The Andersons, Inc. announced financial results for the second quarter ended June 30, 2020, and business structure and organizational changes.
The Andersons, Inc. is a diversified company founded in Maumee, Ohio, in 1947 that conducts business in the commodity trading, ethanol, plant nutrient and rail sectors.
Second quarter highlights:
- Company reported net income attributable to The Andersons of $30.4 million, or $0.92 per diluted share, and adjusted net income of $29.3 million, or $0.88 per diluted share.
- Adjusted EBITDA attributable to the company was $70.7 million for the quarter.
- Trade Group reported pretax income of $0.4 million and adjusted pretax income of $1.4 million despite a tough operating environment.
- Ethanol Group reported pretax income attributable to the company of $0.9 million due to its timely maintenance shutdowns and improved ethanol margins.
- Plant Nutrient Group recorded pretax income of $19.4 million driven by a strong planting season.
- Rail Group earned $2.6 million of pretax income due to lower car sale income.
- Company announced a reorganization of its business groups and several leadership changes.
"I am proud of what we were able to accomplish in the second quarter, as all four of our business groups were profitable," said President and CEO Pat Bowe. "We are focused on transforming The Andersons into a more cost-efficient company positioned for scalable growth. Our vision is to be the most nimble and innovative North American ag supply chain company."
Leadership changes announced
The company announced strategic business structure and senior leadership changes. Among the changes are the following:
- The Trade Group and Ethanol Group will be combined and led by President Bill Krueger, who was formerly president of the Trade Group. Jim Pirolli, who was the Ethanol Group president, has been appointed senior vice president of the combined group, which will enable him to assume expanded responsibilities.
- The Plant Nutrient Group and Rail Group will be combined and led by Joe McNeely, who was formerly the president of the Rail Group.
"This new structure will enable us to focus on increasing gross profit and enhancing service to our customers, while also managing our cost structure," said Bowe. "The combination of the Trade and Ethanol Groups will allow for greater strategic alignment, risk management and integrated service to our customers. This restructuring of our business will also result in a leaner cost environment."
Liquidity and cash management
"We generated strong operating cash flows and continued to manage capital expenditures during the second quarter," said Executive Vice President and CFO Brian Valentine. "As the pandemic persists, we remain very focused on overall liquidity, including expense and cash management."
In May, the company announced that it was targeting total expense reductions of $30 million in 2020, with approximately half of those savings expected to be permanent in nature. The company anticipates further general and administrative cost reductions that will be realized beginning in early 2021.
The company still expects to spend approximately $100 million on capital projects in 2020 after averaging more than $200 million over the last three years. This reduction prudently preserves working capital and supports our continued strong financial position.
Trade Group records lower adjusted results
The Trade Group recorded pretax income of $0.4 million and adjusted pretax income of $1.4 million for the quarter compared to pretax income of $22.6 million and adjusted pretax income of $25.8 million in the second quarter of 2019. The 2019 results were positively impacted by corn and wheat basis appreciation caused by the poor 2019 planting season and concerns about adequate grain supplies.
The merchandising business continued to perform well, with comparable year-over-year results.
The group's return on its Eastern Corn Belt assets was hurt by the small 2019 harvest and COVID-related decreases in demand, which resulted in compressed margins, minimal basis appreciation and lower originations.
The group adjusted its reported pretax income by $1.0 million for stock compensation expense associated with the 2019 acquisition of Lansing Trade Group.
The group's second quarter adjusted EBITDA was $17.5 million compared to second quarter 2019 adjusted EBITDA of $46.8 million.
The group anticipates a large corn harvest, which should improve profitability during the latter part of the year and into 2021.
Ethanol Group records a profit
The Ethanol Group reported pretax income attributable to the company of $0.9 million in the second quarter compared to the $3.7 million of pretax income attributable to the company it earned in the same period in 2019.
Margins began to improve in early May and were strong by the end of the quarter as improving demand outpaced increases in industry production.
As expected, a significant portion of the non-cash mark-to-market losses recorded in the first quarter reversed during the second quarter.
"Our Ethanol Group's navigation of the unprecedented decrease in demand due to the COVID-19 crisis helped produce good results under those difficult conditions," Bowe said.
The group's five plants operated at approximately 50% of capacity during the quarter. The group safely completed extended maintenance shutdowns using largely its own employees.
The group recorded adjusted EBITDA attributable to the company of $11.0 million in the second quarter of 2020 compared to 2019 second quarter adjusted EBITDA attributable to the company of $4.5 million.
Plant Nutrient Group pretax income increases
"Our Plant Nutrient Group's income was up more than 20% due to an excellent spring planting season," Bowe said. The Plant Nutrient Group improved its results year-over-year, recording pretax income of $19.4 million compared to pretax income of $15.9 million in the same period of the prior year, a 22% increase. This was the fifth consecutive quarter that the group posted improved year-over-year results.
Rail Group results down slightly
The Rail Group earned second quarter pretax income of $2.6 million compared to $3.2 million in the same period of the prior year.
Railcar leasing results were flat year over year. Cars on lease, average lease rate and utilization were all lower as railcar loadings continued to decrease.
Income from cars sales was negligible.
Service and other pretax income was unchanged.
The group's second quarter 2020 EBITDA of $15.3 million was comparable to its second quarter 2019 EBITDA.
The COVID-19 pandemic has caused the idling of nearly one-third of the North American railcar fleet and has driven year-to-date railcar loadings 16% lower year-over-year through June. These conditions are expected to continue until the general economy returns to normal levels, and will continue to negatively impact lease renewals, lease rates and demand for railcar repairs.