The Andersons, Inc. Reports Third Quarter Results

MAUMEE, Ohio, Nov. 6, 2017 /PRNewswire/ -- The Andersons, Inc. (NASDAQ: ANDE) announces financial results for the third quarter ended September 30, 2017.

The Company reports net income of $2.5 million, or $0.09 per diluted share compared to $1.7 million and $0.06 per share in third quarter 2016.

• Grain Group records pretax income of $2.6 million on continued strong grain storage capacity utilization.
• Ethanol Group earns $6.2 million of pretax income despite weaker year-over-year margins.
• Plant Nutrient Group reports a pretax loss of $7.9 million due to persistent low prices and margins.
• Rail Group earns $6.1 million of pretax income in a slowly improving but still soft market.

The Company reported third quarter 2017 net income attributable to The Andersons of $2.5 million, or $0.09 per diluted share, on revenues of $837 million. Those results compared to 2016 third quarter net income of $1.7 million, or $0.06 per diluted share, on revenues of $860 million.

"We performed reasonably well in the third quarter when considering that we continue to face some difficult market conditions, and we incurred some unusual expenses and sold two former retail properties," said President and CEO Pat Bowe. "The Grain Group again recorded better year-over-year results driven by good margins on corn and soybean sales and strong space margins for wheat. On a year-to-date basis, our Grain earnings have improved by more than $33 million."

Bowe continued, "Ethanol margins were lower year-over-year for the quarter in spite of strong U.S. exports. Current margins are disappointing. Forward curve margins into the first quarter of 2018 are below last year's levels as well."

"The Plant Nutrient Group's margins continued to be compressed by an oversupply of nutrients and low farm income, even as year-over-year volumes were somewhat improved. The Rail Group's base leasing income and utilization continued their improvement from the second quarter, and the group also recorded better income from selling and scrapping cars," added Bowe.

For the first nine months of the year, the Company recorded a net loss attributable to The Andersons of $27.2 million, or ($0.96) per diluted share, and adjusted net income attributable to The Andersons of $14.8 million, or $0.52 per diluted share, compared to net income of $1.4 million, or $0.05 per diluted share, during the same period last year.

For purposes of better understanding ongoing results, the Company has expanded its 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.

Third Quarter Segment Overview

Grain Group Operating Income Increases Compared to Prior Year andImproves for Fourth Consecutive Quarter 

The Grain Group generated pretax income of $2.6 million in the quarter, up $0.7 million over its third quarter 2016 results.

The table below separates the earnings of the group's base grain business from those of its grain affiliates. Base grain business earnings originate from grain facilities that the Company operates. The grain affiliates' earnings originate from investments in the Company's grain affiliates, which include Lansing Trade Group and Thompsons Limited. 

Base grain pretax income improved by $1.7 million in the third quarter compared to 2016 results. Grain storage, risk management and trading income were all much improved. Low prices and very low volatility have farmers remaining reluctant to sell as we pass the midpoint of U.S. corn harvest. 

Ethanol Group Challenged by Decreasing Margins

The Ethanol Group generated pretax income of $6.1 million attributable to The Andersons in the third quarter, more than a third lower than the $9.5 million pretax income attributable to The Andersons for the same period in 2016. This result is primarily due to lower margins.

The table below separates the results of the Ethanol Group's unconsolidated entities, which include the Albion, Mich.; Clymers, Ind.; and Greenville, Ohio plants, from the earnings of the consolidated Denison, Iowa plant and the group's management services income.

Robust industry production was the main contributor to the softer margin environment even as the export market stayed strong. In addition, corn and natural gas costs were each up more than 4 percent year-over-year. The group's industry-leading E-85 sales increased by 10 percent.  

The group continued to incur discounts on distillers dried grains (DDGs) during the quarter due to problems with vomitoxin present in the 2016 corn crop primarily in the vicinity of the Albion plant. Lower international demand for DDGs also continued to pressure pricing and margins. Those two conditions combined to drive values 35 percent lower than in the comparable 2016 period.

The group also recorded $1.5 million in expense for preliminary engineering and design work. The work pertained to a potential capital project that did not meet the group's investment criteria, so the group cancelled it.

Plant Nutrient Group Results Hurt by Continued Lower Margins

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.

The Plant Nutrient Group recorded a pretax loss of $7.9 million in the third quarter compared to a pretax loss of $7.2 million in the third quarter of 2016. The quarter was again characterized by low nutrient prices, an oversupply of product and unstable markets.

Base nutrient (NPK) volumes were up about 12 percent year-over-year, while higher-margin, value-added nutrient tons (low salt starter fertilizers and micro nutrients) were down 4 percent. Same-store volumes for products in the group's other businesses (Farm Centers, Lawn and Cob) were up about 5 percent.

Margins per ton were considerably lower in both base nutrients and value-added products, finishing down 41 percent and 5 percent year-over-year, respectively. Margins per ton improved considerably for the farm centers and the cob business, but were flat in the lawn fertilizer business year-over-year. Those volume and margin changes combined to reduce gross profit by about $2.1 million.

The group accrued a $2.2 million expense to settle a lawsuit that prevented an improvement over third quarter 2016 results. 

Rail Group Market Conditions Continue to Improve

The Rail Group earned third quarter pretax income of $6.1 million compared to $6.8 million in the same period of the prior year.

Base leasing operations earned $3.5 million, up $0.6 million sequentially and $0.1 million year-over-year, on 0.4 percent lower utilization. Utilization averaged 85.8 percent during the quarter compared to 84.4 percent sequentially and 86.2 percent during the same period last year. Average lease rates were down almost 4 percent as shorter leases at lower rates began to have an impact. However, maintenance expense was more than 20 percent lower than in the period a year ago.

The group realized $2.6 million of pretax income on railcar sales in the quarter compared to $1.4 million sequentially and $1.6 million in the third quarter of 2016.

Rail's service and other pretax income was negligible in the quarter compared to $1.8 million during the same period of 2016. Repair sales that were 7 percent lower year-over-year and workers compensation and other expenses accrued by the group as a result of a third quarter fatality each accounted for about half of the decreased results.

North American rail traffic excluding coal carloads was down about 3 percent year-over-year, and is flat year-to-date compared to 2016 and remains historically weak. However, Class I railroad efficiency continued to be lower than year-ago levels.

Company Sells Two Retail Properties; Other Net Company-Level Expenses Somewhat Lower

The Company recorded pretax income of $4.4 million during the quarter from its closed retail business. This result was driven by the sale of two of four retail properties for a combined gain of $5.7 million.

Unallocated net Company-level expenses for the third quarter of 2017 were $6.4 million, slightly lower than the $6.5 million incurred in the third quarter of 2016.

Conference Call

The Company will host a webcast on Tuesday, November 7, 2017, at 11 a.m. Eastern Standard Time to discuss its performance and provide its outlook for the remainder of 2017 and some early thoughts about 2018. To access the call, please dial 866-439-8514 or 678-509-7568 (participant passcode is 9288638). We recommend that you call 10 minutes before the conference call begins.

To access the webcast, click on the link: http://edge.media-server.com/m6/p/8eac3s4i. Complete the four fields as directed and click submit. 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.

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