Maumee, OH - Feb. 14, 2018 - The Andersons, Inc. announces financial results for the fourth quarter and full year ended December 31, 2017 and its agreement to sell three grain elevators in Tennessee.
The Company reports net income of $68.4 million, or $2.42 per diluted share, and adjusted net income of $17.6 million, or $0.62 per diluted share compared to $10.1 million and $0.36 per share, in the fourth quarter of 2016.
Adjusted results exclude a $74.2 million, or $2.62 per diluted share net income tax benefit associated with recent U.S. federal income tax reform; a pretax $17.1 million goodwill impairment charge in the Plant Nutrient Group; and $10.9 million of pretax impairment charges associated with the Grain Group's Tennessee facilities.
For the full year, the Company reports net income of $41.2 million, or $1.46 per diluted share, and adjusted net income of $32.3 million, or $1.15 per diluted share, compared to $11.6 million and $0.41 per share in 2016.
The Company reported fourth quarter 2017 net income attributable to The Andersons of $68.4 million, or $2.42 per diluted share, on revenues of $1.0 billion.
These results included a $74.2 million or $2.62 per share net tax benefit as a result of recent corporate tax reform.
During the fourth quarter of 2017, the Company also recorded a non-cash and mostly nondeductible goodwill impairment charge of $17.1 million or $0.59 per share related to the Plant Nutrient segment.
It also recorded pretax non-cash impairment charges of $10.9 million or $0.24 per share related to its Tennessee grain assets.
Adjusted net income attributable to the Company for the period was $17.6 million, or $0.62 per diluted share, compared to 2016 fourth quarter net income of $10.1 million, or $0.36 per diluted share, on revenues of $1.1 billion.
The Company's EBITDA was $25.0 million for the fourth quarter of 2017 and $40.7 million for fourth quarter of 2016. Adjusted EBITDA was $53.0 million for the quarter compared to $40.7 million in fourth quarter 2016.
In addition, the Company announced it has signed an agreement, subject to close next month, to sell its grain elevators in Humboldt, Kenton and Dyer, Tennessee, to a subsidiary of Tyson Foods, Inc.
The Andersons owns three additional elevators in Tennessee that are not a part of the purchase agreement with Tyson.
The Company is exploring options for these three remaining facilities.
"Our fourth quarter performance was solid considering that we continue to face some challenging market conditions in several of our businesses, and we incurred some impairment expenses," said President and CEO Pat Bowe.
"Notwithstanding expenses associated with our decision to sell the three Tennessee elevators, the Grain Group recorded better year-over-year results highlighted by significant improvement by Lansing Trade Group.
"For the full year, our adjusted Grain earnings improved by almost $40 million."
Bowe continued, "As we anticipated three months ago, ethanol margins in the quarter were lower again year over year in spite of continued strong U.S. exports. Margins continue to be lower than last year at this time."
"The Plant Nutrient Group's margins continued to be challenged by an oversupply of nutrients and low farm income, even as year-over-year volumes rose considerably.
"We also wrote down the remainder of our wholesale fertilizer goodwill balance due to the persistently soft fertilizer market.
"The Rail Group's utilization improved for the third consecutive quarter, and the group purchased more than 1,200 cars," added Bowe.
"The Company will certainly benefit from the U.S. federal income tax reform enacted in late December.
"We recorded a significant one-time income tax benefit of $74.2 million, primarily related to the new, lower tax rate on our deferred income tax liabilities," Bowe concluded.
For the full year, the Company reported net income attributable to The Andersons of $41.2 million, or $1.46 per diluted share, and adjusted net income attributable to The Andersons of $32.3 million, or $1.15 per diluted share.
These amounts compared to net income attributable to The Andersons of $11.6 million, or $0.41 per diluted share, in 2016.
The 2016 results included pretax impairment charges of $9.1 million, including $6.5 million in the Retail Group and $2.3 million in the Plant Nutrient Group, which equated to $0.20 per diluted share.
The Company's EBITDA for 2017 and 2016 was $87.4 million and $123.9 million, respectively.
Adjusted EBITDA was $157.4 million for 2017 compared to $123.9 million in 2016.
For purposes of better understanding ongoing results, the Company has expanded its pretax income disclosure in the table below to adjust for amounts that do not reflect ongoing operations.
Specifically, adjustments have been made for the goodwill impairment charges in the second and fourth quarters of 2017 associated with the Plant Nutrient Group, and for the impairment of the Grain Group's Tennessee assets in the fourth quarter.
Fourth Quarter Segment Overview
Grain Group Adjusted Operating Income Improves for Fifth Consecutive Quarter
The Grain Group generated pretax income of $8.3 million and adjusted pretax income of $19.2 million in the fourth quarter, up $6.3 million or almost 50 percent from its fourth quarter 2016 pretax income results.
The group's EBITDA was $14.3 million and $18.0 million in the 2017 and 2016 fourth quarters, respectively, and it generated adjusted EBITDA of $25.2 million and $18.0 million in the 2017 and 2016 fourth quarters, respectively.
For purposes of better understanding ongoing results, the Company has expanded its pretax income disclosure in the table below to adjust for amounts that are not reflective of ongoing operations.
Specifically, an adjustment has been made for the impairment of the Grain Group's Tennessee assets in the fourth quarter.
As the group reached an agreement to sell its elevators in Humboldt, Kenton and Dyer, Tennessee, it reclassified those assets from property, plant and equipment to assets held for sale and adjusted the value of the assets to the agreed-upon purchase price less costs to sell, resulting in a $5.3 millioncharge.
The decision to sell prompted an evaluation of the carrying value of the remaining three Tennessee elevators.
That evaluation resulted in an impairment charge of $5.6 million on those assets.
The table below separates the earnings of the group's base grain business from those of its grain affiliates.
Base grain business earnings originate from grain facilities that the Company operates.
The grain affiliates' earnings originate from equity method investments in Lansing Trade Group and Thompsons Limited.
Base grain pretax income was slightly lower in the fourth quarter compared to 2016 results.
Income from grain ownership positions improved significantly year over year from better basis appreciation, largely in the corn and bean markets.
Risk management services income was also up as the group was able to enroll record bushels in its Freedom pricing programs.
In contrast, income from grain sales was down as put-through volumes were lower given that market dynamics are currently incenting grain owners to store rather than sell.
Income from sales was also impacted by the extended harvest in Michigan and Indiana.
Lansing Trade Group's continued recovery from a poor 2016 drove a $6.5 million year-over-year improvement in the Grain Group affiliates' results, turning a $3.0 million fourth quarter 2016 pretax loss to pretax income of $3.5 million in the fourth quarter of 2017.
The group estimates that growers will plant 87 to 90 million acres of corn in 2018, perhaps slightly below the 90 million acres planted in 2017.
Soybean planted acres are expected to be 89 to 92 million, compared to 90 million acres planted last year.
Total wheat acres planted have been reported to be approximately 46 million in 2017 compared to 50 million in 2016.
Normal weather conditions during planting and growing seasons should create favorable storage and merchandising opportunities in the coming year.
For the full year, the group earned pretax income of $12.8 million and adjusted pretax income of $23.7 million, a substantial turnaround from the $15.7 million pretax loss realized in the same period last year.
Base grain results improved by more than $25 million on 2017 grain ownership margins that were more than twice the 2016 results.
Affiliates results accounted for about $14 million of the change as Lansing Trade Group bounced back from a very disappointing 2016.
The group generated EBITDA of $39.9 million and $10.5 million in 2017 and 2016, respectively.
Adjusted EBITDA was $50.8 million and $10.5 million for the full years 2017 and 2016, respectively.
Ethanol Group Challenged by Continued Lower Margins
The Ethanol Group generated pretax income of $6.4 million attributable to The Andersons in the fourth quarter, about 45 percent lower than the $11.7 million pretax income attributable to The Andersons for the same period in 2016.
This result was in line with group expectations and is due to lower margins.
The table below separates the results of the Ethanol Group's unconsolidated entities, which include the Albion, Michigan; Clymers, Indiana; and Greenville, Ohio plants, from the earnings of the consolidated Denison, Iowa plant and the group's management services income.
Continued robust industry production and high ethanol stocks were the main contributors to the weaker margin environment even as the export market continued to strengthen.
The average sales price of ethanol was off about 4 percent.
In addition, natural gas costs were up 2.5 percent year over year, while corn costs were flat.
On a more positive note, the group's industry-leading E85 sales increased year over year by 39 percent, and accounted for 11 percent of the group's production for the quarter compared to a little over 9 percent in the comparable 2016 period.
The group expects to continue to aggressively grow E85 sales.
Values for distillers dried grains (DDGs) improved markedly during the quarter as the group worked through the last of the 2016 corn crop's vomitoxin issues.
Better international demand for DDGs also improved pricing and margins.
Those two conditions combined to drive values more than 10 percent higher than in the prior quarter but not quite up to the values of the comparable 2016 period.
The group's facilities ran well, setting quarterly and monthly production records in the fourth quarter and December, respectively.
For the year, the group earned pretax income of $18.9 million compared to $24.7 million last year on lower margins.
While the sales price of ethanol was relatively flat and the cost of corn was down by 3 percent, DDG values were down by 27 percent and the cost for natural gas was up 15 percent.
E85 gallons sold were up by 26 percent.
Plant Nutrient Group Results Hurt by Continued Lower Margins
For purposes of better understanding ongoing results, the Company has expanded the Plant Nutrient Group's pretax income disclosure in the table below to adjust for the second and fourth quarter goodwill impairment charges associated with the wholesale fertilizer business.
The Plant Nutrient Group recorded a pretax loss of $18.0 million and an adjusted pretax loss of $0.9 million in the fourth quarter compared to a pretax loss of $3.8 million in the fourth quarter of 2016.
Considering that 2016 results included $3.3 million of expenses incurred while closing a cob facility, the 2017 and 2016 fourth quarter results were comparable.
The group's current quarter EBITDA was $(10.2) million, a $14.7 million decrease compared to 2016 fourth quarter results.
The comparable adjusted EBITDA amounts were $6.9 million and $4.5 million for the 2017 and 2016 fourth quarters, respectively.
As in the last several quarters, the business was impacted by low nutrient prices and an oversupply of product during the period.
The group's performance in the fourth quarter was also hampered by continuing pressure on margins, even though the group achieved a healthy increase in volume.
Base nutrient (NPK) volumes were up almost 10 percent year over year, while higher-margin, value-added nutrient tons (low salt starter fertilizers and micro nutrients) were up nearly 18 percent.
Volumes for products in the group's other businesses (farm centers, lawn and cob) were down 27 percent; all but 10 percent of the decrease resulted from selling the group's Florida farm centers in the first quarter.
Margins per ton were considerably lower in both base nutrients and value-added products, finishing down 25 percent and 11 percent year-over-year, respectively.
Margins per ton improved considerably for the farm centers and the cob business, but were flat in the lawn fertilizer business.
Those volume and margin changes combined to reduce gross profit by about $4.8 million, or more than 18 percent.
For the full year, the Group generated a pretax loss of $45.1 million and adjusted pretax income of $14.0 million, which includes a $4.7 million gain on the sale of the Florida farm centers, compared to pretax income of $14.2 million in 2016.
Wholesale fertilizer volumes were slightly higher, and margins were down about 5 percent, including more than 8 percent for the value added product line.
Full-year 2017 adjusted EBITDA was $47.0 millioncompared to $49.3 million for 2016.
The Company expects the Plant Nutrient's wholesale fertilizer business to continue to be challenged in the near term until some supply/demand equilibrium is achieved.
Rail Group Pretax Income Reflects Lower Lease Income and Car Sale Income
The Rail Group earned fourth quarter pretax income of $6.7 million compared to $9.7 million in the same period of the prior year.
The group's adjusted fourth quarter 2017 EBITDA was $14.3 million compared to $15.6 million in the comparable 2016 period.
Base leasing operations earned $1.9 million in the fourth quarter, down $1.5 million sequentially and $1.0 million year over year.
Utilization averaged 86.2 percent during the quarter compared to 85.8 percent sequentially and 84.8 percent during the same period last year.
Average lease rates for the fleet were down about 4 percent as shorter leases at lower rates continued to have an impact.
Depreciation and interest expense were each up $1.0 million and $0.7 million, respectively, primarily due to a 30 percent higher asset base.
The group earned fourth quarter EBITDA of $14.3 million and $15.6 million in 2017 and 2016, respectively.
The group purchased more than 1,200 railcars during the quarter at a cost of almost $60 million, which represented its most active quarter of purchasing in more than 10 years.
The group earned $3.3 million of pretax income on railcar sales in the quarter compared to $2.6 million sequentially and $4.7 million in the fourth quarter of 2016.
The group scrapped more than 400 older, out-of-favor cars, but sold fewer cars outright than in the same 2016 period.
Rail's service and other pretax income was $1.5 million in the quarter compared to $2.1 million during the same period of 2016.
Repair sales were 4 percent lower year over year, and margins tightened.
The group opened a new facility in New York during the quarter, and has announced its intent to open another in Texas in early 2018.
U.S. rail traffic excluding coal carloads was up about 2.5 percent year over year, but was up less than 1 percent for the full year 2017.
In addition, Class I railroad efficiency was lower than 2016 levels.
For the full year, the Rail Group earned pretax income of $24.8 million compared to $32.4 million in 2016. EBITDA was $54.9 million for full-year 2017 compared to $59.0 million for 2016.
Lower base leasing revenue accounted for a majority of the full-year income variance, as full-year utilization and average lease rates were each modestly lower, and depreciation, freight and storage expenses were higher.
Income from car sales for the two years were flat.
Pretax income for 2017 also included lower earnings from the group's barge fleet and did not include any earnings from its former investment in a short line railroad sold in early 2016.
The Rail Group will continue to pursue opportunities to enlarge its diverse lease and car portfolio and its repair network.
Company Sells a Third Retail Property; Other Net Company-Level Expenses Lower
The Company recorded pretax income of $1.8 million during the quarter from its closed retail business.
This result was driven by the sale of the third of four retail properties for a gain of $2.9 million.
For the full year, results from a short period of normal operations followed by liquidation activities, closing expenses and gains from property sales netted to a pretax loss of $7.3 million.
Unallocated net Company-level expenses for the fourth quarter of 2017 were $6.2 million, more than 25 percent lower than the $8.7 million incurred in the fourth quarter of 2016.
Lower professional and contract services expenses accounted for most of the variance.
Full year unallocated net Company-level expenses were $24.7 million, down $3.6 million or about 12 percent from 2016 levels.
Professional and contract services were lower by $3.7 million, while $1.9 million less in benefits costs offset $1.9 million more depreciation and rent expense.
Company Benefits from U.S. Federal Income Tax Reform
As a result of legislation enacted in late December, the Company recognized a one-time net income tax benefit of $74.2 million, or $2.62 per diluted share.
The principal component of the benefit was a $75.6 million reduction in the value of net deferred income tax liabilities driven by the reduction of the statutory U.S. federal income tax rate from 35 percent to 21 percent.
The other component was a $1.4 million incremental expense associated with the one-time mandatory tax on previously deferred earnings of certain non-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of The Andersons.
The company expects to benefit from a substantial decrease in its effective tax rate beginning in 2018.
For more information, please contact John Kraus at 419-891-6544.