MAUMEE, OHIO, U.S. — The Andersons sustained a loss of $4.237 million in the third quarter ended Sept. 30, which compared with a loss of $2.098 million in the third quarter of 2018.
Revenue for the quarter was $1.982 billion, up from $685.5 million in the same quarter of the previous year.
Net income for the first nine months of the year totaled $11.568 million, or 35¢ per share, down from $17.732 million, or 62¢, in the first nine months of 2019. Revenue rose to $6.284 billion in the first nine months from $2.232 billion in 2018.
“The Trade Group’s adjusted results were much improved year over year on stronger merchandising, though grain originations lagged due to limited farmer selling,” Patrick E. Bowe, president and chief executive officer, said during a Nov. 6 conference call with analysts. “We continue to see the benefits of our larger and more diversified Trade Group, whose results were substantially better than they would have been without the Lansing acquisition.”
With the closing of the Lansing acquisition effective Jan. 1, 2019, Trade Group results now include the consolidated operating results of both Lansing and Thompsons Ltd.
The Trade Group, the former Grain Group, sustained a pretax loss of $2.001 million, which compared with a pretax loss of $9.914 million in the third quarter of 2018. The group also incurred $2.4 million of incremental depreciation and amortization expenses related to the Lansing acquisition. Revenue for the Trade Group’s third quarter was $1.580 billion, up from $342.610 million in the same quarter a year ago.
“The Trade Group was profitable on an adjusted basis, improving significantly on the large loss it incurred in the third quarter of 2018,” Bowe said. “The poor planting weather in our core Eastern footprint and the resulting limited farmer engagement during the quarter hurt the performance of those assets, even as our Western assets performed very well. The Lansing acquisition integration continues to go very well, and we’ve now identified and are implementing more than $10 million in expense synergies.”
The first nine months pretax income for the Trade Group was $4.268 million, which compared with a loss of $2.453 million in first nine months in 2018. Revenue for the Trade group was $4.944 billion, up from $983.73 million in the first nine months in 2018.
“The Ethanol Group continued to remain profitable during the third quarter despite a difficult margin environment when many in the industry incurred significant losses and reduced production or shut down entirely,” Bowe said.
The company’s pretax income for the third quarter for its Ethanol Group was $0.9 million, down from $10.4 million in the third quarter of 2018. Ethanol’s revenue rose to $254 million in the third quarter of 2019 from $195 million in the same quarter a year ago.
“I’m also particularly pleased that our Ethanol Group remained profitable despite difficult market conditions, outpacing many in its sector,” Bowe said. “In August, we began production at ELEMENT, our state-of-the-art biorefinery in Kansas, from which we ultimately expect industry-leading results. We also announced in October the merger of what had been four separate ethanol plant entities, three of which were jointly owned with Marathon Petroleum Corp., into a single entity jointly owned with Marathon just after quarter-end.”
The merger will result in consolidation reporting of the group’s entire operations and a sizable one-time gain in the fourth quarter. ELEMENT remains a separate consolidated joint venture of The Andersons, Inc. with ICM, Inc.
The group began producing ethanol, DDGs and corn oil from ELEMENT in August. Production continues to ramp up, with additional higher margin products being introduced in mid-2020.
Ethanol Group’s first nine months pretax income fell to $6.169 million, which compared with $20.703 million in 2018. Revenue increased to $708.02 million in the first nine months of 2019, which compared with $571.09 million in the same period as last year.
Pretax income in the Rail Group totaled $3.1 million in the third quarter, down from $5.7 million in the same period a year ago. Revenue totaled $39.09 million, down from $43.11 million in the same period a year ago.
“The railcar market is weak with more cars and storage year-over-year and year-to-date railcar loadings down 3% and with further weakness in some specific markets such as grain, frac sand and ethanol,” Bowe said. “Renewal lease rates for railcars that carry these commodities continue to be lower. Other lease rates are generally flat despite the decrease in railcar loadings. Our utilization rate decreased during the quarter primarily due to the purchase of 1,000 idle cars that we are preparing for service.”
For the first nine months of 2019 the Rail Group’s pretax profit totaled $10.629 million, a slight decrease from $10.649 million in the first nine months of 2018. Revenue was $123.52 million, down from $134.98 million in the first nine months of 2018.
The Plant Nutrient Group sustained a loss of $7.4 million in the third quarter, compared to a loss of $8 million in the third quarter of 2018. Revenue rose to $109.44 million in the third quarter from $104.18 million in the same period a year ago.
“The Plant Nutrient Group performed better than it did in the third quarter last year in what is typically a quiet quarter,” Bowe said. “In general, the group recovered some volume from earlier in the year that was delayed by a protracted spring rains, but margins were lower due to product mix.”
The Plant Nutrient Group’s first nine months pretax income totaled $4.534 million, down from $8.23 million in 2018. Revenue decreased to $508.54 million from $542.91 million.
Looking toward the fourth quarter the company said it is optimistic.
“The unresolved trade war with China is having a lingering detrimental effect on both Trade and Ethanol groups,” Bowe said. “Primary nutrient prices continue to be soft, but we think a likely increase in corn plantings in 2020 will help the Plant Nutrient Group improve. And for the Rail Group, while North American railcar loadings remain lower year-over-year, we expect utilization rates to stay above 90% and cars under lease to continue to increase.
“We’re more optimistic about our company outlook than what is reflected by the market in our recent stock price. We continue to work hard to improve what we can control. Our current initiatives include the following five.”
- Optimize the Trade Group performance
- Identify and implement additional Trade Group expense synergies and other expense reductions
- Increase production at its ELEMENT biorefinery and add some of ELEMENT’s technologies to the other four ethanol plants
- Generate positive free cash flow on an annual basis
- Reduce recently increase long-term debt following the Lansing acquisition
“We believe we’re building an ever more solid company,” Bowe said. “In the last four years, we’ve improved management talent, reduced expenses by more than $30 million, disposed of the retail business and several other underperforming assets and have continued to upgrade an infrastructure that will provide the capacity to allow us to grow. The ag markets have proved to be very difficult over that time. I'm confident we are focused on the right levers and positioned well when those markets turn. We continue to operate with a strong commitment to our customers, employees, shareholders and communities that have served us well for more than 70 years.”
