Maumee / OH. (tagg) The Andersons Inc. announces financial results for the third quarter ended September 30, 2021.
«I’m pleased with our third quarter, particularly the record results of our Trade Group business. We benefited from outstanding execution by our team, strong demand, and relatively low grain stocks – including growth in new markets, such as renewable diesel and supply chain extensions with our new Swiss trading office. We continue to identify opportunities in these volatile markets and remain focused on an anticipated large 2021 harvest. Harvest in the corn belt is progressing and we are pleased that storage income has returned to the wheat and corn markets,» said President and CEO Pat Bowe.
«Ethanol margins have strengthened through the fall maintenance season and U.S. stocks are low at this time. We are focused on risk management and effective hedging and continue to see strong returns from co-products, particularly distillers’ corn oil,» added Bowe. «We anticipate strong fourth quarter margins in Ethanol. Plant Nutrient followed up a great first half with a third quarter loss, which was in line with our expectations for this seasonal business. Fertilizer prices and farm income both remain high. We continue to receive good support from our suppliers in this time of tight stocks. Our teams are executing well and remain focused on customer needs and operational excellence.»
«Lastly, I want to comment on the sale of our Rail leasing business that was announced on August 16,» stated Bowe. «This strategic sale allowed us to strengthen our balance sheet and focus on investing in our core agriculture businesses. We completed the acquisition of Capstone Commodities on October 1 which helps to expand our supply chain presence to southwestern U.S. dairy customers. We continue to evaluate organic growth projects in grain, renewable fuels, and fertilizer as well as potential acquisitions and investments, with the goal of growing our ag supply chain and renewable fuels businesses while reducing our carbon footprint.»
Liquidity and Cash Management
«We generated cash flow from operations before working capital changes of USD 55.6 million for the third quarter and USD 237.7 million for the year to date,» said Executive Vice President and CFO Brian Valentine. «This strong cash flow, combined with proceeds from the sale of assets, has enabled us to reduce long-term debt by over USD 300 million since the start of the year. We remain disciplined with capital allocation while ensuring that we are adequately maintaining our physical assets. Short-term borrowings at the end of the quarter have been significantly reduced to USD 281.2 million from the USD 915.2 million balance at the close of our first quarter, which is our typical seasonal high. We are now below our key target of 2.5x long-term debt to adjusted Ebitda and have capacity available for growth in our core agricultural businesses.»
Readily marketable inventories of USD 700 million at September 30 are a significant increase from the prior year and reflects the overall inflation in commodity prices. The company invested USD 19.8 million on capital projects for its continuing operations in the quarter. The company expects to invest approximately USD 85 million in 2021 in its continuing operations. In addition, the company received proceeds of USD 543 million from the sale of its Rail leasing business and other assets. A portion of these proceeds were used to retire long-term debt and reduce outstanding short-term borrowings.
Third Quarter Segment Overview
Record Trade Results Driven by Elevation Margins and Merchandising Income Result in USD 20.7 Million Year-Over-Year Improvement
The Trade segment had record adjusted pre-tax income of USD 27.6 million for the quarter compared to adjusted pre-tax income of USD 6.9 million in the third quarter of 2020. The difference in reported and adjusted pre-tax income in both periods was attributable to stock compensation expense associated with the 2019 acquisition of Lansing Trade Group, as well as a gain on the sale of a grain asset location in 2021.
Strong elevation margins in Idaho and Louisiana grain assets led the significant quarter-over-quarter improvement. In addition, new merchandising businesses have added incremental gross profit and earnings. Good overall positioning, risk management, and execution has contributed to year-over-year improved performance.
Continued merchandising opportunities are expected throughout the fourth quarter. The harvest outlook remains strong despite delays caused by recent precipitation. A good third quarter wheat harvest accumulated more bushels than expected and an opportunity for storage income with carry in the wheat market. Relatively low stocks are expected to continue past harvest along with higher prices and strong elevation margins are expected to continue into 2022.
Trade’s third quarter adjusted Ebitda was USD 43.9 million, nearly double the third quarter 2020 adjusted Ebitda of USD 22.3 million.
Ethanol Records a Pre-tax Loss of USD 3.6 Million on Higher Corn Basis; Co-Product Values and Trading Remain Strong
The Ethanol segment reported a pre-tax loss attributable to the company of USD 3.6 million in the third quarter compared to the pre-tax income attributable to the company of USD 1.1 million it realized in the same period in 2020.
The quarter-over-quarter decline was driven by higher corn basis at all five ethanol plants eroding any board crush margins. Partially offsetting the ethanol margin decline was increased high-protein feed values and continuing corn oil strength. Profitable third-party trading of ethanol, feed ingredients, and vegetable oil exceeded last year’s third quarter. Stocks of ethanol are at very low levels leading to ethanol board crush margins that are positive into the first quarter and despite a projected seasonal slowdown in gasoline demand. Industry production increases are expected in response.
Sales volumes for ethanol, corn oil, and feed ingredients were up, driven by higher production and additional third-party sales from the trading business. Hedges on forward ethanol production are in place for a portion of expected production.
Ethanol recorded Ebitda of USD 19.2 million in the third quarter of 2021, down USD 5.2 million from 2020 third quarter Ebitda of USD 24.4 million.
Plant Nutrient Results Nominally Lower than 2020
The Plant Nutrient segment posted a pre-tax loss of USD 5.8 million, compared to the pre-tax loss of USD 5.4 million last year. Gross profit for the group was up USD 1.4 million from good demand and strong margins in our agricultural product lines resulting from continued strength in both fertilizer prices and farmer income. High raw material costs and plant labor challenges lowered results for our turf and specialty products. Plant Nutrient’s Ebitda was USD 1.8 million compared to 2020 third quarter Ebitda of USD 2.2 million.
Income Taxes; Corporate
The company has recorded income taxes from continuing operations at an effective rate of 24.7 percent for the third quarter and anticipates a full year effective rate of approximately 22 percent-25 percent.
Increases in corporate expense are due to variable incentive compensation and stranded costs from the sale of our Rail leasing business.