The Andersons ethanol group records Q1 earnings of $1.7 M

By Susanne Retka Schill | May 05, 2017

The Andersons report a first quarter 2017 net loss of $3.1 million on revenues of $852 million, and $11.6 million improvement over the same quarter a year ago, where the company realized a net loss of $14.7 million on revenues of $888 million.  Q1 2017 results included pretax costs of $7.8 million related to closing the company’s retail stores, which is scheduled to be completed by the end of Q2.

"Three of our four businesses posted better year-over-year results," said CEO Pat Bowe. "While we are not satisfied with our overall results, we continue to work hard to improve execution, sharpen our cost focus, and position the company for profitable growth. We are closing our retail business and sold underperforming plant nutrient group assets in Florida. We also acquired a small specialty grain handling and milling business that further expands our food ingredient capabilities."

"For the second quarter in a row,” Bowe continued, “Our grain group improved year-over-year results in its base business by approximately $10 million as it registered improved space income that was partially offset by lower than expected basis appreciation in the quarter. In addition, post-harvest farmer selling has been slow. Grain's affiliates also improved their performance year over year.  Ethanol benefitted some from margin hedging but is still fighting both vomitoxin-related discounts and lower DDG values relative to corn. Plant nutrient value-added product margins continued to be compressed by oversupply during the quarter, although volumes are up year over year. Rail continued to profitably operate through what we believe are the later stages of a cyclical market downturn. Overall, we remain confident in our ability to deliver long-term value and growth to our shareholders."

Ethanol margins were better year over year, the company said in its earnings release, in large part because the group had hedged about half of its production coming into the quarter. DDG values have been negatively impacted by low demand from China and discounts due to vomitoxin in the Eastern Corn Belt. The group's Albion, Michigan, expansion came on line late in the quarter, ahead of schedule, on budget and safely. The expansion more than doubled the capacity of the plant that previously produced approximately 65 MMgy. 

The ethanol group earned pretax income of $1.7 million in the first quarter on $154 million in revenues, a $4.4 million improvement over the $2.7 million pretax loss it incurred in the same period in 2016, primarily on higher year-over-year margins. Hedging decisions and slightly lower corn costs helped deliver those results despite robust industry production and stocks, the company said.  

The group continued to realize discounts on DDGs during the quarter due to persistent problems with vomitoxin in the vicinities of the group's three eastern facilities. Lower international demand for DDGs, particularly as a result of Chinese tariffs, put pressure on pricing and margins.

The four ethanol plants combined for a first quarter production record of more than 98 million gallons, about 4 percent over the comparable period, in part because the new Albion capacity was on line for part of the quarter. The group also successfully executed maintenance shutdowns at two of the four plants during the quarter, earlier than the typical Q2 shutdowns for all plants.

In the question period following the Q1 presentation, Bowe expressed optimism in the company’s ethanol outlook for the rest of the year. “Exports are good,” Bowe said. “Even if a Brazilian tariff is threatened, we still have demand for oxygenate in global markets. [In domestic markets,] driving demand in Q1 is down a bit , but we expect that to increase in the summer.”

The eastern Corn Belt vomitoxin issues will persist, although they expect farmers moved the worst grain last fall and binned the better. The company is forecasting a $3 million to $5 million potential drag on DDGS earnings, depending on how it plays out for the rest of year before new crop.

When asked about further expansion plans, Bowe said the Albion plant is now at the scale seen by the other plants. In addition, there is good demand for the products in Michigan and a good local corn supply.  “Beyond that, we have no plans for expansion,” he said.