The Andersons Reports 4Q, Full-Year Results
Trade group records lower adjusted results driven by smaller Eastern corn belt harvest
The Andersons, Inc. announces financial results for the fourth quarter ended December 31, 2019.
Fourth Quarter Highlights:
- Company reports net income of $6.6 million, or $0.19 per diluted share, and adjusted net income of $18.4 million, or $0.55 per diluted share. Adjusted EBITDA rose 21 percent year over year to $76.1 million.
- Trade Group reports a pretax loss of $19.0 million, but adjusted pretax income of $18.5 million, as solid merchandising income was offset by the impacts of an extended, wet harvest in the Eastern Corn Belt.
- Ethanol Group records pretax income of $41.2 million and adjusted pretax income attributable to the company of $7.2 million, on continued solid merchandising income and appreciation on hedged positions.
- Plant Nutrient Group records pretax income of $4.6 million and adjusted pretax income of $3.9 million on lower operating and interest expenses.
- Rail Group earns $4.5 million of pretax income on increased income from car sales.
"The acquisition of Lansing Trade Group continues to perform well, as stronger merchandising results somewhat offset the negative consequences of fewer acres planted and a late, wet harvest in the Trade Group's eastern footprint," says President and CEO Pat Bowe. "I am pleased with our efforts to capture both top-line and expense synergies associated with the Lansing transaction. By the end of the year, we exceeded our original run-rate goal of $10 million in cost savings a year ahead of schedule.
"The Ethanol Group's operating results reflect the favorable impact of hedging activity and continued strong performance by the group's expanded trading team," continues Bowe. "In addition, the fourth quarter results now include the consolidated results of the Ethanol Group's operations from the merger of four separate entities to form The Andersons Marathon Holdings, LLC in early October. The impacts of these Trade and Ethanol Group transactions, along with the new ELEMENT ethanol plant, set us up well for improved company performance in 2020."
Fourth Quarter Segment Overview
Trade Group Records Lower Adjusted Results Driven by Smaller Eastern Corn Belt Harvest
With the closing of the Lansing acquisition effective January 1, 2019, Trade Group results include the consolidated results of both Lansing and Thompsons Limited.
The Trade Group recorded a pretax loss of $19.0 million but its adjusted pretax income was $18.5 million for the quarter. The group also recorded $3.0 million of incremental depreciation and amortization expenses related to the Lansing acquisition. The former Grain Group recorded pretax income of $24.2 million in the fourth quarter of 2018.
Portfolio breadth gained from the Lansing acquisition again proved its critical value in the face of significant Eastern Corn Belt planting and harvest challenges.
Strong merchandising results and improved income from the newer western assets helped offset extremely tough conditions in the East.
Robust income from propane distribution was offset by lower sand transloading income, as the frac sand industry experienced a fundamental shift to in-basin sand.
The group adjusted its reported pretax income by $37.5 million; adjustments included the following items:
Asset impairment charges of $40.4 million, including $34.8 million on certain frac sand transloading and processing assets acquired as part of the Lansing acquisition.
A gain on the sale of Ontario agronomy assets of $5.7 million.
The group's fourth quarter adjusted EBITDA rose 24 percent to $38.1 million, while its full year adjusted EBITDA increased from $49.6 million in 2018 to $126.3 million in 2019.
Ethanol Group Remains Profitable; Merger Completed
The Ethanol Group earned pretax income and adjusted pretax income of $41.2 million and $6.2 million, respectively, attributable to the company in the fourth quarter, compared to the $6.3 million of pretax income it earned in the same period in 2018. The fourth quarter 2019 results included the consolidated results of all five ethanol plants due to The Andersons Marathon Holdings, LLC (TAMH) merger and the continued ramp-up of operations of the ELEMENT plant.
The group recorded significant appreciation on its hedged positions and increased sales volumes and margins by third-party production.
Crush margins were favorable early in the quarter but degraded quickly in November and December; comparatively higher corn basis continued to compress margins.
The group brought more new technologies and products online at ELEMENT, including new-to-the-market cellulosic ethanol technology and new feed products.
The group recorded adjustments that increased reported pretax income by $35.0 million, including a $36.3 million gain on the remeasurement of its pre-existing investments in the Albion, Clymers and Greenville entities in conjunction with the TAMH merger. The resulting increase in fixed asset basis led to incremental depreciation of $2.5 million.
The group recorded adjusted EBITDA attributable to the company of $16.6 million in the fourth quarter of 2019 compared to 2018 fourth quarter adjusted EBITDA attributable to the company of $6.9 million. This result excludes the EBITDA allocable to the noncontrolling interests.
Plant Nutrient Group Records Comparable Year-Over-Year Results
The Plant Nutrient Group recorded pretax income of $4.6 million and adjusted pretax income of $3.9 million in the fourth quarter, compared to pretax income of $3.8 million in the prior year period.
Volumes were up in primary nutrients, but down in both specialty nutrients and lawn fertilizer.
Primary nutrient margin per ton was lower due to product mix.
Working capital carrying costs decreased year over year due to heightened management focus.
The group adjusted reported income for a $2.9 million gain on the sale of the Auburn, Michigan farm center and impairment charges of $2.2 million associated with intangible assets related to the specialty nutrients business.
The group's current quarter adjusted EBITDA was $11.5 million, a slight decrease compared to 2018 fourth quarter EBITDA of $12.5 million. For the full year, the group recorded adjusted EBITDA of $42.3 million and $45.4 million in 2019 and 2018, respectively, in the face of significant unplanted acres in our key markets in 2019.
Rail Group Results Down on Lower Service and Other Income
The Rail Group earned fourth quarter pretax income of $4.5 million compared to $6.7 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 $2.4 million for the quarter compared to $1.2 million in the fourth quarter of 2018.
Service and other pretax income fell by $3.1 million to $1.0 million; however, 2018 results included income of $2.4 million on the sale of several barges.
The group's fourth quarter 2019 EBITDA of $17.6 million was comparable to fourth quarter 2018 EBITDA. Full-year EBITDA was $65.7 million, an improvement of 13% over 2018 results.
Provision for Income Taxes Includes Charge Related to Lansing Acquisition, Research and Development Tax Credits
The company's fourth quarter income tax provision included tax expense of approximately $8.0 million, or $0.24 per diluted share, related to nondeductible Canadian losses on the company's investment in Thompsons Limited. As with other transaction-related amounts, the company has excluded this charge from its adjusted net income. In addition, the company's fourth quarter income tax provision included a tax benefit of approximately $2.7 million, or $0.08 per diluted share, for federal research and development income tax credits primarily related to the construction and ramp-up of the ELEMENT biorefinery.
Other Adjustments Related to the Lansing Acquisition
As it did in the first three quarters, the company has recast fourth quarter 2018 information for the former Grain Group and the Ethanol Group to conform to segment reporting changes made in conjunction with the Lansing acquisition. The changes resulted in a reclassification of $1.3 million in pretax income from the Grain Group to the Ethanol Group.