The Andersons, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2021, compared mainly with Q1 2020. The company operates in Trade, Ethanol, Plant Nutrient, and Rail. Management cautions that agricultural commodity price changes can substantially affect reported sales and costs, so revenue growth alone may not reflect underlying performance.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales and merchandising revenues | $2,635.7 million | $1,853.1 million |
| Gross profit | $122.7 million | $63.1 million |
| Gross margin | Approximately 4.7% | Approximately 3.4% |
| Net income (loss) attributable to Andersons | $15.1 million | $(37.7) million |
| Diluted earnings (loss) per share | $0.45 | $(1.15) |
| Net cash used in operating activities | $(445.7) million | $(228.4) million |
| Capital expenditures for property, plant and equipment and software | $16.9 million | $19.3 million |
Revenue rose about 42%, largely reflecting higher agricultural commodity prices. Gross profit nearly doubled. The company reported $19.0 million of GAAP pretax income, compared with a $52.6 million pretax loss in the prior-year quarter. Q1 2021 income tax expense was $5.7 million, or a 30.2% effective rate; Q1 2020 had a $1.5 million tax benefit.
Segments
- Trade: Revenue of $1,982.5 million; pretax income attributable to the company of $13.9 million, versus a $10.0 million loss. Improved merchandising opportunities and cost savings helped results.
- Ethanol: Revenue of $443.0 million; pretax income attributable to the company of $2.9 million, versus a $24.0 million loss. Better crush margins, demand, co-product values, and trading results drove the recovery.
- Plant Nutrient: Revenue of $169.3 million; pretax income of $8.5 million, versus a $1.2 million loss, reflecting stronger volumes and margins.
- Rail: Revenue of $41.0 million; pretax income of $4.9 million, versus $1.0 million. Scrap-car sales and a $1.6 million bad-debt recovery contributed; utilization declined to 88% from 89%.
Financial position and liquidity
- At March 31, 2021, cash was $35.4 million, working capital was $518.8 million, and total assets were $4,266.7 million.
- Short-term debt was $915.2 million, compared with $392.5 million at March 31, 2020. Total reported debt, including current maturities, was approximately $1,871.9 million. The increase in short-term borrowing primarily supported seasonal working-capital needs amid higher commodity prices.
- Credit lines totaled $1,405.0 million, with $635.8 million available at quarter-end. The company reported compliance with all financial covenants.
- Operating cash use increased year over year, mainly due to working-capital movements, especially payables and accrued expenses. Financing activities provided $467.8 million, primarily reflecting increased short-term borrowings. Cash increased by $6.3 million during the quarter.
- Management expects approximately $100 million of 2021 investment in property, plant and equipment, about 60% for facility maintenance, and believes liquidity will be adequate for operations, capital expenditures, and debt service.
Outlook, risks, and contingencies
- Management described Trade’s near-term outlook as supported by commodity volatility, export demand, and strong elevation margins, and Plant Nutrient’s outlook as positive ahead of the planting season. Ethanol had improving demand and margins, but management cited uncertainty around the corn balance sheet and the industry’s recovery. Rail recovery remained gradual; lease rates were expected to stay relatively flat for much of 2021.
- The company expected elevated short-term borrowing needs to ease as commodities are liquidated ahead of harvest. Higher interest rates could affect profitability because much peak-season short-term debt is variable rate. High grain prices or unfavorable markets could also require additional margin deposits on futures contracts.
- Key stated risks include COVID-19 and recovery pace, commodity prices and availability, weather and agricultural conditions, economic and political conditions, regulation, and litigation. Management reported no material changes to the risk factors in its 2020 Form 10-K.
- A specified non-regulatory lawsuit relates to penalties and fines paid by a previously unconsolidated subsidiary in 2018. The company says it has meritorious defenses, but a loss above the accrued amount could occur; the excess, net of an acquisition-related indemnity, was not determinable. Management considered other reasonably possible claim losses immaterial.
- The company reported no impairment trigger as of March 31, 2021 despite shareholders’ equity exceeding market capitalization for much of the period; adverse conditions could prompt future impairment considerations. No material market-risk changes were reported for the quarter.
Important facts for investors to verify
- Whether the working-capital-driven increase in short-term debt and operating cash use reverses as expected after seasonal commodity inventories are sold.
- How much reported revenue and gross-profit improvement reflects commodity-price movements versus durable volume, margin, and merchandising gains.
- Progress in Ethanol and Rail recovery, including crush margins, rail utilization, lease rates, and COVID-19-related demand conditions.
- The terms and repayment plan for the $250 million variable-rate term note due December 31, 2021, and continued covenant compliance and credit availability.
- Developments in the litigation claim and the potential amount beyond recorded accruals and indemnity.