The Andersons, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022, compared with Q1 2021. The company operates in Trade, Renewables and Plant Nutrient; Rail results are presented as discontinued operations. Unless noted, financial figures below are in millions of dollars.
Financial performance
- Revenue: $3,977.954, up 53% from $2,594.719. Management said higher agricultural commodity and fertilizer prices drove much of the increase; revenue growth alone is not necessarily indicative of performance.
- Gross profit: $119.535 versus $113.441. Gross margin was approximately 3.0%, compared with 4.4% in Q1 2021.
- Continuing operations: Pretax income was $10.607 versus $14.116; net income was $6.504 versus $9.755. The effective tax rate rose to 38.7% from 30.9%.
- Net income and EPS: Consolidated net income was $5.950 versus $13.262. Net income attributable to Andersons was $5.503 versus $15.107; diluted EPS was $0.16 versus $0.45. Continuing-operations diluted EPS was $0.18 versus $0.35.
- Segment pretax income from continuing operations: Trade $3.669, down from $13.855; Renewables $5.962, up from $1.081; Plant Nutrient $10.743, up from $8.523. Other corporate and eliminations were a loss of $9.767.
- Cash flow: Operating activities used $1,074.998, compared with $445.727 used in Q1 2021; investing activities used $24.921 versus $15.730; financing activities provided $919.757 versus $467.762. The operating cash outflow primarily reflected higher working-capital needs as commodity prices rose.
- Liquidity and debt: Cash was $36.381 at March 31, down from $216.444 at year-end 2021. Working capital from continuing operations was $867.881, up $359.882 year over year. Short-term debt was $1,449.768; total short- and long-term debt, including current maturities, was approximately $2,075.1. The company reported $907.3 of available borrowing capacity out of $2,031.4 total lines of credit and compliance with financial covenants.
- Other metrics: Inventory was $1,950.303, including $1,413.5 of readily marketable inventories. Q1 capital expenditures and capitalized software purchases were $20.722.
Material changes and management commentary
- Trade: Results declined as sharp grain-futures increases contributed to domestic basis depreciation, and prior-year unusually strong propane merchandising results did not recur. Management said it had built a well-positioned inventory and purchase book and expected continued merchandising opportunities and improved grain-elevation margins.
- Renewables: Results improved with stronger ethanol-plant crush margins, co-product values and third-party trading. An approximately $8.3 mark-to-market adjustment partially offset those benefits. Management cited potential seasonal demand, spring maintenance and export support for industry fundamentals, while noting ethanol stocks remained high versus the prior year.
- Plant Nutrient: Results improved on stronger margins, particularly specialty liquids and low-salt starters, despite lower sales volumes. Management said supply remained tight and inventory was positioned for the spring application season.
- Revenue increases and higher working-capital balances were substantially influenced by rising commodity prices. Management noted that high grain prices and unfavorable markets may require additional futures margin deposits.
Outlook, risks and unusual items
- The company expected to invest approximately $100–$125 million in continuing-operations property, plant and equipment during 2022. The filing provides no specific full-year earnings or revenue guidance.
- Russia’s invasion of Ukraine could disrupt grain and fertilizer supply and logistics, increase commodity, energy and input costs, affect global margins, and impair access to product or the creditworthiness of producers. The company reported business relationships in the region, including grain originations from Ukrainian producers, but no assets or employees there.
- Short-term borrowings are largely variable-rate, making higher interest rates a profitability risk. The company amended its credit arrangements, increased revolver capacity, extended certain note maturities, and transitioned the reference rate from LIBOR to SOFR. A separate short-term note had $350 million drawn at quarter-end and was due May 31, 2022.
- Rail Leasing had been sold under an agreement for approximately $543.1 million in cash; remaining Rail assets and results were classified as discontinued operations. On May 3, 2022, the company agreed to sell substantially all remaining Rail Repair assets and certain liabilities, with closing expected later in 2022.
- Discontinued operations recorded a $0.554 loss after tax, compared with $3.507 income in Q1 2021. The filing attributes this to Rail business results and related tax expense.
- Contingencies include litigation related to historic trading activity and an EPA investigation of alleged recordkeeping and reporting violations at ethanol facilities. Management did not expect material effects from the matters described, but outcomes remain uncertain.
- Management said liquidity sources should be adequate for operations, capital expenditures and debt service. Forward-looking results remain subject to economic conditions, weather, commodity prices and availability, regulation, litigation and other risks.
Important facts for investors to verify
- How much of the sales and inventory growth reflects commodity-price inflation versus increased volumes, and whether Trade margins recover as management expects.
- Whether Renewables margins and Plant Nutrient’s elevated margins persist, including the impact of mark-to-market changes and tight fertilizer supplies.
- Working-capital and cash-flow trends, available borrowing capacity, the May 31, 2022 short-term note maturity, and exposure to variable interest rates and margin calls.
- Progress and proceeds from the remaining Rail Repair divestiture, including any effects on discontinued-operation results or cash flows.
- Developments in Ukraine-related supply risks and the disclosed litigation and EPA matter; management’s assessments are not guarantees of outcomes.