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Andersons reports 2018 Q4, full-year results

Grain Group income improves on strong harvest margin environment and addition of Lansing.

The Andersons Inc. announced financial results for its fourth quarter and full year ended Dec. 31, 2018.

The company reported fourth-quarter 2018 net income attributable to The Andersons of $23.8 million, or 84 cents per diluted share, on revenues of $813 million, with adjusted net income of $26.0 million, or 92 cents per diluted share, compared to fourth-quarter 2017 net income of $69.7 million, or $2.47 per diluted share, and adjusted net income of $18.9 million, or 67 cents per diluted share, on revenues of $1.0 billion.

Earnings before income, taxes, depreciation and amortization (EBITDA) were $60.2 million for the 2018 fourth quarter versus $25.0 million for the 2017 fourth quarter. Adjusted EBITDA was $63.3 million, compared to $53.0 million in the fourth quarter of 2017.

"We improved our fourth-quarter operating performance year over year," president and chief executive officer Pat Bowe said. "The Grain Group recorded better results, highlighted by improvement in its base grain business and a strong finish to the year by Lansing Trade Group. We are excited about the closing of our acquisition of Lansing at the beginning of 2019. Our integration efforts are going very well, and we are committed to a thoughtful, disciplined combination of our organizations. We are more confident than ever about the strong strategic fit of the transaction.

"In addition, our Ethanol Group performed well in a weak market environment by continuing to operate efficiently and market wisely, even as margins for the quarter were lower again year over year," Bowe continued. "The Plant Nutrient Group's performance improved across most of its product lines except for specialty nutrients. The Rail Group's performance was equal to last year's results, and the group purchased more than 1,000 railcars."

For the full year, the company reported net income attributable to The Andersons of $41.5 million, or $1.46 per diluted share, and adjusted net income of $46.4 million, or $1.63 per diluted share. The adjusted results exclude $6.5 million in pretax charges related to the Lansing acquisition. These amounts compared to 2017 net income of $42.5 million, or $1.50 per diluted share, and adjusted net income of $33.7 million, or $1.19 per diluted share. EBITDA was $171.6 million for 2018 and $87.4 million for 2017. Adjusted EBITDA was $178.1 million for 2018 compared to $157.4 million for 2017.

The decrease in revenues year over year was primarily the result of the company's adoption of new revenue recognition rules at the beginning of 2018 that changed the accounting treatment of a significant amount of the Grain Group's sales transactions. This change had no impact on the amount of gross profit recognized on these transactions.

Fourth-quarter and full-year 2018 results include $3.1 million and $6.5 million of expenses related to the Lansing acquisition and integration, respectively, equating to earnings per share of 8 cents and 17 cents.

Segment overview

Grain Group rebounds from third quarter. The Grain Group generated pretax income of $25.4 million in the fourth quarter, up $6.2 million from fourth-quarter 2017 adjusted pretax income results. The group's EBITDA in the 2018 and 2017 fourth quarters was $32.1 million and $14.3 million, respectively, and it generated adjusted EBITDA of $32.1 million and $25.2 million for the same two periods.

Base grain pretax income was more than 40% higher in the fourth quarter versus a year ago. Merchandising income improved significantly. While income from corn and soybean ownership positions improved year over year from expected basis appreciation, those improvements were offset by significantly lower income from narrowing spreads on wheat positions. Trading and risk management services income was lower as market uncertainty reduced trading opportunities.

The group's affiliates recorded lower income in the quarter due to some unusual expenses. Lansing incurred expenses related to closing its sale to The Andersons and recorded an impairment charge on an investment in a small Canadian-based grain company. The company's share of those two charges accounted for more than the small shortfall from fourth-quarter 2017 pretax results.

For the full year, the group earned pretax income of $26.7 million in 2018 versus $12.8 million and adjusted pretax income of $23.7 million last year. Excluding a 2017 asset impairment expense, 2018 base grain income lagged 2017 results due to less wheat income opportunity and less income from trading and risk management, The Andersons said. Wheat margins have tightened significantly since the third quarter of 2018. On a positive note, corn and soybean basis recovered, and income from food ingredients increased substantially.

Income from affiliates more than offset the shortfall in base income, improving by about $7.8 million; Lansing's very strong year accounted for most of the improvement.

The group generated EBITDA of $54.6 million in 2018 and $39.9 million in 2017. Adjusted EBITDA was $54.6 million in 2018 and $50.8 million in 2017, increasing 7% year over year.

The Andersons said the integration of Lansing Trade Group to form the new Trade Group has gone very well in its first few weeks, already identifying several-million dollars of run-rate synergies. Some of these savings are being realized in early 2019, and the capture of synergies will accelerate throughout the year.

Ethanol group performs well in challenging market conditions. The Ethanol Group generated pretax income of $5.1 million attributable to The Andersons in the fourth quarter, compared to $6.4 million for the same period in 2017. The commercial and production teams performed extremely well, hedging forward margin and running the plants efficiently, effectively and safely in the quarter.

Continued elevated ethanol stocks, lower oil prices and seasonally lower demand were the main contributors to the weaker margin environment. The export market remained on its record pace despite China's continued absence. The average sales price of ethanol continued to be lower year over year.

Year-over-year results for the group improved by $3.2 million despite a much weaker margin environment. For the year, the group earned pretax income of $22.1 million, compared to $18.9 million last year.

Plant Nutrient Group has seasonally strong quarter. The Plant Nutrient Group recorded pretax income of $3.8 million in the fourth quarter, compared to a pretax loss of $18.0 million and an adjusted pretax loss of $0.9 million in the fourth quarter of 2017. The group's fourth-quarter EBITDA and adjusted EBITDA were $12.5 million, a $5.6 million improvement over year-ago results.

Except for the specialty nutrient product lines, the group's businesses recorded improved year-over-year operating results. A significant increase in margin per ton on somewhat lower primary nutrient volume drove wholesale fertilizer gross profit more than 30% higher on the year. In contrast, higher volumes only partially offset weaker margins in the specialty fertilizer product lines. The lawn business completed a record year, improving results by almost $1 million year over year. In addition to improving gross profit, the group reduced expenses by about 12% over the year.

For the full year, the group generated pretax income of $12.0 million, compared to a pretax loss of $45.1 million and adjusted pretax income of $14.0 million in 2017, which included a $4.7 million gain on the sale of the Florida farm centers. Wholesale fertilizer volumes were up slightly, but margins were moderately lower, especially in the specialty nutrient product line. Adjusted EBITDA was $45.4 million for 2018 and $47.0 million for 2017. Excluding the $4.7 million Florida farm centers gain, full-year adjusted EBITDA increased by 7%.

Rail Group results reflects lower income. The Rail Group earned fourth-quarter pretax income of $6.7 million, on par with its results for the same period of the prior year. The group's fourth-quarter EBITDA was $17.9 million in 2018 and $14.3 million in 2017.

Leasing operations earned $1.4 million in the fourth quarter, down $1.1 million sequentially and $500,000 year over year. Utilization averaged 94.3%, compared to 92.0% sequentially and 86.2% during the same period last year. The average number of cars on lease rose about 7% year over year. Average lease rates and maintenance expenses were flat for the year. Depreciation and interest expenses were up, primarily due to a higher asset base.

The group earned $1.2 million of pretax income on railcar sales in the quarter, compared to $3.3 million in the fourth quarter of 2017. The group scrapped more than 300 cars and sold fewer cars outright than in the year-ago period.

Fourth-quarter Rail Group service and other pretax income was $4.1 million in 2018 versus $1.5 million in 2017. Current-quarter results included $2.4 million in income from the sale of 50 barges. Repair sales were higher year over year, and margins were flat.

For the full year, the Rail Group earned pretax income of $17.4 million, compared to $24.8 million in 2017. EBITDA was $57.9 million for 2018 and $54.9 million for 2017, up 5%. The year-over-year decrease in pretax income primarily reflects the costs to scrap long-idled railcars in the second quarter and lower lease rates as leases expiring at peak rates were renewed at substantially lower rates. The railcar market and demand for railcars continued its steady improvement, and absolute lease rates improved for most car types.

Other expenses include Lansing acquisition. Fourth-quarter 2018 unallocated net company-level expenses of $11.1 million were considerably higher than the $4.4 million of net expenses recorded during the fourth quarter of 2017 and included $3.1 million, or 8 cents per share, in expenses associated with acquiring and integrating Lansing Trade Group, while the year-ago results included a $2.9 million gain from the sale of former retail store property.

Full year unallocated net company-level expenses were $24.8 million -- down $7.2 million from 2017 levels -- and included $6.5 million, or 17 cents per share, in Lansing acquisition expenses. The 2017 amount included a $7.3 million pretax loss from the closing of the company's former retail business.

Founded in 1947 in Maumee, Ohio, The Andersons has more than 130 locations in the commodity trading, ethanol, plant nutrient and rail sectors.

Source: The Andersons Inc., which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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