The Andersons report Q1 loss, positive cash position for ethanol

By Susanne Retka Schill | May 05, 2016

The Andersons Inc. reported a net loss of $14.7 million for the first quarter, with a pre-tax loss of $17.4 million in the grain group offsetting positive results for the rail and plant nutrient groups. The company reported the ethanol group “performs well, remaining cash positive in a margin environment challenged by low oil prices and coupled with seasonally lower first quarter demand.”

The Q1 release reported 95 million gallons of ethanol were produced in the quarter compared to 93.5 million in the same period a year ago. “Margins were at or below our five-year lows for comparable weeks for much of the first quarter, returning to levels above the low end of the five-year range as second quarter began,” the company reported. The company’s margins continue to be pressured by the higher corn basis in the Eastern Corn Belt, compared to the ethanol industry as a whole. That higher basis is expected to continue until new crop. The contribution from coproduct sales remained under pressure as well from soft international demand for DDGS, particularly in China, that weakened DDGS pricing.

EBITA for the ethanol group was a positive $6 million on revenue of $114.7 million, compared to $132.8 million in the same quarter a year ago. However, that resulted in a pre-tax loss of $2.7 million in the first quarter compared to the $5.3 million pre-tax income generated in the same period last year. The company said the prior year results were bolstered by hedge positions initiated in the fall of 2014 that were unavailable last fall.

The outlook entering the summer driving months is positive though mixed, CEO Pat Bowe said in the investor presentation. “Demand from higher gasoline consumption should provide some offset to margin pressures from current gasoline prices.” Export demand has been strong, and is expected to reach between 800 million to 1 billion gallons for the year. 

Bowe described the company’s ethanol business as a top performer, relative to peers, “we have advantages with newer assets and high performing operating team. We continue to focus on improving yields and lowering costs.”  The expansion at the Albion, Michigan, plant is well underway and expected to be complete by Q2 next year.

The best-performing group in the first quarter, the rail group, achieved pre-tax income of $9.4 million, compared to $10.3 million in Q1 2015.  The rail group performed well due to its diverse portfolio, an even spread of lease renewals and growth in its repair revenue and earnings.

The plant nutrient group was seeing a slow start to the year as farmers held off buying decisions, but with good spring conditions, was expecting to see a better second quarter.

The grains group anticipated a difficult quarter, following the poor crop last fall in the Eastern Corn Belt. Large global grain supplies and weak U.S. exports have led to moderate grain movements, limiting opportunities for improvement until later in the year. A few days before the earnings call, The Andersons announced the closing of the sale of its eight grain and agronomy assets in western Iowa to MaxYield Cooperative of West Bend, Iowa. The assets were acquired from Green Plains Grain Co. in 2012. The Tennessee assets acquired at the same time remain part of The Andersons.  

Company executives also announced an initiative to reduce annual run rate costs by at least $10 million across its business groups and corporate functions during the next two years. “Projects include synergies from the IT infrastructure refresh project, flattening the organization, spending cuts and cost reductions in both direct and indirect materials from sourcing projects,” the company earnings release noted.

In the question period following the presentations, The Andersons executives were asked whether there are structural changes ahead in the ethanol industry or whether the current environment was part of the normal cycle. The questioner referenced Archer Daniels Midland’s reevaluation of its dry mill assets.

Jim Burmeister, vice president of finance, replied, “I think in relation to other players, we’re very fond of our ethanol business.” He said the company believes its plants are in good locations, running with good technologies, good operators and partners. “What we saw in Q1 is what you want to see—getting through a tough season with positive cash position.”   The company has a positive long-term outlook for the industry, evidenced by the current expansion project at the Albion facility.

Bowes added, “You have to understand that ethanol has had a huge impact on corn in the east.” The company sees its ethanol assets as an integral part of its operations.  “We want to keep our plants highly efficient and be smart about marketing our ethanol and coproducts.”