.4 | $2.3 | $(0.9) | $5.0 | $4.7 | $0.3 |
Services and Other | $1.6 | $1.6 | $ - | $3.4 | $4.2 | (0.8) |
Total Rail Group | $5.9 | $6.6 | (0.7) | $11.9 | $15.9 | $(4.0) |
Base leasing operations earned $2.9 million, up $2.3 million sequentially and $0.2 million year-over-year, on 4.2 percent lower utilization. Utilization averaged 84.4 percent during the quarter compared to 83.6 percent sequentially and 88.6 percent during the same period last year. Average lease rates were flat and maintenance expense was lower than in the period a year ago.
The group netted $1.4 million of pretax income on railcar sales in the quarter compared to $2.3 million in the second quarter of 2016, when the group closed a nonrecourse financing transaction; there were none in the current quarter. Improved scrap prices incented the group to scrap some older, underutilized cars.
Rail’s service and other pretax income was $1.6 million in the quarter, equal to that of the same period of 2016. The group’s repair and fabrication facilities set a second consecutive quarterly record for pretax income.
North American rail traffic continued to improve year-over-year during the quarter compared to 2016 volumes. In addition, Class I railroad efficiency continued to be lower than year-ago levels. However, railroad shipping volumes remain historically weak. The group expects utilization rates to improve modestly over the next few quarters, albeit with shorter leases at lower rates.
Company Substantially Completes Its Exit from the Retail Business
The Company substantially completed the process of closing the business during the quarter. The four stores were closed in early June. Remaining tasks primarily include the sale of the store properties. The group’s second quarter pretax loss of $6.7 million included closing costs of $3.5 million, most of which were employee separation expenses.
Other Net Company-Level Expenses Higher
Unallocated net Company-level expenses for the second quarter of 2017 were $3.9 million, up $1.7 million from the $2.2 million incurred in the comparable 2016 period. The 2016 amount included a gain of $1.3 million on the termination of the Company’s defined benefit pension plan.
Conference Call
The Company will host a webcast on Friday, August 4, 2017 at 11a.m. Eastern Time, to discuss its performance and provide its updated outlook for 2017. To dial-in to the call, please dial 866-439-8514 or 678-509-7568 (participant passcode is 51126798). It is recommended that you call ten minutes before the conference call begins.
To access the webcast: Click on the link: http://edge.media-server.com/m/p/gni5tph6. Log on. Click on the phone icon at the bottom of the "Webcast Window" on the left side of the screen. Then, you will be provided with the conference call number and passcode. Click the gear set icon (left of the telephone icon) and select “Live Phone” to synchronize the presentation with the audio on your phone. A replay of the call can also be accessed under the heading "Investors" on the Company website at www.andersonsinc.com.
Forward Looking Statements
This release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially. Without limitation, these risks include economic, weather and regulatory conditions, competition and the risk factors set forth from time to time in the Company’s filings with the Securities and Exchange Commission. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct.
Non-GAAP Measures
This release contains non-GAAP financial measures. "Adjusted Pretax Income" is our primary measure of period-over-period comparisons, and we believe it is a meaningful measure for investors to compare our results from period to period. We have excluded the impairment charge related to our wholesale fertilizer group, as we believe it is not representative of our ongoing core operations when calculating Adjusted Pretax Income and Adjusted Net Income. Reconciliations of the non-GAAP to GAAP measures may be found within the financial tables provided in the release and a reconciliation of net income to adjusted net income is provided in a table below.
Company Description
Founded in Maumee, Ohio in 1947, The Andersons is a diversified Company rooted in agriculture conducting business across North America in the grain, ethanol, plant nutrient and rail sectors. For more information, visit The Andersons online at www.andersonsinc.com.
Investor Relations Contact
John Kraus
Director, Investor Relations
Phone: 419-891-6544
E-mail: investor_relations@andersonsinc.com
The Andersons, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data) | Three months ended June 30, | Six months ended June 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales and merchandising revenues | $ | 993,662 | $ | 1,064,244 | $ | 1,845,678 | $ | 1,952,123 | |||||||
Cost of sales and merchandising revenues | 905,828 | 967,202 | 1,681,386 | 1,787,326 | |||||||||||
Gross profit | 87,834 | 97,042 | 164,292 | 164,797 | |||||||||||
Operating, administrative and general expenses | 69,928 | 75,405 | 151,875 | 155,286 | |||||||||||
Goodwill impairment | 42,000 | — | 42,000 | — | |||||||||||
Interest expense | 5,988 | 6,554 | 12,088 | 13,605 | |||||||||||
Other income: | |||||||||||||||
Equity in earnings of affiliates, net | 6,385 | 2,344 | 4,507 | (4,633 | ) | ||||||||||
Other income, net | 4,632 | 5,682 | 12,529 | 8,928 | |||||||||||
Income before income taxes | (19,065 | ) | 23,109 | (24,635 | ) | 201 | |||||||||
Income tax provision | 7,652 | 7,668 | 5,117 | 382 | |||||||||||
Net income | (26,717 | ) | 15,441 | (29,752 | ) | (181 | ) | ||||||||
Net income attributable to the noncontrolling interests | (64 | ) | 1,018 | (10 | ) | 92 | |||||||||
Net income attributable to The Andersons, Inc. | $ | (26,653 | ) | $ | 14,423 | $ | (29,742 | ) | $ | (273 | ) | ||||
Per common share: | |||||||||||||||
Basic earnings attributable to The Andersons, Inc. common shareholders | $ | (0.94 | ) | $ | 0.51 | $ | (1.05 | ) | $ | (0.01 | ) | ||||
Diluted earnings attributable to The Andersons, Inc. common shareholders | $ | (0.94 | ) | $ | 0.51 | $ | (1.05 | ) | $ | (0.01 | ) | ||||
Dividends declared | $ | 0.160 | $ | 0.155 | $ | 0.320 | $ | 0.310 | |||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net income (loss) attributable to The Andersons, Inc. | $ | (26,653 | ) | $ | 14,423 | $ | (29,742 | ) | $ | (273 | ) | ||||
Items impacting other income, net of tax: | |||||||||||||||
Goodwill impairment | 42,000 | — | 42,000 | — | |||||||||||
Total adjusting items | 42,000 | — | 42,000 | — | |||||||||||
Adjusted net income (loss) attributable to The Andersons, Inc. | $ | 15,347 | $ | 14,423 | $ | 12,258 | $ | (273 | ) | ||||||
Diluted earnings attributable to The Andersons, Inc. common shareholders | $ | (0.94 | ) | $ | 0.51 | $ | (1.05 | ) | $ | (0.01 | ) | ||||
Impact on diluted earnings per share | 1.48 | — | 1.48 | — | |||||||||||
Adjusted diluted earnings per share | $ | 0.54 | $ | 0.51 | $ | 0.43 | $ | (0.01 | ) | ||||||
The Andersons, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands) | June 30, 2017 | December 31, 2016 | June 30, 2016 | ||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 18,934 | $ | 62,630 | $ | 31,383 | |||||
Restricted cash | 1,033 | 471 | 987 | ||||||||
Accounts receivable, net | 186,331 | 194,698 | 212,588 | ||||||||
Inventories | 463,205 | 682,747 | 486,236 | ||||||||
Commodity derivative assets - current | 11,619 | 45,447 | 115,924 | ||||||||
Other current assets | 59,873 | 72,133 | 48,754 | ||||||||
Assets held for sale | 10,028 | — | — | ||||||||
Total current assets | $ | 751,023 | $ | 1,058,126 | $ | 895,872 | |||||
Other assets: | |||||||||||
Commodity derivative assets - noncurrent | 1,191 | 100 | 1,934 | ||||||||
Other assets, net (b) | $ | 145,283 | $ | 180,445 | $ | 183,728 | |||||
Equity method investments | 215,794 | 216,931 | 238,478 | ||||||||
362,268 | 397,476 | 424,140 | |||||||||
Railcar assets leased to others, net | 375,092 | 327,195 | 340,136 | ||||||||
Property, plant and equipment, net | 423,042 | 450,052 | 447,267 | ||||||||
Total assets | $ | 1,911,425 | $ | 2,232,849 | $ | 2,107,415 | |||||
Liabilities and equity | |||||||||||
Current liabilities: | |||||||||||
Short-term debt | $ | 124,000 | $ | 29,000 | $ | 179,404 | |||||
Trade and other payables | 267,194 | 581,826 | 302,413 | ||||||||
Customer prepayments and deferred revenue | 15,113 | 48,590 | 18,252 | ||||||||
Commodity derivative liabilities – current | 18,104 | 23,167 | 43,183 | ||||||||
Accrued expenses and other current liabilities | 69,256 | 69,648 | 71,169 | ||||||||
Current maturities of long-term debt | 62,482 | 47,545 | 53,720 | ||||||||
Total current liabilities | $ | 556,149 | $ | 799,776 | $ | 668,141 | |||||
Other long-term liabilities | 34,441 | 27,833 | 30,430 | ||||||||
Commodity derivative liabilities – noncurrent | 334 | 339 | 2,182 | ||||||||
Employee benefit plan obligations | 36,837 | 35,026 | 44,902 | ||||||||
Long-term debt, less current maturities | 354,066 | 397,065 | 398,746 | ||||||||
Deferred income taxes | 181,806 | 182,113 | 179,911 | ||||||||
Total liabilities | 1,163,633 | 1,442,152 | 1,324,312 | ||||||||
Total equity | 747,792 | 790,697 | 783,103 | ||||||||
Total liabilities and equity | $ | 1,911,425 | $ | 2,232,849 | $ | 2,107,415 | |||||
The Andersons, Inc.
Segment Data
(Unaudited)
(in thousands) | Grain | Ethanol | Plant Nutrient | Rail | Retail | Other | Total | ||||||||||||||||||||
Three months ended June 30, 2017 | |||||||||||||||||||||||||||
Revenues from external customers | $ | 488,447 | $ | 187,831 | $ | 264,736 | 38,149 | 14,499 | $ | — | $ | 993,662 | |||||||||||||||
Gross profit | 30,447 | 3,320 | 39,934 | 12,699 | 1,434 | — | 87,834 | ||||||||||||||||||||
Equity in earnings of affiliates | 2,903 | 3,482 | — | — | — | — | 6,385 | ||||||||||||||||||||
Other income, net | 1,861 | 15 | 636 | 492 | 1,303 | 325 | 4,632 | ||||||||||||||||||||
Income (loss) before income taxes | 6,929 | 4,596 | (25,825 | ) | 5,860 | (6,718 | ) | (3,907 | ) | (19,065 | ) | ||||||||||||||||
Income (loss) attributable to the noncontrolling interests | — | (64 | ) | — | — | — | — | (64 | ) | ||||||||||||||||||
Income (loss) before income taxes attributable to The Andersons, Inc. (a) | $ | 6,929 | $ | 4,660 | $ | (25,825 | ) | $ | 5,860 | $ | (6,718 | ) | $ | (3,907 | ) | $ | (19,001 | ) | |||||||||
Three months ended June 30, 2016 | |||||||||||||||||||||||||||
Revenues from external customers | $ | 522,989 | $ | 142,520 | $ | 320,036 | $ | 40,342 | $ | 38,357 | $ | — | $ | 1,064,244 | |||||||||||||
Gross profit | 17,551 | 4,570 | 49,577 | 13,602 | 11,742 | — | 97,042 | ||||||||||||||||||||
Equity in earnings of affiliates | (2,907 | ) | 5,251 | — | — | — | — | 2,344 | |||||||||||||||||||
Other income, net | 2,642 | 3 | 1,222 | 185 | 91 | 1,539 | 5,682 | ||||||||||||||||||||
Income (loss) before income taxes | (13,037 | ) | 7,205 | 23,535 | 6,569 | 1,010 | (2,173 | ) | 23,109 | ||||||||||||||||||
Income (loss) attributable to the noncontrolling interest | — | 1,018 | — | — | — | — | 1,018 | ||||||||||||||||||||
Income (loss) before income taxes attributable to The Andersons, Inc. (a) | $ | (13,037 | ) | $ | 6,187 | $ | 23,535 | $ | 6,569 | $ | 1,010 | $ | (2,173 | ) | $ | 22,091 | |||||||||||
Grain | Ethanol | Plant Nutrient | Rail | Retail | Other | Total | |||||||||||||||||||||
Six months ended June 30, 2017 | |||||||||||||||||||||||||||
Revenues from external customers | $ | 966,975 | $ | 341,984 | $ | 411,323 | $ | 78,539 | $ | 46,857 | $ | 1,845,678 | |||||||||||||||
Gross profit | 54,096 | 8,860 | 65,742 | 25,007 | 10,587 | — | 164,292 | ||||||||||||||||||||
Equity in earnings of affiliates | 1,558 | 2,949 | — | — | — | — | 4,507 | ||||||||||||||||||||
Other income, net | 2,507 | 22 | 6,200 | 1,571 | 1,433 | 796 | 12,529 | ||||||||||||||||||||
Income (loss) before income taxes | 1,856 | 6,366 | (19,154 | ) | 11,938 | (13,564 | ) | (12,077 | ) | (24,635 | ) | ||||||||||||||||
Income (loss) attributable to the noncontrolling interests | — | (10 | ) | — | — | — | — | (10 | ) | ||||||||||||||||||
Income (loss) before income taxes attributable to The Andersons, Inc. (a) | $ | 1,856 | $ | 6,376 | $ | (19,154 | ) | $ | 11,938 | $ | (13,564 | ) | $ | (12,077 | ) | $ | (24,625 | ) | |||||||||
Six months ended June 30, 2016 | |||||||||||||||||||||||||||
Revenues from external customers | $ | 1,061,803 | $ | 257,213 | $ | 487,027 | $ | 79,951 | $ | 66,129 | $ | — | $ | 1,952,123 | |||||||||||||
Gross profit | 33,751 | 6,906 | 76,266 | 28,162 | 19,712 | — | 164,797 | ||||||||||||||||||||
Equity in earnings of affiliates | (6,674 | ) | 2,041 | — | — | — | — | (4,633 | ) | ||||||||||||||||||
Other income, net | 3,310 | 33 | 2,017 | 1,562 | 180 | 1,826 | 8,928 | ||||||||||||||||||||
Income (loss) before income taxes | (30,445 | ) | 3,602 | 25,239 | 15,944 | (1,066 | ) | (13,073 | ) | 201 | |||||||||||||||||
Income attributable to the noncontrolling interest | (3 | ) | 95 | — | — | — | — | 92 | |||||||||||||||||||
Income (loss) before income taxes attributable to The Andersons, Inc. (a) | $ | (30,442 | ) | $ | 3,507 | $ | 25,239 | $ | 15,944 | $ | (1,066 | ) | $ | (13,073 | ) | $ | 109 | ||||||||||
(a) Income (loss) before income taxes attributable to The Andersons, Inc. for each Group is defined as net sales and merchandising revenues plus identifiable other income less all identifiable operating expenses, including interest expense for carrying working capital and long-term assets and is reported net of the noncontrolling interest share of income (loss).