Andersons (ANDE) Q4 Earnings Top Despite Tough Markets

The Andersons, Inc.’s (NASDAQ:ANDE) fourth-quarter 2017 adjusted earnings surged around 72% year over year to 62 cents per share. Earnings also beat the Zacks Consensus Estimate of 38 cents per share by a wide margin of 63%.

Including one-time items, Andersons posted earnings of $2.42 per share in the quarter compared to 36 cents reported in the year-ago quarter. Reported quarterly earnings include income-tax benefit associated with the U.S. tax reform, goodwill-impairment charge in the Plant Nutrient Group and impairment charges associated with the Grain Group's Tennessee facilities. However, the year-ago quarter did not include any adjustments.

Operational Update

Revenues in the reported quarter slipped around 9.8% year over year to $1,004 million. Difficult market conditions impacted the results. Cost of sales fell 8.9% to $919 million from $1,009 million recorded in the prior-year quarter. Gross profit dropped 18% year over year to $84.8 million. Consequently, gross margin contracted 90 basis points to 8.4% in the quarter.

Operating, administrative and general expenses were down 20% year over year to $67.6 million. Andersons’ adjusted operating profit of $17.2 million in the fourth quarter decreased 9.6% from $19.1 million recorded in the year-earlier quarter. Operating margin remained flat year over year at 1.7% in the quarter.

Segment Performance

The Grain Group: Revenues improved 13.9% year over year to $641.9 million from $745.2 million generated in the year-earlier quarter. The segment reported an operating income of $8.3 million compared with $12.9 million posted in the comparable quarter last year.

The Ethanol Group: Revenues jumped 18% year over year to $174.5 million. The segment reported an operating profit of $6.4 million, considerably down from $11.7 million recorded in the year-ago quarter.

The Plant Nutrient Group: The segment reported revenues of $136.9 million, up a marginal 0.4% year over year. It reported an operating loss of $18 million compared to a loss of $3.8 million witnessed in fourth-quarter 2016.

The Rail Group: Revenues at this segment went up 11% year over year to $50.5 million. Operating income plunged 30.8% to $6.7 million from $9.7 million recorded in the prior-year quarter.

Retail Group: Revenues tanked significantly to $0.3 million from $38.1 million generated in the year-ago quarter. The segment reported an operating profit of $1.8 million compared with a loss of $6.2 million in the year-earlier quarter.

2017 Performance

Andersons reported adjusted earnings per share of $1.15 in 2017, up a massive 180% year over year. Earnings also beat the Zacks Consensus Estimate of 89 cents. On a reported basis, the company posted earnings of $1.46 per share compared to 41 cents recorded in 2016.

Revenues for the year dropped 6% year over year to $3,686 million from $3,924 million recorded in 2016.

Financial Performance

Andersons reported cash and cash equivalents of $34.9 million at the end of fourth-quarter 2017, significantly down from $62.6 million reported at the end of 2016. Long-term debt was $418 million as of Dec 31, 2017, compared with $397 million as of Dec 31, 2016.

Andersons has signed an agreement to sell its grain elevators in Humboldt, Kenton and Dyer, TN, to a subsidiary of Tyson Foods (NYSE:TSN), Inc. Andersons owns three additional elevators in Tennessee which are not part of the purchase agreement with Tyson. The transaction is scheduled to close next month.

The company recorded a significant one-time income-tax benefit of $74.2 million in 2017, primarily related to the recent tax reform. Andersons anticipates to benefit from a substantial decrease in its effective tax rate in 2018.

Andersons expects its Rail Group will gain from the company’s continued focus on the expansion of diverse lease and car portfolio and repair network. Nevertheless, its Plant Nutrient Group's wholesale fertilizer business will continue to be challenged by supply and demand imbalance.

Share Price Performance

In the last year, Andersons has underperformed its industry with respect to price performance. The stock has lost 20.4%, while the industry has recorded growth of 2.2% during the same time frame.

Zacks Rank & Key Picks

Andersons currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Cosan Limited (NYSE:CZZ) , KapStone Paper and Packaging Corporation (NYSE:KS) , and LyondellBasell Industries N.V. (NYSE:LYB) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cosan Limited has a long-term earnings growth rate of 25%. Its shares have soared 49.5%, over the past six months.

KapStone Paper has a long-term earnings growth rate of 14%. The company’s shares have rallied 49.3% during the same time frame.

LyondellBasell has a long-term earnings growth rate of 9%. The stock has gained 27.8% in six months’ time.

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