On Jan 2, 2015, Zacks Investment Research upgraded The Andersons Inc. (ANDE) to a Zacks Rank #4 (Sell) from a Zacks Rank #5 (Strong Sell).
Why the Upgrade?
Even though Andersons’ performance in the third quarter was weaker than expected, the company has taken certain steps to recover, which includes the decision to consolidate its Turf & Specialty and Plant Nutrient groups into one operating segment.
Andersons reported a 3% year-over-year decline in earnings to 59 cents per share in the third quarter. Revenues also plunged 19% year over year to $952 million. Both earnings and revenues fell short of the Zacks Consensus Estimate.
Subsequently, Andersons’ announced its intent to merge the Turf & Specialty and Plant Nutrient groups into one operating segment on Nov 17. Full integration of the groups and subsequent reporting changes will occur later in 2015. The company believes that these two groups will perform better jointly and help in enhancing growth opportunities while improving profitability.
Andersons’ Board approved a 27.3% increase in regular quarterly dividend to 14 cents per share from 11 cents on Dec 17. Annualized, this represents a payout of $1.68 per share, up from the current annual dividend of $1.32 per share. The new dividend will be paid on Jan 23, 2015, to shareholders of record on Jan 2, 2015. This reflects the company’s commitment to reward shareholders over time and points at its healthy balance sheet and strong cash position.
Andersons’ board of directors also authorized the repurchase of up to an aggregate $50 million of the company's common stock. This is to offset dilution related to the company's recent share issuance in connection with its acquisition of Auburn Bean and Grain. The program will also enable the company to acquire shares used for its employee long-term incentive plans in order to offset dilution.
Andersons will continue to benefit from the strong momentum in the Ethanol group. The company has hedged approximately 85% of the fourth quarter and almost half of the January ethanol margin risks.
Andersons’ Grain Group will continue to focus on growing its business through acquisitions in existing and new geographies as well as enhancing new risk management and grain marketing services. Recently, the company acquired Auburn Bean and Grain that will increase the storage capacity of its grain group by about 13%. Andersons also purchased majority of the assets of two food grade corn companies that will help in the expansion of its food grade corn business and also enable it to grow in the Texas region.
Furthermore, the delay in Environmental Protection Agency’s (EPA) decision to finalize blending requirements for 2014 will also be beneficial for Andersons. In 2013 the agency proposed reducing the amount of ethanol blended into the U.S. fuel supply for the first time since the renewable fuel requirements were passed in 2007.
The proposed 2014 Renewable Fuel Standard would shrink the volume of renewable fuel to 15.21 billion gallons, about 3 billion fewer gallons than the 18.15 billion mandated by the 2007 law. However, EPA’s action was protested by fuel refiners.
On Nov 21, EPA declared that the biofuel blending requirements would be significantly delayed until 2015. The suspension is favorable for the biofuels industry which is worried about the EPA reducing the amount of ethanol that must be blended into the fuel supply.
Other Stocks to Consider
Some other stocks in the same sector that warrant a look include Cosan Ltd. (CZZ), Gruma S.A.B. de CV (GMK) and Banro Corporation (BAA). All these stocks hold a Zacks Rank #2 (Buy).
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