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Bear of the Day: The Andersons (ANDE)

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The Andersons, Inc. (ANDE - Free Report) is in the one sector that still isn't seeing economic improvement: agribusiness. This Zacks Rank #5 (Strong Sell) is still struggling as the fertilizer market remains weak.

The Andersons was founded in 1947 by Harold Anderson in Maumee, Ohio with a single grain elevator. It has grown into an agribusiness company with numerous business segments across North America, including in grain, ethanol, plant nutrient and rail.

Making Changes in Leadership

On Nov 28, The Andersons announced that its President of the Rail Group, Rasesh Shah, would retire in July 2018.

He's to be replaced by Joseph McNeely, who would be familiar to railroad car investors as he was CEO of FreightCar America, which makes a diverse group of different railcars.

This announcement comes shortly after announcing that Jeffrey Blair would join the company as President of the Plant Nutrient Group effective Dec 4 due to the retirement of Bill Wolf in that position.

That is two high-profile management changes in two of its four business segments during the same month.

Third Quarter Earnings Miss

On Nov 6, The Andersons reported third quarter results and missed on the Zacks Consensus by 7 cents. Earnings were $0.09 versus the Zacks Consensus of $0.16.

It was the second consecutive earnings miss for the company.

The quarter was mixed, with some segments seeing more improvement than others.

It sold two of its former retail properties so that it could exit the retail business completely.

But its Grain Group business saw better year-over-year results with good margins on corn and soybean sales and strong space margins for wheat.

However, the Plant Nutrient Group saw a pretax loss of $7.9 million as there is simply too much fertilizer on the market and the farmers, who are still struggling under falling income, aren't buying.

The Rail Group was also mixed in the quarter, as it saw improvement but the overall market still remains soft.

It's not a surprise that it's seeing management changes in its two weakest areas.

Estimates Cut Again

The analysts continue to be pessimistic about 2017 and 2018, although the earnings "low" looks to have been in 2016.

The Zacks Consensus Estimate for 2017 has fallen to $1.08 from $1.41 in the last 60 days.

One estimate was also cut for 2018 which has sent the Zacks Consensus Estimate falling to $1.83 from $2.33 in the last month.

But the good news is that earnings, overall, are on the rise. Here's the earnings outlook.

2016: $0.41
2017: expected to make $1.08
2018: expected to make $1.83

2017's earnings growth is 162% and 2018's is another 69%. That's not too shabby.

What The Andersons needs is a turnaround in the fertilizer market. It's just not happening...yet.

Are the Shares Cheap?

Shares are off the recent 2017 lows.

However, they are still well above the 2016 lows when the earnings were taking a hit.



But they're not cheap. The Andersons trades with a forward P/E of 30.

For investors looking for an agribusiness play, Agrium AGU is a Zacks Rank #3 (Hold) but it's expected to grow earnings by 23% next year. It's also about to merge with fertilizer giant Potash POT.

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