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The Andersons Inc. (ANDE - Analyst Report) reported its record first quarter results delivering an EPS of 93 cents compared with 66 cents in the year-earlier quarter, beating the Zacks Consensus Estimate of 74 cents.

Total revenue as reported by the company amounted to $1001.7 million compared with $722 million, outperforming the Zacks Consensus Estimate of $940 million. Anderson’s first quarter income was largely driven by its Grain Division.

Cost and Margins

As reported by the company, cost of sales increased substantially to $923 million compared with $663.4 million in the year-ago quarter. Gross profit of the company also increased to $78.7 million from $58.5 million in the prior-year quarter. However, gross margins decreased 25 basis points year over year to 7.86% in the reported quarter. 

Operating, administrative and general expenses as reported by the company also increased to $53.7 million from $45.4 million in the year-earlier quarter. Operating income as reported by the segment totaled $27.1 million up from $21.7 million in the year-ago quarter. However, operating margins plunged 30 basis points year over year to 2.7%.

Segmental Performance

Grain: Segment’s sales increased to $638 million from $402.4 million in the year-earlier quarter, thereby increasing the gross profit to $31.3 million from $21.2 million in the prior-year quarter. Operating income followed suit and soared to $15.1 million from $12.2 million in the quarter.

Ethanol: The segment reported revenue of $132.7 million, up from $118.5 million in the prior-year quarter. However, gross profit of the segment reduced by 6.49% year over year to $4.5 million. Similarly, operating income came down sharply to $3.6 million from $8.5 million in the year-ago quarter.

Rail: The segment’s sales increased to $28.9 million from $26.7 million in the year-earlier quarter. Gross profit of the segment jumped 78% year over year to $7.1 million in the quarter. Operating income also reflected a sharp increase to $3.5 million from $1 million in the year-earlier quarter.

Plant Nutrient: Sales as reported by the segment amounted to $123.6 million, up from $103.2 million in the prior-year quarter. Gross profit increased to $18.1 million from $12 million in the year-ago quarter. Operating profit was up by a whopping 611% year over year to $5.1 million in the quarter.

Turf & Specialty: Sales increased to $47.3 million, from $41.6 million in the year-ago quarter. Gross profit as reported by the segment was up 4% year over year to $8.8 million. Similarly, operating income increased to $3.3 million from $2.7 million in the year-earlier quarter.

Retail: Sales in the segment surged to $31.1 million from $29.6 million in the prior-year quarter. Gross profit was up 9% year over year to $8.9 million in the reported quarter. The segment’s operating loss tapered to $2.7 million from $2.8 million in the year-earlier quarter.

During the quarter, the company revamped its reportable segments, dividing the Grain & Ethanol Group into two reportable segments, specifically the Grain Division and the Ethanol Division.

Financial Position

Cash and cash equivalents reduced sharply to $22.3 million as of March 31, 2011 from $74.5 million as of March 31, 2010.

Long-term debt of the company reduced to $263.2 million as of March 31, 2011, from $287.8 million as of March 31, 2010.

As of March 31, 2011, debt-to-capitalization ratio improved to 35.4% from 37.3% as of December 31, 2010, and 45.3% as of September 30, 2010.

Our Take

Andersons has scope for further improvement in its Grain & Ethanol business, which generates the majority of its revenues. Its Plant Nutrient  segment has also shown substantial improvements. The prospects of the company’s Rail Group business are bright too; with the company ranking seventh among the nation’s private fleet owners.

However, the current concerns for Andersons include its deteriorating cash balance, the limited opportunities in the agricultural sector and weak consumer confidence, which may directly affect its Retail business. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.

Maumee, Ohio-based Andersons is a diversified company operating in five different business segments ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs. Andersons competes with Archer Daniels Midland Company (ADM - Analyst Report) and CHS Inc. .

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