Business context and reporting period
CHS Inc. is a farmer- and rancher-owned integrated agricultural cooperative with Energy, Ag, and Nitrogen Production segments, plus financing, hedging, and equity-method investments in Corporate and Other. This Form 10-K reports the fiscal year ended August 31, 2023, compared with fiscal 2022; it does not provide standalone 2023 Q4 results. CHS has no common stock outstanding; its five series of preferred stock are Nasdaq-listed.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $45.59 billion | $47.79 billion |
| Gross profit / margin | $2.38 billion / 5.2% | $2.13 billion / 4.5% |
| Operating earnings | $1.34 billion | $1.13 billion |
| Income before taxes | $2.01 billion | $1.81 billion |
| Net income attributable to CHS | $1.90 billion / 4.2% of revenue | $1.68 billion / 3.5% |
| Operating cash flow | $3.28 billion | $1.95 billion |
| Capital expenditures and major maintenance | $564.5 million and $217.4 million | $354.4 million and $24.8 million |
Cash and cash equivalents were $1.77 billion at year-end, versus $794.0 million a year earlier. Working capital was $3.23 billion (up $803.6 million); the current ratio was 1.5, compared with 1.3. Notes payable were $547.9 million and long-term debt, including current maturities, was $1.83 billion. Total equities were $10.45 billion. CHS reported compliance with its debt covenants.
Revenue declined 4.6%, while net income attributable to CHS increased 13.2%. Gross margin improved to 5.2% from 4.5%. Operating cash flow rose by $1.34 billion, principally reflecting lower receivables and inventories as commodity prices and volumes fell, along with higher net income. Investing cash outflow was $950.2 million; financing cash outflow was $1.40 billion, including higher patronage and equity-redemption payments.
Material changes and segment performance
- Energy: Pretax income increased to $1.08 billion from $616.6 million. Higher crack spreads and Canadian crude discounts, along with favorable hedging-related margins, outweighed lower refinery production, higher repair costs, and increased renewable identification number (RIN) costs. A planned major maintenance shutdown at the Laurel refinery reduced throughput.
- Ag: Pretax income fell 37.4% to $411.8 million. Lower agronomy margins and prices, weaker renewable-fuel prices, and lower grain export volumes more than offset stronger oilseed-processing margins from meal and oil demand.
- Nitrogen Production: Pretax income decreased 45.4% to $260.8 million as global urea and UAN selling prices declined. CHS’s CF Nitrogen investment was approximately $2.58 billion at year-end.
- Corporate and Other: Pretax income rose to $259.8 million from $57.9 million, primarily from improved Ventura Foods equity income, an asset-sale gain, and higher interest income. Total equity income from investments declined 10.6% to $689.6 million, mainly due to lower CF Nitrogen earnings.
Interest expense increased 20.4% to $137.4 million as interest rates rose. The effective tax rate fell to 5.4% from 7.3%, reflecting cooperative tax treatment and a higher Domestic Production Activities Deduction benefit. Fiscal 2023 included a Laurel refinery turnaround and a gain on certain asset sales; the filing does not provide a clear value for the asset-sale gain.
Outlook, risks, and contingencies
Management expects global supply-demand imbalances in energy and agricultural commodities to moderate in fiscal 2024, but anticipates continuing uncertainty from commodity markets, the Russia-Ukraine war and Middle East conflict, changing trade flows, elevated interest rates, inflation, volatile RIN costs, and unpredictable weather. Management does not provide numerical revenue or earnings guidance and says the duration and severity of market effects are uncertain.
Expected fiscal 2024 capital expenditures are approximately $945.2 million, compared with $564.5 million in FY2023; planned major maintenance is approximately $31.0 million, compared with $217.4 million. CHS expects about $170.2 million of preferred dividends, $365 million of cash patronage, and authorization for up to $365 million of equity redemptions during FY2024. Management believes operating and investing cash flows and available borrowing capacity will support operations and capital needs.
Key risks include volatile commodity prices and margins, weather and crop conditions, supply-chain and transportation disruptions, dependence on member business, counterparty and borrower defaults, higher financing and operating costs, environmental regulation and remediation, cybersecurity and a multiyear ERP implementation, and risks associated with international conflicts and joint ventures. CHS disclosed no material expected effect from environmental liabilities or ordinary-course litigation, but actual outcomes may differ. Outstanding guarantees for nonconsolidated entities were $75.9 million; CHS had $1.1 billion of additional customer credit commitments. The independent auditor identified valuation of grain inventories and grain forward contracts as a critical audit matter. Management concluded internal controls over financial reporting were effective; the auditor did not provide an attestation on those controls.
Important facts for investors to verify
- Whether the FY2024 moderation in commodity markets, refinery margins, agronomy demand, and RIN costs develops as management expects.
- How planned capital spending of approximately $945.2 million affects cash generation, debt, and member distributions.
- The sustainability and cash-conversion quality of FY2023 earnings, including the effects of commodity derivative accounting, the Laurel turnaround, and the asset-sale gain.
- CF Nitrogen and Ventura Foods earnings, distributions, and investment valuations; equity-method income is material but their revenues are not consolidated.
- Refinancing exposure and interest-rate sensitivity, including the $366 million variable-rate term loan and future preferred-stock reset-rate provisions.
- Potential exposure from environmental matters, guarantees, credit commitments, and the grain inventory and forward-contract valuation assumptions highlighted by the auditor.