MAUMEE, OHIO, US — Despite a boost from the Plant Nutrient Group, The Andersons, Inc. is continuing to navigate new challenges due to the coronavirus pandemic (COVID-19).
The Andersons posted net income attributable to the company of $30.4 million in second quarter ended June 30, equal to 92¢ per share on the common stock, up from $29.9 million, or 91¢ per share, in the second quarter of 2019.
The Trade Group performance was squeezed by the light 2019 grain harvest. It recorded an adjusted pretax income of $1.4 million, down from $25.8 million in the same period a year ago.
“The Trade Group earned a small pretax profit during the quarter,” said Patrick E. Bowe, president and chief executive officer. “The story was largely the same as for the first quarter. While the merchandising business stayed strong, income earned by the group’s assets was down significantly due to the small 2019 harvest in the East. In addition, farmers largely continue to hold on to their grain and ethanol customers’ demand was lower.”
Looking ahead Bowe is encouraged for the Trade Group.
“We’re feeling more optimistic about the grain business, in general,” he said. “Coming off a tough storage year in ‘19 with a robust crop, that’s going to help a lot. Margins look to be improving. We like the product lines that we acquired with the Lansing acquisition. They’ve been performing quite well all during this time.”
Despite slowed demand as COVID-19 continues to impact ethanol, the Ethanol Group had a pretax income of $900,000 in the second quarter, down from $3.7 million in the first quarter of 2019.
“The Ethanol Group continued to be affected by reduced gasoline demand, but still earned positive pretax income attributable to the company, as margins recovered late in the quarter,” Bowe said. “The group’s decision to extend normal spring shutdowns allowed the plant to quickly reach peak efficiency as we brought them back online.”
The Ethanol Group’s five plants operated at approximately 50% of capacity during the quarter as planned. The group safely completed extended maintenance shutdowns using largely its own employees, The Andersons said.
Bowe did note the Ethanol Group’s future performance is more dependent on how much demand the commodity will receive rebounding from the slump COVID-19 caused.
“Ethanol, we had a nice turnaround in the second quarter with margins coming back,” Bowe said. “The ultimate question for 2021 will be related to COVID. How much driving miles come back and thus, gasoline demand and what margins will look like in ethanol?
“If we manage supply and demand and keep margins positive, this could be very solid for ethanol. But a lot depends on the overall economy in COVID and post-election and all that in ‘21. So, Ethanol probably has a little bit more uncertainty in it.”
The Andersons Plant Nutrient Group posted improved year-over-year results for the fifth consecutive quarter with a pretax income of $19.4 million in the second quarter of 2020, compared to $15.4 million in the same period a year ago.
“Ag supply chain volume was up substantially, as the group benefited from a strong planting season,” said Brian A. Valentine, senior vice president and chief financial officer. “Other lines of business also grew as we expanded into new markets, products and sales channels. Operating expenses continued to move lower year-over-year due to cost reduction initiatives.”
Bowe remained guarded about the near-term outlook for the Plant Nutrient Group.
“An early large crop in our core geographies could set up our Plant Nutrient business for a good fall season,” he said. “The work we have done around controlling costs and improving our operational efficiency in the nutrient space will continue to pay dividends. However, the outlook for corn prices remains challenged, which could continue to be a headwind to profitability at the farm gate into 2021.”
The Rail Group’s second-quarter pretax income slipped to $2.6 million compared to $3.2 million in the second quarter of 2019.
“The Rail Group’s results were slightly lower as carload traffic continued to fall and a record nearly one third of all North American railcars were idle,” Bowe said. “The implications of that reduction in rail traffic includes softening lease rates and lower demand for repair services.”
Looking at the company as a whole Bowe is positive on what The Andersons has achieved and encouraged by its future goals.
“I am proud of what we were able to accomplish in the second quarter, as all four of our business groups were profitable,” Bowe said. “We are focused on transforming The Andersons into a more cost-efficient company positioned for scalable growth. The steps we are taking to transform the organization should ensure that we have the right vision at the right time to continue to serve our customers.”
The company made structural business changes by combining its current four groups into two groups. The Trade Group and Ethanol Group will be combined and led by Bill Krueger, who was formerly president of the Trade Group. Jim Pirolli, who was president of the Ethanol Group, has been named senior vice president of the combined group, which will enable him to assume expanded responsibilities. Additionally, the Plant Nutrient Group and Rail Group will be combined and led by Joe McNeely, who was formerly the president of the Rail Group.
“We generated strong operating cash flows and continued to manage capital expenditures during the second quarter,” Valentine said. “As the pandemic persists, we remain very focused on overall liquidity, including expense and cash management.”
In May, the company said it was targeting total expense reductions of $30 million in 2020, with approximately half of those savings expected to be permanent in nature. It anticipates further general and administrative cost reductions that will be realized beginning in early 2021.
The Andersons said it still expects to spend approximately $100 million on capital projects in 2020 after averaging more than $200 million over the last three years.
“These moves will also help us continue to make good progress on reducing expenses,” Bowe said. “Our ultimate focus is on generating positive free cash flow so we can reduce our long-term debt, all while devoting ourselves to providing extraordinary service to our customers. All this work will result in a stronger company and enable us to achieve our vision to be the most nimble and innovative North American ag supply chain company.”
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