The Andersons Reports 3Q Loss of $4.2M
Ethanol group turns profit despite challenging industry margins
The Andersons, Inc. announces financial results for the third quarter ended September 30, 2019.
Third Quarter Highlights:
- Company reports a net loss of $4.2 million or $0.13 per diluted share and an adjusted net loss of $2.3 million, or $0.07 per diluted share.
- Trade Group reports improved results, recording a pretax loss of $2.0 million and adjusted pretax income of $0.6 million, as stronger merchandising income was offset by the impact of reduced planting and a delayed harvest in the Eastern corn belt.
- Ethanol Group records pretax income of $0.9 million in a challenging margin environment.
- Plant Nutrient Group records a smaller pretax loss of $7.4 million due to increased field activity in the quarter.
- Rail Group earns $3.1 million of pretax income on stable railcar leasing income.
"The Trade Group's adjusted results were much improved year over year on stronger merchandising, though grain originations lagged due to limited farmer selling," says President and CEO Pat Bowe. "We continue to see the benefits of our larger and more diversified Trade Group, whose results were substantially better than they would have been without the Lansing acquisition.
"I'm also particularly pleased that our Ethanol Group remained profitable despite difficult market conditions, outpacing many in its sector," continues Bowe. "In August, we began production at ELEMENT, our state-of-the-art biorefinery in Kansas, from which we ultimately expect industry-leading results. We also announced in October the merger of what had been four separate ethanol plant entities, three of which were jointly owned with Marathon Petroleum Corporation, into a single entity jointly owned with Marathon just after quarter-end."
Third Quarter Segment Overview
Trade Group Records Improved Year-Over-Year Results Despite Weak Origination Activity
With the closing of the Lansing acquisition effective January 1, 2019, Trade Group results now include the consolidated operating results of both Lansing and Thompsons Limited.
The Trade Group recorded a pretax loss of $2.0 million and adjusted pretax income of $0.6 million for the quarter. The group also incurred $2.4 million of incremental depreciation and amortization expenses related to the Lansing acquisition. The former Grain Group recorded a pretax loss of $9.9 million in the third quarter of 2018.
- Performance improved across most of the group's operations, but especially in merchandising.
- The newly integrated group has already identified and partially implemented changes that will result in more than $10 million in run-rate savings.
- The group absorbed the reduction in planted acres around its Eastern Corn Belt assets by finding additional opportunities in the West.
- The group's third quarter 2019 EBITDA and adjusted EBITDA were $18.4 million and $20.9 million, respectively.
Ethanol Group Turns a Profit Despite Challenging Industry Margins
The Ethanol Group earned pretax income of $0.9 million in the third quarter compared to the $10.4 million of pretax income it earned in the same period in 2018.
- Higher corn basis compressed margins, especially at the three eastern plants.
- The group continues to upgrade its production technology to gain additional efficiency.
- Third party ethanol trading again increased sales volumes and margins.
The group began producing ethanol, DDGs and corn oil from ELEMENT in August. Production continues to ramp up, with additional higher margin products being introduced in mid-2020.
The merger of the Albion, Clymers, Greenville and Denison plant entities into The Andersons Marathon Holdings LLC was completed on October 1. The merger will result in consolidation reporting of the group's entire operations and a sizable one-time gain in the fourth quarter. ELEMENT remains a separate consolidated joint venture of The Andersons, Inc. with ICM, Inc.
Plant Nutrient Group Loss Narrows Year Over Year
The Plant Nutrient Group recorded a pretax loss of $7.4 million in the third quarter, a modest improvement on the pretax loss of $8.0 million in the prior year period.
- Volumes were up, largely on primary nutrients and at the farm centers, which was reflective of the delayed planting season.
- Margins per ton were somewhat lower due to product mix.
- Inventory carrying costs increased year over year due to reduced spring planting.
The group's current quarter EBITDA was $0.9 million, a $0.8 million increase over 2018 third quarter results.
The group also sold its Auburn, Michigan, farm center in early October and expects to record a small gain on the sale in the fourth quarter.
Rail Group Results Highlighted by Steady Leasing Income
The Rail Group earned third quarter pretax income of $3.1 million compared to $5.7 million in the same period of the prior year.
- Railcar leasing income fell on continuing headwinds in the sand and ethanol markets.
- Income from car sales was significantly lower due to fewer direct and scrap car sales and lower scrap rates.
- Service and other pretax income fell somewhat due increased labor and benefits expenses.
The group's third quarter 2019 EBITDA of $16.1 million was comparable to third quarter 2018 EBITDA.