Record ethanol performance brings top earnings to The Andersons

By Susanne Retka Schill | February 12, 2015

The Andersons Inc. reported record earnings in 2014 with the ethanol group delivering full-year operating income of $92.3 million, far exceeding its prior best year of $40.6 million in 2013.

“We are pleased with our results in 2014,” said CEO Mike Anderson. “The company's earnings this year have clearly been led by the exceptionally strong performance of our ethanol business in a very supportive market.” Full-year 2014 adjusting earnings were $99.1 million and net income for the company was a record $109.7 million on revenues of $5.6 billion. After excluding the one-time pre-tax gain of $17.1 million from the partial redemption of the company’s investment in Lansing Trade Group, the full-year adjusted results of $3.46 per share were the highest in the company's history.

The ethanol group realized solid margins in 2014, although fourth quarter margins were lower than the same period of the prior year. Q4 operating income was $17.3 million, compared to $26.6 million in the same quarter a year ago. Q4 revenue for the ethanol group was $171 million, with a gross profit of $9.3 million. Equity earnings in affiliates added $12.8 million to Q4. For the fiscal year 2014, operating income in the ethanol group totaled $92.3 million, compared to $50.6 million for the previous year. Gross profits were up in 2014 at $48.1 million on $766 million in revenues for the ethanol group, which compares to $32.5 million gross profit in the previous year on $832 million in revenues. The company’s ethanol plants benefitted from operational improvements made in the past three years, with record ethanol production of 372 million gallons and record ethanol and corn oil yields. The Andersons also received $89.5 million in net cash distributions from its nonconsolidated ethanol investments in 2014.

The strong performance of the ethanol group was offset by weaker performance in The Andersons’ agricultural business due to low commodity prices. The majority of the decrease was within the grain group where the average price per bushel sold decreased by 28 percent, which more than offset the slight increase in bushels sold. The protracted and late harvest in a number of states where the company operates hurt fall fertilizer sales in the plant nutrient group, which could be made up if the spring season is more favorable.

The rail group’s income was also down in 2014, primarily due to gains on railcar sales declining and one-time gains in 2013. The company also saw an increase in freight and maintenance expense to move idle railcars into service. The rail group’s utilization rate has increased for eight consecutive quarters and ended the year at 91 percent.

In the outlook section of the year-end report, The Andersons management explained early 2015 ethanol margins are well below 2014 margins, and are expected to average lower for the full year. “Factors impacting current margins include lower crude price, greater ethanol production and marginally rising ethanol stocks,” the earnings release said. “On a positive note, higher gasoline demand, improved demand and prices for distillers dried grains in relation to corn price, an ample corn supply, and the potential for improved export demand as the year progresses could contribute to improved ethanol margins later in the year.”

In the question period that followed the prepared presentation in the Feb. 11 investor call, investors tried to understand the impact of low-priced crude oil on ethanol margins.  “It’s not just the relationship of ethanol price to gasoline,” Chief Operating Officer Hal Reed explained. “The price of corn and value of DDGS plays a big part, as well as overall demand for gasoline.”

CEO Anderson explained the price of DDGS relative to corn dropped into the 80 percent range in Q4 of 2014 due to the Chinese market situation, but has since rebounded and is back above 100 percent.  Responding to another question, Anderson reported the company’s four ethanol plants are running at full capacity, although that was being evaluated daily as the market fluctuate. The company is cash-flow positive, with current margins hovering around breakeven. Margins on the forward curve are looking strong, Anderson added, and the company expects better margins later in the year, although not nearly as strong as the extraordinarily good margins of 2014.