The Andersons Inc. (ANDE) delivered earnings per share (EPS) of $1.39 in its fourth quarter ended December 31, 2010, ahead of the Zacks Consensus Estimate of 91 cents and the EPS of 88 cents in the year-ago quarter.
Total fourth-quarter revenue of $1,154 million was 26% above the year-ago revenue of $916 million and outperformed the Zacks Consensus Estimate of $1,112 million. The favorable year-over-year outcome was led by growth across all segments aside from the Turf & Specialty Group.
Cost & Margin Performance
Cost of sales and merchandising revenues surged 27% to $1,071 million in the quarter and, based on revenues, increased 50 basis points to 92.9%. Gross profit increased 18% to $82.5 million but gross margin slipped 50 basis points to 7.1%.
On the other hand, operating, administrative and general expenses declined 11% to $48.7 million in the quarter and, based on revenues, improved 180 basis points year over year to 4.2%. Andersons reported an operating income of $33.8 million, up 122% from the prior-year quarter while operating margin expanded 120 basis points to 2.9%.
Segment Performance
The Grain & Ethanol Group posted a 26% year-over-year increase to reach revenues of $912.6 million in the quarter. The segment’s operating income improved 39% to a record $38.6 million in the quarter driven by improved results in both the grain business and Lansing Trade Group.
The grain business benefited from significant space income and the net reversal of $6.7 million of reserves following the settlement of a long standing collection matter. The ethanol business also returned to profitability in the quarter.
Plant Nutrient Group’s revenues increased 42% year over year to $158.6 million driven by higher volumes. The segment reported a record operating profit of $8.9 million, a substantial improvement from $1.7 million in the year-ago quarter due to material increases in both volume and gross margin.
Revenues at Turf & Specialty Group dipped 9% year over year to $17.6 million. The segment reported an operating loss of $1.4 million compared with a loss of $1 million in the year-ago quarter.
Rail Group’s revenues upped 5% year over year to $22 million. The segment reported an operating loss of $1.12 million compared with a loss of $1.47 million in the year-ago quarter.
The Retail Group segment’s revenue nudged up 3% to $42.9 million. The segment reported an operating loss of $0.13 million compared with $0.7 million in the year-ago quarter.
Fiscal 2010 Performance
Andersons’ fiscal 2010 EPS was $3.48, up 67% from $2.08 in the prior year. The EPS outperformed the Zacks Consensus Estimate of $3.02. Revenues went up 12% to reach $3.39 billion, outperforming the Zacks Consensus Estimate of $3.35 billion.
Financial Position
As of December 31, 2010, Andersons had cash and cash equivalents of $29.2 million, substantially lower than $145.9 million as of December 31, 2009. As of December 31, 2010, the debt-to-capitalization ratio however improved to 37.3% from 45.3% as of September 30, 2010.
Our Take
Andersons has scope for further improvement in its Grain & Ethanol business, which generates the majority of its revenues. Its Plant Nutrient has also shown substantial improvements. The prospects of the company’s Rail Group business are bright, too, with Andersons ranking seventh among the nation’s privately owned fleets.
However, the current concerns for Andersons include its deteriorating cash balance, the limited opportunities in the agricultural sector and weak consumer confidence, which may directly affect its Retail business. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Maumee, Ohio-based Andersons is a diversified company operating in five different business segments ranging from buying, selling and storing grain to leasing railcars and running retail stores catering to the latest home hardware needs. Andersons competes with Archer Daniels Midland Company (ADM) and CHS Inc. (CHSCP).
ARCHER DANIELS (ADM): Free Stock Analysis Report
ANDERSONS INC (ANDE): Free Stock Analysis Report
Zacks Investment Research
