On Feb 5, 2015, we issued an updated research report on The Andersons, Inc. (ANDE). Andersons’ growth will be hurt by higher project expense and a decline in the value of distillers dried grains due to Chinese import restrictions.
On Nov 5, 2014, Andersons reported a 3% year-over-year decline in third-quarter 2014 earnings to 59 cents per share. Although the company will benefit from acquisitions in existing and new geographies, poor railroad service could impact its performance in 2015.
Andersons rolled out the new SAP Financial system company-wide and implemented the new grain system at two locations in May 2014. In connection with this, Andersons’ focus will shift from development to implementation in 2015; project team size and work effort will remain relatively stable. However, the extent of team effort will be greatly reduced, resulting in higher expense. Project expense, along with the amortization of previously capitalized cost and system support cost is expected to reduce earnings per share by 25 cents to 35 cents in 2015, compared with 2014.
Andersons has hedged around 85% of the fourth quarter ethanol margin risk; however it will not match up to the record margins reached earlier in 2014. At the moment, forward margins are not attractive enough to hedge into 2015. The company has pre-hedged about half of the Jan 2015 ethanol margin risk. Further, Andersons witnessed a decline in the value of distillers dried grains relative to corn price in recent times, mainly due to Chinese import restrictions. These factors will be headwinds for the company’s growth.
In addition, the global economic downturn, increased competition and volatility in raw material prices remain headwinds for the company in the near term.
Andersons’ estimates have witnessed downward revision over the last 90 days. The Zacks Consensus Estimate for 2014 and 2015 decreased roughly 6.7% to $4.07 per share and 13.7% to $3.85 per share, respectively.
Andersons has an Earnings ESP of -16.96% for fourth-quarter 2014, as the Most Accurate estimate of 93 cents stands below the Zacks Consensus Estimate of $1.12.
Andersons’ Zacks Rank #5 (Strong Sell) when combined with a negative Earnings ESP predicts a likely earnings miss. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Andersons will report its fourth-quarter earnings on Feb 11, 2015.
Stocks that Warrant a Look
Better-ranked stocks in the same industry include Gruma S.A.B. de CV (GMK), Agrium Inc. (AGU) and Air Products & Chemicals Inc. (APD). All three stocks carry a Zacks Rank #2 (Buy).
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