The Andersons, Inc. announces financial results for the fourth quarter ended December 31, 2020.
Fourth quarter highlights:
- Company reported net income attributable to The Andersons of $16.0 million, or $0.48 per diluted share, and adjusted net income of $19.4 million, or $0.59 per diluted share.
- Trade reported pretax income of $28.3 million and adjusted pretax income of $29.3 million on improved merchandising results.
- Ethanol reported a pretax loss attributable to the company of $3.5 million that included a $6.6 million non-cash mark-to-market charge.
- Plant Nutrient completed its best year since 2014 as it recorded pretax income of $3.2 million for the quarter.
- Adjusted EBITDA for the quarter of $85.0 million was comparable year over year despite significant pandemic impacts.
"I am very excited about the recent strong, demand-driven rally in grain and fertilizer markets and what it means for U.S. agriculture and The Andersons," says President and CEO Pat Bowe. "We have already participated in multi-year highs in grain elevation margins, and have benefited from strong export demand. Fertilizer demand was strong throughout the fourth quarter. With more planted corn acres in the forecast, it looks like strong fertilizer demand will continue."
"We improved our fourth quarter results modestly year over year, and our outlook for 2021 has improved," continued Bowe. "Our Trade income was up substantially on strong merchandising results from our diverse commodity portfolio, and Plant Nutrient's full-year results nearly doubled. Our Ethanol business benefited from the launch of our new high-protein feed products. Finally, Rail remained profitable despite weak railcar demand.
"We continue to benefit greatly from the complementary trading business we acquired in early 2019 and have since successfully integrated. We continue to focus on creating a leaner cost structure, having taken approximately $40 million of cost out of the business in the last two years. In addition to opportunities in the Trade and Plant Nutrient segments, a recovery in the ethanol and rail markets should lead to significant year-over-year increases in EBITDA. In short, we are pleased to see the strength in ag markets and look forward to better financial performance ahead."
Cash, Liquidity and Long-Term Debt Management
"We continued to generate strong operating cash flows and remained disciplined in our capital spending during the fourth quarter," said Executive Vice President and CFO Brian Valentine. "We were well-prepared for the need for short-term working capital funding as commodity prices spiked during the quarter and into early 2021. We were pleased with the progress we made in 2020 to reduce long-term debt, which remains a priority."
The company generated $74.6 million and $73.0 million in cash from operations before working capital changes during the fourth quarters of 2020 and 2019, respectively. For the full years 2020 and 2019, the company generated $200.9 million and $192.6 million in cash from operations before working capital changes, respectively.
The company spent $16.6 million net of proceeds from asset sales on capital projects during the fourth quarter and spent $86.8 million net of proceeds from asset sales for the full year 2020, well beneath its self-imposed $100 million ceiling.
Working capital, readily marketable inventory and short-term debt each increased year over year due to the significant increase in commodity prices. While the company has been able to maintain adequate liquidity, it recently increased its short-term borrowing capacity by $250 million to further ensure adequate liquidity and accommodate further volatility and related opportunities in 2021.
Finally, despite all the challenges it faced during 2020, the company reduced long-term debt by approximately $100 million and remains focused on additional reductions of $200 to $250 million by the end of 2023.
Fourth Quarter Segment Overview
Trade Records Higher Results Driven by Continued Strong Merchandising Income
Trade recorded pretax income of $28.3 million and adjusted pretax income of $29.3 million for the quarter, a significant improvement compared to a pretax loss of $19.9 million and adjusted pretax income of $17.6 million in the fourth quarter of 2019. The primary difference between reported and adjusted income in 2019 was attributable to approximately $40 million in asset and investment impairment charges.
Income from commodity merchandising rose by more than one-third year over year, besting an already strong performance in the fourth quarter of 2019. The performance of the segment's asset-based businesses declined, as income from both storing and handling grain decreased.
Trade's fourth quarter adjusted EBITDA was $45.8 million, up approximately 23 percent over fourth quarter 2019 adjusted EBITDA of $37.2 million. Its full year adjusted EBITDA decreased from $123.4 million in 2019 to $95.5 million in 2020, primarily as a result of fewer wheat opportunities and the remaining impact of the poor 2019 harvest in the Eastern Corn Belt.
Ethanol Results Decline on Big Decrease in Crush Margins and Large Mark-to-Market Charge
The Ethanol segment reported a pretax loss attributable to the company of $3.5 million in the fourth quarter compared to adjusted pretax income attributable to the company of $8.1 million in the same period in 2019.
Production volumes in the quarter were flat year over year. The business benefited from execution of its high-protein feed strategy as well as higher DDG and corn oil prices. The ethanol and vegetable oil trading businesses also posted comparatively better results due to improved margins and higher volumes.
Ethanol board crush margins were 25 cents lower year over year and were driven by rising corn prices that were only partially mitigated by higher ethanol prices. Strong operating performance at the plants helped offset the impact of the lower crush margins. The segment also recorded a $6.6 million non-cash, mark-to-market charge during the quarter that is expected to reverse in 2021.
Ethanol recorded adjusted EBITDA of $16.2 million in the fourth quarter of 2020, down from 2019 fourth quarter adjusted EBITDA of $25.9 million.
Plant Nutrient Closes out Strong Year; Rail Records Modest Income
Plant Nutrient recorded adjusted pretax income of $3.2 million in the fourth quarter compared to adjusted pretax income of $3.9 million in the same period of the prior year. Tons sold were up across all major product lines, but especially in Ag Supply Chain. Margin per ton declined moderately, most notably in Engineered Granules. The business continued to benefit from disciplined working capital and expense management.
Plant Nutrient's current quarter adjusted EBITDA was $10.8 million compared to 2019 fourth quarter adjusted EBITDA of $11.5 million. For the full year, Plant Nutrient recorded adjusted EBITDA of $47.2 million in 2020 and $42.3 million in 2019 as planting and harvest conditions were much improved year over year.
Rail recorded adjusted fourth quarter pretax income of $2.0 million compared to $4.5 million of adjusted pretax income in the same period of the prior year. Lower income from railcar sales accounted for the majority of the shortfall.
Rail's fourth quarter 2020 adjusted EBITDA was $13.5 million compared to fourth quarter 2019 adjusted EBITDA of $17.6 million. Full-year 2020 EBITDA was $55.7 million, a 15 percent decrease from 2019 results, primarily due to lower leasing income.
Full-Year Provision for Income Taxes Includes CARES Act Benefits
The company's full-year income tax provision included additional CARES Act tax benefits of approximately $14.8 million, or $0.44 per diluted share. The company has excluded these benefits from its adjusted net income. At year-end, the company had received $1.7 million of an anticipated total of $39.3 million in CARES Act refunds. The company expects to receive the remaining $37.6 million in 2021, and has removed that amount from cash from operations before working capital changes.
The company's reported effective income tax rate continued to be substantially impacted by the income or loss earned by the noncontrolling interests, which may result in highly variable effective tax rates in future periods.
Fourth quarter and full-year 2019 income tax provisions 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 that it excluded from its adjusted net income. In addition, the company's fourth quarter 2019 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.
