The Andersons, Inc. — Q3 2023 Form 10-Q
Business context and period: Quarterly report for the three and nine months ended September 30, 2023, compared with the same 2022 periods. The company operates in Trade, Renewables, and Nutrient & Industrial. The Rail business is reported as discontinued operations. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales and merchandising revenue | $3,635.7 | $4,219.3 | $11,537.1 | $12,647.9 |
| Gross profit | $157.7 | $163.8 | $527.6 | $514.1 |
| Gross margin | 4.3% | 3.9% | 4.6% | 4.1% |
| Income before tax, continuing operations | $38.4 | $34.7 | $77.8 | $163.5 |
| Net income attributable to The Andersons | $9.7 | $36.7 | $50.0 | $122.1 |
| Diluted continuing-operations EPS | $0.28 | $0.50 | $1.46 | $3.02 |
| Cash from operating activities | — | $696.1 | $(153.4) |
- Margins and earnings: Gross margin improved year over year in both periods. Q3 income before tax rose, but net income attributable to shareholders and continuing-operations EPS fell. Nine-month earnings were substantially lower, reflecting the $87.2 million ELEMENT impairment, among other factors.
- Cash flow: Nine-month operating cash flow improved primarily because working-capital needs declined as commodity prices and inventories fell. Investing activities used $117.3 million, including $108.7 million of capital expenditures and $24.4 million for an acquisition. Financing activities used $275.8 million.
- Liquidity and debt: September 30 cash was $418.1 million; working capital was $1,119.5 million, versus $944.7 million at September 30, 2022. Short-term debt was $14.1 million; current maturities of long-term debt were $27.5 million; long-term debt was $569.7 million. The company reported $1,841.4 million available under its $1,858.5 million credit facilities and compliance with financial covenants.
Material changes and management commentary
- Trade: Q3 segment pretax income was $8.1 million versus $40.7 million. Management cited fewer international merchandising opportunities and Egypt currency liquidity issues, including a $19.2 million foreign-currency loss in the quarter. Lower commodity prices reduced reported revenue, which management cautions is not necessarily indicative of underlying performance. Domestic grain storage and merchandising fundamentals were described as solid.
- Renewables: Q3 segment pretax income increased to $47.1 million from $15.9 million, supported by stronger ethanol crush margins, lower energy costs, co-product values, and merchandising. Three of four ethanol plants completed scheduled maintenance in Q3; management said crush values remained historically high into Q4.
- Nutrient & Industrial: Q3 segment pretax loss narrowed to $8.5 million from $11.6 million. Better margins were partly offset by lower volume, including a rail-line outage affecting a specialty liquid plant.
- ELEMENT: After defaulting on debt, the joint venture entered receivership in April and was deconsolidated. The company recorded an $87.2 million impairment while ELEMENT was still consolidated, then recognized a net $6.5 million pretax gain on deconsolidation after reserving $11.6 million of receivables and loans. ELEMENT continued to incur losses, and no payments on those balances had been received by September 30.
- Other items: Q3 other income included a $5.6 million gain on sale of a Nebraska grain asset and a $4.8 million investment revaluation gain. Nine-month results also included $16.1 million of inventory insurance recoveries and the impairment charge.
Outlook, risks, and contingencies
- No full-year earnings or revenue guidance is provided. Management expects 2023 capital spending of approximately $125 million to $150 million, split evenly between growth and maintenance.
- Management believes liquidity is adequate for operations, capital expenditures, and debt service. It notes exposure to variable-rate borrowing costs and potential cash margin calls on commodity futures, as well as weather, agricultural and commodity-market conditions, regulation, competition, and geopolitical risks.
- IRS examinations of subsidiary partnership returns for 2015–2018 and a Mexican tax examination for 2015 could be resolved within 12 months; resolution could reduce income tax expense by $2.9 million to $8.1 million.
- Management said reasonably possible losses on outstanding claims are not material and that current legal proceedings are unlikely to result in a material loss. The filing cautions that litigation outcomes remain uncertain.
Important facts for investors to verify
- Whether Renewables’ improved margins and historically high crush values persisted after Q3, and how the ELEMENT receivership affects future results and exposures.
- The sustainability of Trade performance amid Egypt currency and merchandising challenges, and the company’s reported $19.2 million Q3 currency loss.
- Underlying cash generation after separating working-capital movements from operating performance, alongside planned $125–$150 million capital spending.
- Exposure to floating interest rates, commodity margin requirements, and the potential tax benefit from pending examinations.