The Andersons, Inc. Reports Fourth Quarter & Full Year Results
Full Year Earnings of $1.79 Per Diluted Share
Feb 5, 2009
The Andersons, Inc.
"Although our full year earnings could be viewed as respectable versus history, since they are our third best historical performance, this is overshadowed by the fact that I am deeply disappointed in our fourth quarter results --- we could have done better," said President and Chief Executive Officer Mike Anderson. "The decline in our results was largely a result of inventory and contract adjustments within our Plant Nutrient Group. I want our shareholders to know that we are taking a hard look at the risk management processes in that group and fully intend to make improvements that we believe will reduce the likelihood of similar events in the future."
The Grain & Ethanol Group's 2008 operating income was $43.6 million on revenues of $2.4 billion. This compares to the income record set in 2007 of $65.9 million on revenues of $1.5 billion. This year's revenues included $866 million of grain and ethanol sales made by the group in accordance with origination and marketing agreements between the company and its ethanol joint ventures, for which it receives a fee. Total revenues for the group have increased this year due to a considerable increase in both the volume and price of grain sold, and to an increase in the gallons of ethanol sold. The group's grain business benefited from higher gross profit on grain sales, and higher space and fee income; however, these were offset by higher expenses, primarily interest and bad debt reserves. Income from the ethanol business declined $14.5 million in 2008, due to the combined performance of the company's equity investments in three ethanol limited liability companies and a $4.1 million reduction in development fee income. The majority of the ethanol business differential occurred in the second half of the year. Full year income from the group's investment in Lansing Trade Group was $6.5 million lower than 2007, due to the company's $5.5 million share of Lansing Trade Group's fourth quarter loss. At the end of the third quarter, the income from this investment was well ahead of the prior year; however, during the fourth quarter Lansing Trade Group recorded significant reserves due to several counterparty exposures that took their otherwise profitable quarter to a loss. Lansing Trade Group is adequately reserved for these items as of the end of the year. For the fourth quarter, the Grain & Ethanol Group's operating income was $11.9 million, in contrast to $30.1 million earned in the same three month period last year. This fourth quarter decrease was due to the aforementioned income decreases in the ethanol business and Lansing Trade Group, which were then partially offset by considerable space income in the grain business. Total revenues for the fourth quarter were $565 million; in comparison, the group's revenues for the same period last year were $548 million.
The Rail Group's operating income for 2008 was $19.8 million, which is up slightly from the $19.5 million earned in 2007. The quality of earnings during 2008 improved significantly as gains from railcar sales were down $4.1 million this year. Revenues of $134 million for the year were up from $130 million in the prior year. The group grew the rail fleet by 5 percent during 2008, including the addition of 43 locomotives and ended the year with approximately 23,800 cars and locomotives. The group's average lease rates are slightly lower. The average utilization rate (the percentage of the fleet's railcars in service) for 2008 was 92.7 percent, which was up just slightly from the prior year. Due to reduced rail traffic, however, utilization rates for the fourth quarter decreased to 91.1 percent. Gross profit from the leasing business was higher due to wider relet spreads and growth in the size of the fleet. Additionally, both the railcar repair and manufacturing businesses experienced significant increases in gross profit during the year. The Rail Group generated $3.3 million in operating income in the fourth quarter on $28 million of revenues. In 2007, operating income for the same three month period was $3.8 million on similar revenues.
The Plant Nutrient Group ended the year with an operating loss of $12.3 million. This loss resulted from $97.2 million of lower of cost or market adjustments made to reduce inventory values to the current market value and recognize losses on purchase commitments caused by sharp declines in the fertilizer market. In 2007, the group had an operating income of $27.1 million. Revenues for 2008 and 2007 were $653 million and $466 million, respectively. Revenues were up significantly this year due to increased pricing in the fertilizer market, even though volume for the year was actually down close to 20 percent. Prior to the fourth quarter, volumes for the year were only slightly behind the prior year; however, volume during the fourth quarter dropped by 50 percent. For the fourth quarter, the group's operating loss was $74.5 million on $112 million of revenues. The quarter was impacted by the aforementioned volume decrease and significant inventory adjustments of $84.1 million. Last year the group's operating fourth quarter income was $8.7 million on revenues of $140 million.
The Turf & Specialty Group's full year operating income was $2.3 million on $119 million of revenues. In 2007, the group had operating income of $0.1 million, and total revenues were $104 million. The 2008 results are attributable to the group's successful focus on value added proprietary products, such as Contec DG®, which is a growth area for the group. Turf products tonnage increased slightly from year to year, however, gross profit per ton increased considerably. The cob business earnings this year were higher than in 2007, despite a corn cob inventory fire at the Delphi facility at the end of the year that led to increased expenses. The group incurred an operating loss of $1.1 million in the fourth quarter on $20 million of revenues. Last year, its operating loss was $0.8 million for the same period, and revenues were $19 million.
Total sales for the Retail Group were $173 million in 2008, or 4 percent below the 2007 total of $180 million. The group reported operating income of $0.8 million this year. In 2007, the group reported operating income of $0.1 million, which included a $1.9 million impairment charge on certain retail assets. The group continues to be impacted by the weakness in the overall economy and resulting reduced consumer spending. The Retail Group's fourth quarter operating profit was $1.0 million on $46 million of revenues. Last year, which includes the impairment, the operating loss was $0.6 million, and total revenues were $50 million in the same three month period.
"Clearly our full year earnings were heavily influenced by the results within our Plant Nutrient Group," Mr. Anderson stated. "The reduced earnings were also partially attributable to the economics in the ethanol industry and reduced income from our investment in Lansing Trade Group," Mr. Anderson added. "On a positive note, both our Grain Division and Rail Group had great years. Also, our propriety product strategy within the Turf & Specialty Group is proving to be successful. In addition, we made wise and timely decisions early in the year to improve the capital structure and liquidity of the Company."
The company will host a webcast on Friday, February 6, 2009 at 11:00 A.M. ET, to discuss its performance. This can be accessed under the heading "Investor" on its website at www.andersonsinc.com.
The Andersons, Inc. is a diversified company with interests in the grain, ethanol and plant nutrient sectors of U.S. agriculture, as well as in railcar leasing and repair, turf products production, and general merchandise retailing. Founded in Maumee, Ohio, in 1947, the company now has operations in 12 U.S. states and Puerto Rico, plus rail equipment leasing interests in Canada and Mexico.
This release contains forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially. Without limitation, these risks include economic, weather and regulatory conditions, competition, and the risk factors set forth from time to time in the Company's filings with the Securities and Exchange Commission. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be correct.
The Andersons, Inc. is located on the Internet at www.andersonsinc.com FINANCIAL TABLES FOLLOW . . . The Andersons, Inc. Consolidated Statements of Income (Unaudited) Three Months ended Twelve Months ended December 31 December 31 (in thousands, except for per share amounts) 2008 2007 2008 2007 Sales and merchandising revenues $770,065 $784,634 $3,489,478 $2,379,059 Cost of sales and merchandising revenues 757,839 709,957 3,231,649 2,139,347 Gross profit 12,226 74,677 257,829 239,712 Operating, administrative and general expenses 44,586 49,499 181,520 166,486 Allowance for doubtful accounts receivable 5,808 2,165 8,710 3,267 Interest expense 6,099 5,662 31,239 19,048 Other income / gains: Equity in earnings of affiliates (11,768) 14,689 4,033 31,863 Other income, net (148) 2,591 6,170 21,731 Minority interest in net (income) loss of subsidiary 1,215 291 2,803 1,356 Income before income taxes (54,968) 34,922 49,366 105,861 Income taxes (21,579) 11,430 16,466 37,077 Net income $(33,389) $23,492 $32,900 $68,784 Per common share: Basic earnings $(1.85) $1.31 $1.82 $3.86 Diluted earnings $(1.85) $1.28 $1.79 $3.75 Dividends paid $0.0850 $0.0775 $0.3250 $0.2200 Weighted average shares outstanding-basic 18,094 17,928 18,068 17,833 Weighted average shares outstanding-diluted 18,250 18,320 18,363 18,326 The Andersons, Inc. Consolidated Balance Sheets (Unaudited) December 31 December 31 (in thousands) 2008 2007 Assets Current assets: Cash and cash equivalents $ 81,682 $ 22,300 Restricted cash 3,927 3,726 Accounts receivable, net 130,091 106,257 Margin deposits, net 13,094 20,467 Inventories 436,920 502,904 Commodity derivative assets - current 84,919 205,956 Other current assets 105,329 43,281 Total current assets 855,962 904,891 Investments and other assets 153,488 137,518 Commodity derivative assets 3,662 29,458 Railcar assets leased to others (net) 174,132 153,235 Property, plant and equipment (net) 121,529 99,886 $1,308,773 $1,324,988 Liabilities and shareholders' equity Current liabilities: Short-term borrowings $ - $ 245,500 Commodity derivative liabilities - current 67,055 122,488 Other current liabilities 458,208 359,224 Total current liabilities 525,263 727,212 Deferred items and other long-term liabilities 80,687 49,631 Commodity derivative liabilities 3,706 2,090 Long-term debt non-recourse 40,055 56,277 Long-term debt 293,955 133,195 Minority interest 11,694 12,219 Shareholders' equity 353,413 344,364 $1,308,773 $1,324,988 Segment Data Grain & Plant Turf & Ethanol Rail Nutrient Specialty Quarter ended December 31, 2008 Revenues from external customers $565,189 $27,552 $111,521 $20,116 Gross Profit 45,359 7,795 (59,815) 5,336 Other income / Equity in earnings of affiliates (11,789) (76) 167 181 Operating income (loss) 11,917 3,318 (74,457) (1,064) Quarter ended December 31, 2007 Revenues from external customers $548,222 $27,681 $140,258 $18,921 Gross Profit 32,399 8,143 15,328 4,747 Other income / Equity in earnings of affiliates 16,190 273 103 58 Operating income (loss) 30,077 3,803 8,692 (785) Retail Other Total Quarter ended December 31, 2008 Revenues from external customers $45,687 $- $770,065 Gross Profit 13,551 - 12,226 Other income / Equity in earnings of affiliates 259 (658) (11,916) Operating income (loss) 1,015 4,303 (54,968) Quarter ended December 31, 2007 Revenues from external customers $49,552 $- $784,634 Gross Profit 14,060 - 74,677 Other income / Equity in earnings of affiliates 373 283 17,280 Operating income (loss) (636) (6,229) 34,922 Grain & Plant Turf & Ethanol Rail Nutrient Specialty Year ended December 31, 2008 Revenues from external customers $2,411,144 $133,898 $652,509 $118,856 Gross Profit 110,954 37,055 33,990 24,704 Other income / Equity in earnings of affiliates 8,778 526 899 446 Operating income (loss) 43,587 19,782 (12,325) 2,321 Year ended December 31, 2007 Revenues from external customers $1,498,652 $129,932 $466,458 $103,530 Gross Profit 79,367 37,040 50,602 19,738 Other income / Equity in earnings of affiliates 43,591 1,038 909 438 Operating income (loss) 65,934 19,505 27,055 95 Retail Other Total Year ended December 31, 2008 Revenues from external customers $173,071 $- $3,489,478 Gross Profit 51,126 - 257,829 Other income / Equity in earnings of affiliates 692 (1,138) 10,203 Operating income (loss) 843 (4,842) 49,366 Year ended December 31, 2007 Revenues from external customers $180,487 $- $2,379,059 Gross Profit 52,965 - 239,712 Other income / Equity in earnings of affiliates 840 6,778 53,594 Operating income (loss) 139 (6,867) 105,861
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