Andersons, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Andersons is an agriculture-focused company operating in Grain, Ethanol, Plant Nutrient and Rail.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $3.045 billion | $3.686 billion |
| Gross profit | $302.0 million | $318.8 million |
| Net income attributable to Andersons | $41.5 million | $42.5 million |
| Diluted EPS | $1.46 | $1.50 |
| Operating cash flow | $(35.5) million | $75.3 million |
| Cash at year-end | $22.6 million | $34.9 million |
| Working capital | $189.8 million | $260.5 million |
| Total debt, including current maturities and short-term borrowings | Approximately $722.8 million | Approximately $494.5 million |
Reported gross margin was approximately 9.9% versus 8.7%; however, year-over-year revenue and margin comparisons are affected by the 2018 adoption of ASC 606, which changed certain grain-originations from gross to net presentation. Under prior guidance, 2018 revenue would have been $3.747 billion and gross profit $300.1 million. Interest expense rose to $27.8 million from $21.6 million. The company reported $171.6 million of EBITDA, a non-GAAP measure, versus $87.4 million.
For Q4 2018, revenue was $812.7 million, gross profit $94.0 million, net income attributable to Andersons $23.8 million and diluted EPS $0.84. Q4 2017 amounts were $1.004 billion, $84.8 million, $69.7 million and $2.47, respectively.
Year-end borrowing capacity was $1.070 billion across facilities, including non-recourse capacity; $664.1 million was available. The company was in compliance with debt covenants. It said liquidity should be sufficient for operations, capital spending and dividends. Dividends declared were $0.665 per share for 2018.
Material changes and segment results
- Grain: Pretax income rose to $26.7 million from $12.8 million, largely reflecting higher affiliate earnings, including Lansing Trade Group (LTG). Grain sales revenue fell substantially, mainly because ASC 606 reduced reported revenue by $688.3 million through net presentation, and because certain Tennessee locations were sold.
- Ethanol: Pretax income attributable to Andersons increased to $22.1 million from $18.9 million. Higher volumes, improved yields and affiliate results helped, while higher input costs and contract mark-to-market effects reduced gross profit.
- Plant Nutrient: Pretax income improved to $12.0 million from a $45.1 million loss. The prior year included a $59.1 million goodwill impairment. In 2018, gross profit declined amid margin pressure, partly offset by cost reductions and the absence of that impairment.
- Rail: Pretax income fell to $17.4 million from $24.8 million. Higher utilization and leasing gross profit were offset by $4.7 million of asset impairment, higher interest expense and expenses at new repair shops.
- Other: Pretax loss narrowed to $24.8 million from $32.0 million, reflecting the completed Retail exit and lower related costs. 2018 included $6.5 million of LTG acquisition costs, partly offset by investment gains.
Outlook, transactions and risks
- On January 1, 2019, Andersons completed its acquisition of the remaining LTG equity for approximately $324 million in cash and stock. It also assumed approximately $160 million of long-term debt and $125 million of line-of-credit borrowings. LTG and related Thompsons entities are to be consolidated.
- The company’s new bio-refinery was under construction and expected to begin production in mid-2019. It expected approximately $113 million of 2019 conventional capital spending, including the project, and forecast $158 million for rail assets and modifications, partly offset by approximately $133 million in related sales or financing.
- Management expected ethanol margins to remain pressured by high industry production and inventories; Plant Nutrient margins, especially specialty products, to remain low; and Rail leasing to grow steadily, with additional tank-car recertification expense. Grain priorities included LTG integration, originations, risk-management services and food ingredients; management noted trade-war uncertainty.
- A January 2019 credit agreement provides up to $1.650 billion of unsecured borrowings to support operations, including the LTG acquisition.
- Key risks include volatile commodity prices and margin calls, imperfect hedge offsets, weather and Eastern Corn Belt concentration, ethanol input and margin pressures, interest-rate and refinancing exposure, inventory obsolescence, regulation, environmental and operational hazards, competition, counterparty credit, and ERP/technology execution.
- LTG had settled regulatory matters involving certain trading activity and faced related non-regulatory litigation claims. Andersons assumed exposure with acquisition-agreement holdbacks; management said it did not expect a material adverse effect but noted outcomes remain uncertain. Andersons also disclosed ordinary-course legal matters and said current claims were not expected to be material.
Auditors issued an unqualified opinion on the financial statements and internal controls. The company reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- How much of the revenue decline and reported margin change reflects ASC 606 presentation rather than underlying volume or economics.
- LTG acquisition funding, assumed debt, integration progress, expected synergies and any costs or liabilities from the pending claims.
- Bio-refinery completion, startup timing, total project cost and expected operating contribution.
- Working-capital and operating-cash-flow trends, seasonal borrowing needs, facility availability and sensitivity to rates and commodity margin calls.
- Segment-level margin recovery, particularly ethanol and specialty nutrients, and Rail utilization, impairment and recertification costs.
- Whether forecast capital spending and the dividend remain supportable alongside acquisition-related debt and investment needs.