The Andersons, Inc. — Q1 2017 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2017, compared with Q1 2016. The company operates Grain, Ethanol, Plant Nutrient, Rail, and Retail businesses; results are seasonal, and management cautions that first-quarter performance is not necessarily indicative of the full year. Dollar amounts below are in USD.
Financial highlights
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Sales and merchandising revenue | $852.0 million | $887.9 million |
| Gross profit (gross margin) | $76.5 million (9.0%) | $67.8 million (7.6%) |
| Operating, administrative and general expenses | $81.9 million | $79.9 million |
| Income (loss) before tax | $(5.6) million | $(22.9) million |
| Net loss attributable to The Andersons | $(3.1) million; $(0.11) per share | $(14.7) million; $(0.52) per share |
| Cash from (used in) operating activities | $(229.2) million | $(267.9) million |
| Cash and cash equivalents at quarter-end | $29.6 million | $46.3 million |
At March 31, 2017, total assets were $2.16 billion, working capital was $228.5 million, and current liabilities were $765.5 million. Total reported short- and long-term debt, including current maturities, was approximately $677.1 million. The company had $553.6 million available under its borrowing lines and was in compliance with financial covenants. Q1 financing activities provided $209.5 million; investing activities used $13.2 million. The quarterly dividend declared was $0.16 per share.
Material changes and segment performance
- Revenue declined 4.0% year over year, while gross profit rose 12.9% and gross margin improved. The company remained loss-making, but its attributable net loss narrowed by $11.6 million.
- Grain: Pretax loss improved to $5.1 million from $17.4 million, reflecting improved storage-space income, lower expenses, and improved affiliate results. Management noted continued merchandising-margin pressure and competition.
- Ethanol: Pretax income attributable to the company was $1.7 million versus a $2.7 million loss. Better ethanol prices and lower corn costs helped, partly offset by weaker co-product margins. The Albion capacity expansion was substantially complete, ahead of schedule and on budget.
- Plant Nutrient: Pretax income rose to $6.7 million from $1.7 million, including a $4.7 million gain on the Florida farm-center sale. Underlying gross profit declined amid price competition, lower farm income, and softer demand.
- Rail: Pretax income fell to $6.1 million from $9.4 million. Utilization declined to 83.6% from 91.5%; management cited rail-network efficiency, idle-car storage, maintenance, and related costs.
- Retail: Pretax loss widened to $6.8 million from $2.1 million, including $7.8 million of exit charges. The company announced the business would close in the first half of 2017.
Outlook, risks and unusual items
- Management expected farmers to plant as many or slightly more combined corn and soybean acres in 2017 than in 2016, while noting weather uncertainty. It expected Plant Nutrient demand and pricing pressures to continue during the year.
- Management forecast a 34.0% effective tax rate for 2017. The Q1 rate was 45.5%, elevated primarily by recognition of previously unrecognized tax benefits.
- For 2017, the company expected approximately $145 million of railcar, barge, related-lease, and railcar-modification spending, partly offset by about $120 million of asset-sale proceeds. Expected base-business capital spending, excluding rail leasing activity, was approximately $76.2 million.
- Operating cash use is typically high in Q1 as the company funds seasonal grain and fertilizer inventory needs. Management said available liquidity should fund operations, capital expenditures, and dividends in the foreseeable future.
- Commodity-price and interest-rate exposure, variable-rate seasonal borrowing, and possible margin calls remain risks. The company said there were no material quarterly changes in market risk. Rail leasing also includes off-balance-sheet arrangements; the filing describes 3,699 railcars leased from financial intermediaries and 3,249 in non-recourse arrangements as off balance sheet.
- On April 13, 2017, after quarter-end, the company amended its bank credit agreement to provide an $800 million facility. The filing reports no material estimated range of loss for reasonably possible outstanding claims; litigation and future claims nevertheless carry uncertainty.
Important facts for investors to verify
- Whether seasonal cash use, working-capital requirements, and borrowing availability remain manageable through the spring and the rest of 2017.
- Whether Grain and Ethanol margin improvements persist, and whether Plant Nutrient demand and pricing pressures worsen or ease.
- How quickly Rail utilization recovers and whether the Retail closure and asset dispositions produce further costs, gains, or proceeds.
- Whether the stated capital-spending and asset-sale expectations, 34.0% tax-rate forecast, and amended $800 million credit facility remain applicable.
- The eventual balance-sheet and liquidity effects of lease-accounting adoption; management expected substantially all off-balance-sheet rail assets in non-recourse financing deals, with related obligations, to be recognized on the balance sheet.