On Apr 26, we maintained our Neutral recommendation on The Andersons Inc. (ANDE); a diversified company with operations ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs; based on expectations of growth opportunities through its recent acquisitions, strong growth in the Rail Group, partially offset by negative impact of the U.S drought on the grain and ethanol businesses and continuing losses at the Ethanol and Retail groups.
Why Reiterated?
Andersons reported fourth-quarter 2012 earnings of $0.80 per share, down 31% year over year while revenues increased 29% to $1.7 billion. In 2012, Anderson posted earnings of $4.23 per share, a year-over-year decline of 17% while revenues increased 15% to $5.3 billion.
In Dec 2012, Andersons completed the purchase of 12 grain elevators and agronomy locations of Green Plains Grain Company to diversify its grain and plant nutrient operations. With a combined grain storage capacity of about 32 million bushels, this will increase Andersons Grain Group’s storage capacity by nearly 30%.
Andersons purchased all the assets of Mt. Pulaski Products, LLC, which makes products from corn cobs in Oct 2012. The acquisition will position Andersons as the sole leader of cob processor as well as product manufacturer. Moreover, Andersons raw corn cob supply will be doubled as the mills are best positioned around the seed corn production areas in Ill. This is in line with Andersons strategy of expanding its geographic footprint into potential new markets and enhancing its product portfolio to boost its revenues.
Andersons’ Rail Group delivered significantly higher earnings in 2012, driven by increased financing opportunities, higher average railcar lease rates, larger railcar fleet and expansion in the railcar repair business. The momentum is expected to continue in 2013 as well based on above average financing opportunities, strong recovery in lease rates, and expected continued improvement in the repair business.
Drought conditions in the U.S encountered during the growing season led to significantly lower corn yields. For this reason, the drought had an unfavorable impact on space income for the Grain business for the fourth quarter of 2012 and will likely impact space income in the first half of 2013 as well.
The Ethanol Group incurred operating losses in 2012 due to poor margins resulting from weak gasoline demand, an oversupply of ethanol and high corn costs caused by the 2012 drought. Andersons expects the first three quarters of 2013 to remain challenging for the group due to regional corn shortages. Furthermore, the Retail Group also continues to suffer losses due to the weak economy. Stiff competition, especially from the mass merchandisers and do-it-yourself home centers, has also added to the segment’s woes.
Other stocks to consider
Andersons currently retains a short-term Zacks Rank #3 (Hold). Other stocks in the same industry with favorable Zacks rank are Monsanto Company (MON), CVR Partners, LP (UAN) and Minerals Technologies Inc. (MTX) with a Zacks Rank #2(Buy).
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