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The Andersons Inc. logo The Andersons Inc./PRNewsFoto

Andersons reports Q2 results, organizational changes

Trade and Ethanol groups to be combined into one, as will Plant Nutrient and Rail groups.

The Andersons Inc. announced financial results for the second quarter ended June 30, 2020, along with a reorganization of its business structure and organizational changes.

For the second quarter, the company reported net income attributable to The Andersons of $30.4 million, or 92 cents per diluted share, and adjusted net income of $29.3 million, or 88 cents per diluted share. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $70.7 million.

The Trade Group reported pretax income of $400,000 and adjusted pretax income of $1.4 million, despite a tough operating environment.

The Ethanol Group benefited from timely maintenance shutdowns and improved ethanol margins at the end of the quarter.

Plant Nutrient Group results were driven by a strong planting season.

The Rail Group earned $2.6 million of pretax income due to lower car sale income.

"I am proud of what we were able to accomplish in the second quarter, as all four of our business groups were profitable," Andersons president and chief executive officer Pat Bowe said. "We are focused on transforming The Andersons into a more cost-efficient company positioned for scalable growth. Our vision is to be the most nimble and innovative North American ag supply chain company. The steps we are taking to transform the organization should ensure that we have the right vision at the right time to continue to serve our customers.

"Our Plant Nutrient Group's income was up more than 20% due to an excellent spring planting season," Bowe continued. "Our Ethanol Group's navigation of the unprecedented decrease in demand due to the COVID-19 crisis helped produce good results under those difficult conditions. The Trade Group continued to feel the effects of a small 2019 corn crop in the East. Both the Trade Group and the Rail Group felt the persistent negative impact of the pandemic on customer demand. Both groups were profitable for the quarter."

Strategic business structure and senior leadership changes

The Andersons announced strategic business structure and senior leadership changes. Among the changes were the following:

* The Trade Group and Ethanol Group will be combined and led by president Bill Krueger, who was formerly president of the Trade Group. Jim Pirolli, who was the Ethanol Group president, has been appointed senior vice president of the combined group, which will enable him to assume expanded responsibilities.

* The Plant Nutrient Group and Rail Group will be combined and led by Joe McNeely, who was formerly president of the Rail Group.

"This new structure will enable us to focus on increasing gross profit and enhancing service to our customers while also managing our cost structure," Bowe said. "The combination of the Trade and Ethanol groups will allow for greater strategic alignment, risk management and integrated service to our customers. This restructuring of our business will also result in a leaner cost environment."

Actively managing COVID-19 pandemic

The company's executive-level response team has continued to closely monitor the COVID-19 crisis, share information and best practices across operations and manage its coordinated response, the announcement said. Employees continue to practice appropriate social distancing and follow protocols for sanitation and good hygiene developed in conjunction with the pandemic. The Andersons has also implemented policies for remote work and supplemental sick time for those employees who have been affected by the virus.

"I want to again thank our employees, particularly those working in our plants and operations, for continuing to demonstrate their commitment to the company and to our customers and communities by keeping our businesses running safely and effectively during this time," Bowe said. "We have maintained as our top priority the health and safety of our employees, who have performed admirably in these difficult circumstances. We also extend our thanks to the health and safety personnel in our communities who have helped respond to the pandemic."

Liquidity and cash management

"We generated strong operating cash flows and continued to manage capital expenditures during the second quarter," executive vice president and chief financial officer Brian Valentine said. "As the pandemic persists, we remain very focused on overall liquidity, including expense and cash management."

In May, The Andersons announced that it was targeting total expense reductions of $30 million in 2020, with approximately half of those savings expected to be permanent in nature. It anticipates further general and administrative cost reductions that will be realized beginning in early 2021.

The company reported that it still expects to spend approximately $100 million on capital projects in 2020 after averaging more than $200 million over the last three years — a reduction that prudently preserves working capital and supports a continued strong financial position.

Segment overview

Trade Group. The Trade Group recorded pretax income of $400,000 and adjusted pretax income of $1.4 million for the quarter, compared to pretax income of $22.6 million and adjusted pretax income of $25.8 million in the second quarter of 2019. The 2019 results were positively affected by corn and wheat basis appreciation caused by the poor 2019 planting season and concerns about adequate grain supplies.

The merchandising business continued to perform well, with comparable year-over-year results.

The group's return on its eastern Corn Belt assets was hurt by the small 2019 harvest and COVID-19-related decreases in demand, which resulted in compressed margins, minimal basis appreciation and lower originations.

The group adjusted its reported pretax income by $1.0 million for stock compensation expense associated with the 2019 acquisition of Lansing Trade Group.

Second-quarter adjusted EBITDA was $17.5 million, compared to adjusted EBITDA of $46.8 million in the second quarter of 2019.

The group anticipates a large corn harvest, which should improve profitability during the latter part of the year and into 2021.

Ethanol Group. The Ethanol Group reported pretax income attributable to the company of $900,000 in the second quarter, compared to the $3.7 million in the same period in 2019.

On a webcast discussing the results, Bowe said the Ethanol Group continued to be affected by reduced gasoline demand. What's more, farmers continued to hold onto their grain, which also affected ethanol results.

Margins began to improve in early May and were strong by the end of the quarter as improving demand outpaced increases in industry production. As expected, a significant portion of the non-cash mark-to-market losses recorded in the first quarter reversed during the second quarter.

The group's five plants operated at approximately 50% of capacity during the quarter, as planned. The group safely completed extended maintenance shutdowns using largely its own employees. Bowe noted that two of the plants are now making high-quality feed, which is promising for expanding the feed options.

The group recorded adjusted EBITDA attributable to the company of $11.0 million in the second quarter of 2020, compared to $4.5 million in the second quarter of 2019.

Bowe said the company feels "much better about our Ethanol Group fundamentals" at this point, and while 2021 is "shaping up to be a good year," he acknowledged that "ethanol holds more uncertainty."

Plant Nutrient Group. The Plant Nutrient Group improved its results year over year, recording pretax income of $19.4 million in 2020 versus $15.9 million in the same period of the prior year. This was the fifth consecutive quarter that the group posted improved year-over-year results.

Volumes were up substantially due to a strong planting season.

Improved Engineered Granules results continued to be driven by better procurement and operating expenses controls.

EBITDA for the current quarter was $27.2 million, compared to $24.9 million in the second quarter of 2019.

The Andersons said the group's near-term outlook is guarded, as low corn prices and COVID-19-related demand decreases in the industrial sector may offset the positive impacts of continuing cost reductions, which have improved results over the last several quarters, and new business opportunities in Engineered Granules.

Rail Group. The Rail Group earned second-quarter pretax income of $2.6 million, compared to $3.2 million in the same period of the prior year.

Railcar leasing results were flat year over year. Cars on lease, average lease rate and utilization were all lower as railcar loadings continued to decrease. Income from car sales was negligible. Service and other pretax income was unchanged.

The group's EBITDA of $15.3 million in the second quarter of 2020 was comparable to the second quarter of 2019.

The COVID-19 pandemic has caused the idling of nearly one-third of the North American railcar fleet and has driven year-to-date railcar loadings 16% lower year over year through June, the company noted. These conditions are expected to continue until the general economy returns to normal levels and will continue to negatively affect lease renewals, lease rates and demand for railcar repairs.

Founded in 1947 in Maumee, Ohio, The Andersons is a diversified company rooted in agriculture that conducts business in the commodity trading, ethanol, plant nutrient and rail sectors.

Million $, except per share amounts     

 

Q2

Q2

 

YTD

YTD

 

 

2020

2019

Variance

2020

2019

Variance

Pretax income (loss) attributable to the company*

$

18.2

 

$

40.9

 

$

(22.7)

 

$

(20.9)

 

$

21.5

 

$

(42.4)

 

Adjusted pretax income (loss) attributable to the company*

21.6

 

44.1

 

(22.5)

 

(16.2)

 

36.2

 

(52.4)

 

     Trade Group

1.4

 

25.8

 

(24.4)

 

(7.2)

 

19.5

 

(26.7)

 

     Ethanol Group*

0.9

 

3.7

 

(2.8)

 

(23.1)

 

6.8

 

(29.9)

 

     Plant Nutrient Group

19.4

 

15.9

 

3.5

 

18.2

 

12.0

 

6.2

 

     Rail Group

2.6

 

3.2

 

(0.6)

 

3.6

 

7.5

 

(3.9)

 

     Other

(2.7)

 

(4.6)

 

1.9

 

(7.7)

 

(9.5)

 

1.8

 

Net income (loss) attributable to the company*

30.4

 

29.9

 

0.5

 

(7.2)

 

15.9

 

(23.1)

 

Adjusted net income (loss) attributable to the company*

29.3

 

32.3

 

(3.0)

 

(14.0)

 

27.0

 

(41.0)

 

Diluted earnings per share

0.92

 

0.91

 

0.01

 

(0.22)

 

0.48

 

(0.70)

 

Adjusted diluted earnings per share

0.88

 

0.98

 

(0.10)

 

(0.43)

 

0.81

 

(1.24)

 

EBITDA

66.7

 

86.4

 

(19.7)

 

76.6

 

116.6

 

(40.0)

 

Adjusted EBITDA attributable to the company

$

70.7

 

$

90.1

 

$

(19.4)

 

$

85.4

 

$

132.0

 

$

(46.6)

 

*Reflects amounts attributable to the company and excludes losses attributable to the noncontrolling interests of $10.4 in Q2 2020, $0.5 in Q2 2019, $23.9 for year-to-date 2020 and $0.6 for year-to-date 2019. See non-GAAP reconciliations in the accompanying tables.

Source: The Andersons.
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