The Andersons, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. The Andersons operates in Trade, Renewables, and Nutrient & Industrial. Results are seasonal, and management cautions that the quarter is not necessarily indicative of full-year results.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Sales and merchandising revenues | $3.881 billion | $3.978 billion |
| Gross profit | $148.0 million | $119.5 million |
| Operating, administrative and general expenses | $117.2 million | $102.0 million |
| Asset impairment | $87.2 million | None |
| Income (loss) before tax, continuing operations | $(65.0) million | $10.6 million |
| Net income (loss), consolidated | $(59.1) million | $6.0 million |
| Net income (loss) attributable to The Andersons | $(14.8) million | $5.5 million |
| EPS attributable to common shareholders | $(0.44) | $0.16 |
| Cash used in operating activities | $(333.5) million | $(1.075) billion |
Revenue declined about 2.4%, while gross profit increased about 23.8%. The filing explains that commodity price changes can substantially affect revenue and cost of sales without a comparable effect on gross profit; gross margin was approximately 3.8%, versus 3.0% a year earlier. The impairment charge, principally for ELEMENT, drove the consolidated pretax loss. The company recorded a $5.9 million income tax benefit. Its non-GAAP income (loss) before tax attributable to the company was $(20.6) million, compared with $10.2 million of income in Q1 2022.
Segments and material changes
- Trade: Pretax income rose to $39.4 million from $3.7 million. Management cited stronger merchandising and elevation margins, well-positioned inventories, and approximately $17 million of insurance proceeds and receivables related to a prior-year fire. Prior-year results were affected by basis depreciation associated with the war in Ukraine.
- Renewables: Pretax loss was $82.5 million, versus $6.0 million of income. The $87.2 million ELEMENT impairment was the principal driver. Operating results were also affected by challenging ethanol crush margins and higher input costs; management noted margins strengthened late in the quarter.
- Nutrient & Industrial: Pretax loss was $10.4 million, compared with $10.7 million of income. Fertilizer prices fell nearly 60% from prior-year levels, volumes declined about 10%, and wet weather and customer purchase delays weighed on results.
- Q1 2023 operating cash outflow improved from the prior year, primarily because of lower working-capital needs as agricultural commodity prices stabilized. Changes in working capital remained significant, including a $760.3 million cash outflow from payables and other liabilities.
Balance sheet, liquidity and capital
At March 31, 2023, cash was $70.9 million, working capital was $938.2 million, and total assets were $4.102 billion. Debt comprised $638.2 million of short-term debt, $85.6 million of current maturities, and $486.9 million of long-term debt, or approximately $1.211 billion in total. Short-term debt was up from $272.6 million at December 31, 2022, but total debt was below the $2.076 billion reported at March 31, 2022. The company reported $1.295 billion available under its credit lines, out of $1.992 billion total capacity. Management believes liquidity is adequate to fund operations, capital spending, and debt service.
Capital expenditures were $25.5 million in the quarter. Management expects approximately $125 million of 2023 property, plant and equipment investment, split evenly between growth and maintenance. The company paid $6.3 million in dividends during the quarter and declared a further $0.185 per-share dividend payable April 24, 2023.
Outlook, risks and unusual items
- ELEMENT breached working-capital and owner’s-equity-ratio covenants, missed a February debt payment, and received a lender default notice. Its $62.8 million non-recourse debt remained classified as current. ELEMENT entered receivership on April 18, 2023; the company expects to deconsolidate it in Q2 and anticipates a gain, but the amount is unknown.
- Management expects Nutrient & Industrial second-quarter volumes to improve with anticipated strong farm income and planted acres, but does not expect to recover some margin declines. It noted stronger ethanol crush margins after quarter-end and potential growth in renewable diesel feedstock demand.
- On April 3, 2023, the company entered an unsecured $100 million, eight-year term loan with a variable rate based on SOFR plus a spread.
- Key exposures include agricultural and commodity-price volatility, weather and market conditions, variable interest rates, and potential margin deposits on futures. Management also cited competition, regulatory conditions, the war in Ukraine’s economic effects, and litigation uncertainty.
- The company disclosed an outstanding litigation claim related to trading activity and historical regulatory penalties paid by a previously unconsolidated subsidiary. Management believes its defenses are meritorious and that potential excess loss, net of an acquisition-related indemnity, is not material. It also reported IRS and Mexican tax examinations that could be resolved within 12 months; resolution could reduce income tax expense by $3.5 million to $8.7 million.
- Management reported effective disclosure controls and no material first-quarter change in internal control over financial reporting.
Important facts for investors to verify
- ELEMENT’s receivership, expected deconsolidation timing and gain, and any impact on the company’s exposure to the plant and its debt.
- Available credit-line capacity, short-term borrowing needs, variable-rate interest exposure, and compliance with covenants outside ELEMENT.
- Whether Trade’s stronger margins and fire-related insurance proceeds are repeatable, and whether Nutrient & Industrial demand and margins recover.
- Execution of the approximately $125 million 2023 capital-spending plan and operating cash flow as seasonal working capital changes.
- Resolution of the disclosed litigation and tax examinations, including whether outcomes differ from management’s current estimates.