The Andersons Inc. (ANDE) delivered adjusted earnings per share (EPS) of $1.36 in its second quarter ended June 30, 2010, outperforming the Zacks Consensus Estimate of $1.19, and increasing 56% from 87 cents in the year-ago quarter. The year-over-year improvement reflects strong operating results at Grain & Ethanol Group and Plant Nutrient Group.
Total revenue was at par with the year-ago level of $811 million, but fell short of the Zacks Consensus Estimate of $874 million. Revenue growth at the Plant Nutrient Group and Turf segment was offset by declines in the other segments.
Cost & Margin Performance
On an annualized basis, cost of sales and merchandising revenues slipped 2% to $723.4 million in the quarter and based on revenues it improved 180 basis points to 89.2%. Consequently, gross profit increased 19% to $87.5 million and gross margin expanded 180 basis points to 10.8%.
On the other hand, operating, administrative and general expenses upped 9% to $51.1 million in the quarter and based on revenues increased 50 basis points year over year. Andersons’ operating income surged 37% to $36.4 million and operating margin expanded 120 basis points to 4.5%.
Segment Performance
Even though Grain & Ethanol Group suffered a 5% year-over-year decline to reach revenues of $473.7 million, the segment’s operating income more than doubled to $19.6 million in the quarter. Both grain and ethanol businesses created records in the quarter. The grain business benefited from increased space income, which resulted primarily from sizeable basis gains. The ethanol business continued to benefit from large portions of ethanol sales being contracted during previous quarters, when margins were higher.
Plant Nutrient Group’s revenues increased 16% year over year to $228.4 million. The segment’s operating income increased 84% to $19 million and operating margin improved 310 basis points to 8.3%. This marks the second highest second-quarter result in the group's history. Tons sold increased by more than a third as the industry returned to more traditional nutrient application rates on phosphates and potassium. Retail farm centers were building and maintaining inventories versus destocking that took place in 2009.
Revenues at Turf & Specialty Group increased 4% year over year to $41.1 million. Its operating income dropped 18% to $2.5 million with segment operating margin contracting 170 basis points to 6%. Turf products tonnage increased slightly, but gross profit per ton decreased due to product mix.
Rail Group’s revenues dipped 1% year over year to $23.6 million with operating income plummeting 82% to $114,000. Operating margin contracted 210 basis points to 0.5% in the quarter. Gross profit from the leasing business was down due to lower utilization rates and the corresponding carrying costs of idle assets. The rail repair business, however, improved during the quarter. The segment realized a gain of $1.7 million from scrapping and sale of railcars in comparison to the $800,000 gain in the year-ago quarter.
The Retail Group segment’s revenue declined 11% to $44.1 million. Operating income fell 27% to $2.1 million with operating margin plunging 110 basis points to 4.7%.
Financial Position
As of June 30, 2010, Andersons had cash and cash equivalents of $204.62 million, up substantially from $74.5 million as of March 31, 2010. As of June 30, 2010, the debt-to-capitalization ratio improved marginally to 38.9% from 40.7% as of March 31, 2010.
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. The segments are —Grain & Ethanol Group, Plant Nutrient Group, Retail Group, Rail Group and Turf and Specialty Group.
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