Q1 ethanol earnings up for The Andersons on improved margins

By Susanne Retka Schill | May 08, 2013

Improved margins and increased co-product income improved first quarter earnings for the ethanol group at The Andersons Inc. All divisions of the diversified Ohio-based agribusiness netted $12.6 million, or 67 cents per diluted share, on revenues of $1.3 billion, compared to net income of $18.4 million on $1.1 billion in revenues in the same period a year ago.

The ethanol group had operating income of $2.5 million in the first quarter, which compares to $100,000 earned during the same period of 2012. Total revenues for the quarter were $199 million. In comparison, the group's revenues for the same period last year were $151 million. The revenue increase is primarily due to the added volume from the Denison, Iowa plant, which was acquired in the second quarter of 2012 and the higher income the result of improved ethanol margins and increased co-product income. All four of its ethanol plants now sell corn oil and E85. The sale of those value-added production plus distillers dried grains and CO2 remains a focus of the group as it contributes to a more consistent income base, the company said in its earnings report.

Ethanol shipped during the first quarter of 2013 totaled 69.8 million gallons compared to 59 million a year ago in the same quarter, partly reflecting the addition of the Denison, Iowa, plant. E85 shipped during the first three months of 2013 totaled 3.7 million gallons, compared to 4.1 million the year before. Corn oil production was up substantially with 17.2 million pounds shipped in first quarter of this year, compared to 9.1 million pounds in the same period a year ago. DDGS shipped total 262,000 tons this year, compared to 228,000 tons a year ago.

“We’re pleased with the improvement in the ethanol group and have already locked in positive margins for the second quarter,” chief operating officer Hal Reed said in the May 8 investor call following the earnings report. “We’ve seen a nice run recently in margins,” he added, “But the third quarter is a different animal because of the volatility.” Looking at the forward curves on ethanol and oil and the September derivatives, there currently is zero ability to lock in positive margins for the third quarter, company executives on the call explained in the question period. Much will depend upon how the corn crop develops during the growing season. The executives stressed that although planting is delayed compared to last year and the five year average, on the day of the call, May 8, prospects for a good crop are still favorable.

In other divisions, The Andersons reported a record first quarter for its rail group with operating income of $14.6 million on revenues of $46 million. In the same three month period of 2012, the group earned $8 million and revenues were $36 million. The group's revenue and income benefited from higher lease rates and increased income from car financings.

The Anderson’s grain group felt the impact of the drought in its first quarter results, with an operating income of $8.3 million in 2013 in comparison to $19.4 million for the same period of the prior year. The grain group had considerably lower space income this quarter as a result of the 2012 drought and market carry was much lower than the previous year. The group, however, benefited from record earnings from its investment in Lansing Trade Group. First quarter revenues for the grain group were $836 million and $700 million for 2013 and 2012, respectively. Revenues increased due to higher grain prices and greater sales volume, which resulted primarily from the addition of the former Green Plains Grain facilities.

Two groups experienced first quarter losses. The plant nutrient group had an operating loss of $600,000 during the first quarter on revenues of $112 million, compared to first quarter 2012 operating income of $5.8 million and revenues of $175 million. The lower revenue and income were primarily due to weather related delays in fieldwork that led to approximately a one-third decrease in volume; which will likely be shifted to the second quarter. Margins from year to year are down slightly due to a very slow start to the season and limited inventory price appreciation. The retail group had an operating loss of $3.2 million during the first quarter, which included $800,000 in costs associated with the closing of the Woodville, Ohio, store. The turf and specialty group achieved record operating income of $4 million on $47 million of revenues during the first quarter.

"Our rail group continues to perform well, as they skillfully manage their railcar portfolio," CEO Mike Anderson said in a statement accompanying the quarterly report. “We are pleased with the continued strong performance of Lansing Trade Group and improved margins in the ethanol business. The 2012 drought, however, continues to impact our profitability. As we have mentioned before, this will continue to impact our grain and ethanol businesses this year. While the plant nutrient group was impacted by adverse weather in the first quarter, they should benefit from an anticipated record corn crop planting in the second quarter, as long as the weather cooperates."