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Anderson’s Earnings and Sales Lag

The Andersons Inc. (ANDE - Analyst Report) reported first-quarter 2013 earnings of 67 cents per share, down 32% from 98 cents per share earned in the year-ago quarter. The results also missed the Zacks Consensus Estimate of 86 cents. Loss at the Plant Nutrient and Retail Groups and decline in operating profit at the Grain Group offset the increase in operating profit in the rest of the segments, leading to the overall decline.

Operational Updates

Revenues in the reported quarter augmented 12% year over year to $1.27 billion. The results slightly fell short of the Zacks Consensus Estimate of $1.3 billion.

Cost of sales increased 13% to $1.19 billion in the first quarter from $1.05 billion in the year-ago quarter. Gross profit declined 7.7% year over year to $79.2 million. Consequently, gross margin contracted 130 basis points (bps) to 6.2% in the quarter.

Operating, administrative and general expenses went up 3% year over year to $62 million. Operating profit declined 33% to $17 million. Thus, operating margin reduced 90 bps to 1.35% in the quarter.

Segment Performance

The Grain Group: Revenues increased 19% year over year to $836 million in the reported quarter due to the addition of the Green Plains Grain facilities, resulting in higher sales volume and grain pricing. Operating income dropped 57% to $8.3 million, driven by droughts in 2012 resulting in lower space income.

The Ethanol Group: Revenues grew 32% year over year to $199 million, helped by incremental volumes stemming from the Denison, Iowa plant acquisition in the second quarter of 2012. Segment operating income rose 24% to $2.5 million from $0.1 million in the year-ago quarter due to improved ethanol margins and increased co-product income.

The Plant Nutrient Group: The group reported revenues of $112 million, down 36% from the year-ago quarter, led by significant decrease in volume. Moreover, delays in fieldwork and adverse weather condition resulted in the decline. The group reported an operating loss of $0.6 million compared to the operating income of $5.8 million in the prior-year quarter.

The Rail Group: Revenues spiked 28% to $46 million in the quarter. Operating income increased nearly two-fold to $14.6 million. The increase was attributable to higher lease rates and increased income from car financings.

The Turf & Specialty Group: The segment posted revenues of $47 million, a 4.4% year-over-year increase. Operating income doubled to $4 million in the first quarter, driven by increased margin in the lawn business, partly offset by volume decline.

The Retail Group: Revenues in the segment decreased 3% year over year to $31 million. Costs related to the closing of the Woodville store resulted in increased operating loss of $3.2 million compared with $2.7 million in the year-ago quarter.

Financial Update

Cash and cash equivalents were $58.3 million as of Mar 31, 2013 compared with $31.8 million as of Mar 31, 2012. Long-term debt amounted to $412.7 million as of Mar 31, 2013, compared with $427.2 million as of Mar 31, 2012. The debt-to-capitalization ratio contracted to 39.8% as of Mar 31, 2013 from 41.1% as of Mar 31, 2012.

Outlook

Andersons expects the Rail Group to continue to perform well based on proficiently managed railcar portfolio. The Plant Nutrient Group should also benefit from an anticipated record corn crop planting in the second quarter, if weather cooperates. While the 2012 drought remains the headwind, which will impact the profitability and ethanol businesses this year.

Our View

The recently acquired assets from Green Plains Grain Company and Mt. Pulaski Products will boost Andersons’ top and bottom line. Furthermore, the Rail Group witnessed a solid run in 2012 and the momentum is expected to continue in 2013 as well.

However, the U.S drought will likely continue to negatively impact the grain and ethanol businesses in 2013. Furthermore, continuing losses at the Plant Nutrient Group and the Retail group remains a concern.

Maumee, Ohio-based Andersons is a diversified company rooted in agriculture. The company conducts business across North America in the grain, ethanol, and plant nutrient sectors, railcar leasing, turf and cob products, and consumer retailing.

Andersons currently retains a short-term Zacks Rank #3 (Hold). Other companies in the agriculture and farm products industry are Monsanto Co (MON - Analyst Report), Archer Daniels Midland Co (ADM - Analyst Report) and Bunge Ltd (BG - Snapshot Report).

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