The Andersons, Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The company is a diversified agribusiness operating in Trade, Renewables and Plant Nutrient. Results include consolidated ethanol joint ventures TAMH and ELEMENT, with portions attributable to noncontrolling owners.
Financial performance and position
- Revenue: $17.33 billion, up 37% from $12.61 billion in 2021. Management cautions that commodity-price changes can increase reported sales and cost of sales without a comparable change in profit; gross profit is a more useful performance indicator for these activities.
- Gross profit: $684.2 million, up from $592.7 million. Operating, administrative and general expenses were $466.6 million, versus $432.1 million.
- Income and EPS: Continuing-operations pretax income was $194.6 million, up from $160.8 million; income tax expense was $39.6 million (20.4% effective rate). Net income attributable to Andersons was $131.1 million, versus $104.0 million. Diluted EPS was $3.81, including $3.46 from continuing operations; 2021 diluted EPS was $3.07 and $2.94, respectively.
- Segment results: Trade pretax income was $95.2 million versus $87.9 million; Renewables was $108.2 million versus $81.2 million, including $35.9 million attributable to noncontrolling interests; Plant Nutrient was $39.2 million versus $42.6 million. Other expenses were $48.0 million.
- Cash flow: Operating activities provided $287.1 million, compared with $51.1 million used in 2021. Investing activities used $52.9 million, versus $487.2 million provided, largely reflecting the prior-year Rail business sale proceeds. Financing activities used $334.7 million.
- Liquidity: Cash was $115.3 million, down from $216.4 million. Working capital was $941.8 million, up from $900.9 million. The company reported $1.66 billion available under borrowing arrangements with $1.99 billion total capacity at year-end.
- Debt: Reported short-term debt, current maturities and long-term debt totaled approximately $875.2 million, down from approximately $1.13 billion at year-end 2021. Short-term borrowing rates rose to 5.67% from 1.49%. The $63.3 million ELEMENT non-recourse loan was classified as current.
- Capital returns and investment: Capital expenditures were $108.3 million. Dividends paid were $24.6 million; the quarterly dividend increased to $0.185 per share for the January 2023 payment. The company repurchased $12.7 million of shares in 2022.
Changes versus 2021
- Trade reported its second consecutive record year. Gross profit rose $72.0 million, supported by strong elevation margins, merchandising execution, and new locations; higher labor costs and interest expense partly offset improvement.
- Renewables improved, particularly from renewable-feedstock merchandising and co-product values. Ethanol plant production margins eased from unusually strong prior-year levels. The segment received $17.6 million in USDA Biofuels Producer Program funds, of which $8.9 million was included in income attributable to Andersons.
- Plant Nutrient results declined slightly from a record 2021. Gross profit increased $9.1 million on stronger margins from well-positioned inventory, but sales volumes fell about 25%; lawn-product inventory write-offs also weighed on results.
- Interest expense increased to $56.8 million from $37.3 million, reflecting higher rates and borrowing needs. Receivables rose substantially, partly due to international merchandising growth and the timing of large vessel shipments.
Outlook, risks and unusual items
- Management outlook: Trade opportunities were expected to remain strong into 2023 amid global demand, supply uncertainty and possible weather disruptions. Renewables management expected ethanol crush margins to recover seasonally with driving demand and anticipated continued strength in corn oil and renewable-feedstock merchandising. Plant Nutrient expected stronger spring fertilizer volumes as farmer income remained strong and prices eased, but at more normalized margins. Planned 2023 capital expenditures were $125–$150 million, approximately 60% for maintenance.
- ELEMENT debt/default: High corn basis, natural gas costs and declining low-carbon fuel credit values pressured the Kansas plant. It failed a debt covenant during 2022 and was forecast to fail another within 12 months. After year-end, ELEMENT missed a required February 2023 debt payment and received a lender default notice on February 17, 2023. The filing says acceleration or other remedies could follow and that the company was considering strategies for the investment. Management’s long-lived-asset recoverability test passed by 15% on an undiscounted cash-flow basis, but the estimate is sensitive to operating assumptions.
- Other significant items: A December 2022 fire severely damaged or destroyed inventory at a Michigan grain facility; the company recorded $17.3 million of inventory damage charges, including approximately $16.2 million related to the fire. It recorded a $9.0 million impairment on a Nebraska grain asset and a $4.5 million impairment on a Canadian equity-method investment. The Rail Repair sale generated a $27.1 million pretax gain in discontinued operations.
- Principal risks: Commodity-price, basis and counterparty exposure; potential margin calls and seasonal liquidity needs; variable-rate borrowing costs; weather and crop conditions; fertilizer and energy input costs; international trade and geopolitical disruption, including the Russia-Ukraine conflict; regulation and environmental liabilities; facility safety and aging assets; and climate-related changes in biofuel demand. The company noted no material impact on 2022 earnings or competitive position from environmental compliance.
- Contingencies and controls: The company said current legal proceedings were unlikely to create material liabilities beyond accrued amounts, while noting outcomes remain uncertain. Tax examinations could affect unrecognized tax benefits; management described a potential favorable income-tax impact of $6.4–$20.3 million from certain examinations. The financial statement and internal-control audits received unqualified opinions; the auditor identified goodwill valuation assumptions for the GSM and FSI reporting units as a critical audit matter.
Important facts for investors to verify
- ELEMENT’s default status, lender actions, repayment or restructuring outcome, and any effects on debt classification, liquidity, or asset values.
- Whether Trade and Renewables margins and cash generation remain resilient if commodity prices, basis levels, input costs or market volatility change.
- Recovery and insurance proceeds, if any, related to the Michigan grain fire, and the ultimate financial effect of damaged inventory and asset disruptions.
- Whether 2023 fertilizer volume expectations and the $125–$150 million capital-spending plan are achieved without weakening liquidity or covenant capacity.
- Resolution and financial effects of tax examinations and the legal claim related to historical trading activity.