The Andersons, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company operates in Trade, Renewables, and Plant Nutrient; its Rail business is reported as discontinued operations following divestitures.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales and merchandising revenue | $4.219 billion | $2.999 billion | $12.648 billion | $8.829 billion |
| Gross profit | $163.8 million | $121.8 million | $514.1 million | $398.7 million |
| Income from continuing operations | $24.9 million | $12.3 million | $133.8 million | $66.1 million |
| Net income attributable to Andersons | $36.7 million | $15.7 million | $122.1 million | $74.3 million |
| Diluted EPS | $1.06 | $0.46 | $3.55 | $2.21 |
Q3 total net income included $19.4 million from discontinued operations, including a $27.1 million pretax gain on the Rail Repair sale. Nine-month discontinued-operations income was $18.1 million. Q3 gross margin was approximately 3.9% of revenue versus 4.1% a year earlier; revenue growth largely reflects higher commodity prices and expanded merchandising operations.
Q3 continuing-operations pretax income was $34.7 million versus $16.3 million; the effective tax rate was 28.3% versus 24.7%. For the nine months, pretax income was $163.5 million versus $84.1 million, with an 18.2% effective tax rate versus 21.5%.
Segments and material changes
- Trade: Q3 pretax income was $40.7 million versus $42.0 million. Strong grain elevation margins and feed-ingredient inventory supported results, but the prior-year period included a $14.6 million grain-asset sale gain. Nine-month pretax income was $68.0 million versus $69.6 million.
- Renewables: Q3 pretax income rose to $15.9 million from a $5.2 million loss, aided by improved ethanol-plant margins, especially lower corn basis in eastern locations. Nine-month pretax income was $89.6 million versus $22.0 million; 2022 included $17.6 million of USDA Biofuel Producer Relief proceeds.
- Plant Nutrient: Q3 pretax loss widened to $11.6 million from $5.8 million, as lower sales volumes and $3.9 million of Engineered Granules inventory write-downs offset margins. Nine-month pretax income improved to $37.4 million from $26.7 million, supported by strong margins on well-positioned inventory despite lower volumes.
Cash flow, liquidity, and debt
- Cash used in operating activities was $153.4 million for the first nine months, versus $119.1 million provided in 2021. Higher working-capital needs were a key driver.
- Investing activities provided $2.9 million, compared with $519.5 million in 2021, which included approximately $543 million from the Rail Leasing sale. Capital expenditures were $72.2 million; management expected approximately $100 million of 2022 continuing-operations capital spending.
- Cash was $140.8 million at September 30, 2022. Working capital from continuing operations was $944.7 million, up $182.6 million year over year.
- Short-term debt was $652.9 million; current maturities of long-term debt were $112.0 million; long-term debt excluding current maturities was $498.0 million. Total lines of credit capacity was $1.979 billion, with $1.303 billion available.
- Interest expense was $15.0 million in Q3 versus $8.8 million, reflecting higher borrowings and interest rates. The company noted that much of its seasonal short-term debt is variable-rate debt.
Outlook, risks, and unusual items
- Management expected historically high commodity prices, continuing supply and logistics imbalances, and strong elevation margins to support Trade opportunities through year-end. It cited strong co-product values and better near-term corn availability for eastern ethanol plants, while warning higher western U.S. corn costs could pressure production. Plant Nutrient fundamentals were supported by tight supply and farmer income, although volumes had declined.
- The 51%-owned ELEMENT ethanol plant failed a minimum working-capital covenant and was considered virtually certain to fail an owner’s-equity-ratio covenant within 12 months. Until cured or waived, $65.2 million of associated non-recourse debt was classified as current. An ELEMENT impairment review found undiscounted forecast cash flows exceeded asset carrying value by 15%; management said changes in key assumptions could alter that conclusion.
- Key risks include commodity and interest-rate volatility, working-capital and margin-call requirements, weather and agricultural conditions, the Russia-Ukraine conflict’s effects on grain, fertilizer, energy costs and logistics, and litigation. Management said liquidity was adequate and the company complied with all other financial covenants.
- A non-regulatory litigation claim could result in a loss exceeding the accrued amount, though management did not consider the potential excess, net of an acquisition-related indemnity, material. Management stated other reasonably possible claim losses were not material.
- After quarter-end, on November 1, 2022, the company completed its purchase of Bridge Agri Partners for C$20 million, half payable at closing and the balance over two years. No specific numerical earnings guidance was provided in the filing text.
Important facts for investors to verify
- Whether the ELEMENT covenant breaches are cured or waived, and the effect on debt access, repayment terms, and plant performance.
- How much reported earnings growth is recurring versus attributable to the Rail Repair gain and USDA relief proceeds.
- Whether operating cash flow and working-capital needs improve as commodity prices, inventories, and seasonal activity change.
- Exposure to variable interest rates, commodity-price movements, and related collateral or margin requirements.
- Whether the expected capital-spending plan and Bridge Agri Partners acquisition affect liquidity, leverage, or future returns.