The Andersons, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The Andersons operates in Trade, Ethanol, Plant Nutrient, and Rail. Dollar amounts below are in millions unless stated otherwise. The company notes its businesses are seasonal and interim results may not indicate full-year results.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $3,273.7 | $1,890.2 | $5,909.5 | $3,743.3 |
| Gross profit | $174.0 | $106.3 | $296.8 | $169.4 |
| Gross margin | 5.3% | 5.6% | 5.0% | 4.5% |
| Net income (loss) | $46.1 | $20.0 | $59.4 | $(31.1) |
| Net income (loss) attributable to Andersons | $43.5 | $30.4 | $58.6 | $(7.2) |
| Diluted EPS | $1.30 | $0.92 | $1.74 | $(0.22) |
Revenue growth largely reflected higher agricultural commodity prices and increased volumes. Management cautions that commodity price changes generally affect sales and cost of sales together, so revenue alone may not indicate performance. Q2 gross margin was lower year over year despite higher gross profit.
- Cash flow: Operating activities used $245.5 million in the first half of 2021, versus providing $145.5 million in the prior-year period. Management attributed the shift primarily to working-capital movements associated with higher commodity prices; excluding working-capital changes, operating cash generation was stronger. Investing activities used $23.5 million; financing activities provided $267.6 million.
- Liquidity: Cash was $27.5 million at June 30, 2021. Working capital was $543.7 million, up $72.3 million from June 30, 2020. The company reported $1,173.5 million available under its $1,404.6 million borrowing capacity, including $237.2 million non-recourse availability.
- Debt: Short-term debt was $757.3 million, current maturities of long-term debt $56.6 million, and long-term debt $866.5 million. The company added short-term notes of approximately $250 million due December 31, 2021, and approximately $358 million due March 31, 2022. It reported compliance with financial covenants.
- Other metrics: The company expects approximately $100 million of 2021 capital investment, about 60% for facility maintenance. First-half dividends paid were $11.7 million; a $0.175-per-share dividend was declared payable in July.
Material changes and segment results
- Trade: Q2 pretax income attributable to the company was $13.8 million, up from $0.4 million. Management cited merchandising opportunities from commodity volatility, weather, and export demand, partly offset by lower traditional storage income in inverted futures markets. First-half results also benefited from cost savings.
- Ethanol: Q2 pretax income attributable to the company was $23.5 million, versus $0.9 million. First-half results were $26.5 million versus a $23.1 million loss. Improved crush margins, demand, co-product values, and trading results drove the recovery from COVID-19-affected 2020 results.
- Plant Nutrient: Q2 pretax income was $24.0 million, up from $19.4 million; first-half income was $32.5 million versus $18.2 million. Higher demand and improved margins contributed, while operating expenses increased.
- Rail: Q2 pretax income was $3.1 million, compared with $2.6 million. First-half income rose to $8.0 million from $3.6 million, helped by opportunistic railcar sales, lower expenses, and bad-debt recoveries. Average Q2 utilization increased to 89.7% from 88.3%; management expected lease rates to remain relatively flat for much of the year.
Outlook, risks, and unusual items
- Management expected continued Trade merchandising opportunities into harvest, with high prices and strong elevation margins expected to continue into 2022. Plant Nutrient outlook was positive for continued higher fertilizer prices and strong fall demand. Ethanol management cited rebounding driving demand and trading opportunities but noted uncertainty around corn supply and the industry’s recovery. No consolidated earnings guidance was provided.
- Commodity-price movements create working-capital and margin-deposit needs. The company said high grain prices had increased short-term borrowing and that borrowings should decline as commodities are liquidated ahead of harvest. Variable-rate short-term debt also exposes results to higher interest rates.
- Commodity derivatives are used to manage price exposure but are not designated as accounting hedges; fair-value changes are recorded through cost of sales. First-half derivative gains included in cost of sales were $240.7 million, versus $39.8 million a year earlier.
- A litigation claim relates to penalties and fines paid by a previously unconsolidated subsidiary concerning trading activity. The company believes it has defenses, but a loss above the accrued amount is possible; the excess, net of acquisition-related indemnity, was not determinable. Management considered other reasonably possible claim losses not material.
- Unrecognized tax benefits were $44.4 million at June 30, 2021, including $40.6 million recorded as a reduction of deferred tax assets and refundable credits. Management said no impairment trigger existed at quarter-end despite shareholders’ equity exceeding market capitalization during portions of the period.
- Management identified COVID-19 recovery, economic and political conditions, commodity costs and availability, weather and agricultural conditions, regulation, and litigation as risks. It reported no material change to the risk factors in the 2020 Form 10-K and no material change in market-risk disclosures during the first half.
Key facts for investors to verify
- Whether elevated commodity prices and working-capital requirements continue to drive short-term debt and operating cash flow.
- Whether segment margin improvements—particularly in Ethanol and Trade—are sustainable as commodity markets, crop conditions, and demand change.
- The terms, repayment, and refinancing of the short-term notes due in December 2021 and March 2022, and continued covenant compliance.
- The eventual outcome and potential exposure from the trading-related litigation claim and the realization of tax benefits.
- The company’s progress against its approximately $100 million 2021 capital-spending expectation and its operating outlook for the remainder of the year.