The Andersons - Earnings Call - Q1 2025

Executive Summary

• Mixed Q1: Renewables offset a weak Agribusiness; revenue was $2.659B and GAAP EPS was $0.01; adjusted EPS was $0.12. Adjusted EBITDA increased to $57.3M on stronger ethanol operations, while Agribusiness posted a pretax loss amid disrupted grain flows and tighter basis in Western assets.
• Versus S&P Global consensus, ANDE delivered a significant EPS beat (Primary EPS -$0.09* est vs $0.12 actual*), but revenue missed ($2.838B* est vs $2.659B) and EBITDA was below S&P’s standardized estimate ($46.6M* est vs $41.5M actual*) [Values retrieved from S&P Global].
• Outlook: Management expects a strong Q2 in Agronomy on higher corn acres and sees favorable storage/handling opportunities later in 2025; Renewables demand should remain solid with efficient plants, though higher Eastern corn basis and natural gas costs are expected.
• Capital and dividend: Company guided 2025 capex could reach ~$200M; balance sheet leverage remains ~1.8x long-term debt/EBITDA with $219M cash; the Board declared a Q3 2025 dividend of $0.195/share, marking the 115th consecutive quarterly dividend.

What Went Well and What Went Wrong

• What Went Well

  • Renewables delivered one of its best Q1s: pretax income attributable to ANDE of $15.3M and EBITDA of $37.5M on efficient operations, higher yields, and favorable board crush; ethanol/renewable diesel feedstock merchandising was up YoY.
  • Gross profit improved YoY despite lower revenues, and adjusted EBITDA rose to $57.3M; TTM adjusted EBITDA stood at ~$369.5M, underscoring resilient cash generation through the ag cycle.
  • Positive tone on near-term agronomy and H2 storage/handling: “As planting progresses, we see ample second quarter opportunities… Strong system-wide corn and wheat production should provide a good environment for storage and handling later in the year” — CEO Bill Krueger.

• What Went Wrong

  • Agribusiness (new combined Nutrient/Trade) posted a pretax loss of $9.7M; stagnating grain flows tied to global trade uncertainties, threatened tariffs and port fees hurt Western asset basis; adjusted pretax income attributable to ANDE was breakeven.
  • Co-product values were weaker: corn-based feed ingredients pressured by oversupply of alternative protein sources, tempering Renewables’ otherwise strong quarter.
  • Higher interest expense (net) of $13.1M vs $6.5M last year weighed on results, and O&A&G expenses rose with Skyland integration and scale.

Transcript

Joe Muller (Coordinator)

Good morning, ladies and gentlemen, and welcome to The Andersons 2025 First Quarter Earnings Conference Call. My name is Joe, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode, and should you need any assistance on today's call, please signal a conference specialist by pressing the star key followed by zero. Later, we will facilitate a question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. As a reminder, this conference is being recorded for replay purposes. I will now hand the presentation to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller, and Investor Relations. Please proceed.

Mike Hoelter (VP, Corporate Controller and Investor Relations)

Thanks, Joe. Good morning, everyone, and thank you for joining us for The Andersons First Quarter Earnings Call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation from a webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and the supporting slides will be made available on the investors page of our website at AndersonsInc.com shortly. Please direct your attention to the disclosure statement on slide two, as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties.

Actual results could differ materially as a result of many factors which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Bill Krueger, President and Chief Executive Officer, and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Bill.

Bill Krueger (CEO)

Thanks, Mike.

Good morning, everyone. Thank you for joining the call to discuss our first quarter results and outlook for the remainder of 2025. We had mixed results in the first quarter with a strong performance from renewables, while agribusiness was weaker than expected. Global trade uncertainty resulting from threatened tariffs and port fees disrupted typical grain flows and negatively impacted commodity values. This resulted in limited merchandising activity beyond immediate customer needs. The nutrient and agronomy teams had a solid start to the planning season and are well-positioned to support the expected increase in corn acres. At the same time, our renewables group had one of its best first quarters with improved yields and solid margins from ethanol production, coupled with contributions from ethanol and renewable diesel feedstock merchandising.

Results in agribusiness were down as our Ag supply chain assets were hit particularly hard by domestic demand challenges and the overall trade flow uncertainties, reducing exports of wheat and sorghum. These broad market conditions, which we believe are temporary and unusual, impacted the entire network but were amplified in the western corn belt. A bright spot for the group was our agronomy business, where we experienced increased volumes and margins. We remain pleased with our operating performance in renewables. We again had increased year-over-year production, including higher ethanol and corn yields. Increased board crush margins also positively impacted our results, and our ethanol and co-product merchandising provided comparable uplift. Contributions from dried distillers' grains were lower year-over-year on reduced values, considering an oversupply of alternative protein sources. Brian will now cover some key financial data. After that, I'll be back to discuss our outlook.

Brian Valentine (CFO)

Thanks, Bill, and good morning, everyone. We're now turning to our first quarter results on slide five. In the first quarter of 2025, the company reported net income attributable to The Andersons of $300,000 or $0.01 per diluted share and adjusted net income of $4 million or $0.12 per diluted share. This compares to net income of $6 million or $0.16 per diluted share in the first quarter of 2024. Revenues declined slightly on overall lower commodity prices. Gross profit improved while expenses increased, with a large portion resulting from the addition of Skylan's results. Adjusted pre-tax earnings were $3 million for the quarter, compared to $7 million in 2024, with the decline coming from the agribusiness segment. Adjusted EBITDA for the first quarter of 2025 was $57 million, compared to $51 million in 2024. Trailing 12 months adjusted EBITDA total $369 million.

Our effective tax rate varies each quarter, based primarily on the amount of income or loss attributable to non-controlling interest. We recorded a $2 million tax benefit for the quarter, which was impacted by a discreet adjustment for research and development tax credits related to prior periods. We continue to expect a full-year adjusted effective tax rate between 18% and 22%. Next, we'll move to slide six to discuss cash, liquidity, and debt. We generated cash flow from operations before changes in working capital of $57 million in the first quarter of 2025, an increase of more than $8 million from 2024. This continues to demonstrate our ability to generate strong cash flows throughout the ag cycle. This strong cash flow generation, combined with continuing lower commodity prices, resulted in a cash position of $219 million at the end of the quarter.

Next, we'll take a look at capital spending and long-term debt on slide seven. First quarter capital spending was $47 million, compared to $27 million in 2024, with the increase attributable to spending on long-term growth projects, as well as normal maintenance capital on the addition of the Skylan Grain assets. We continue to take a disciplined, responsible approach to capital spending and investments, which we expect could reach $200 million for the year. Our long-term debt to EBITDA is approximately 1.8 times, which is well below our stated target of less than 2.5 times. We continue to have a balance sheet with significant capacity to support growth investments that meet our strategic and financial criteria.

We are evaluating additional capital projects in our pipeline, including projects to improve efficiency and add capacity at our existing facilities, as well as M&A opportunities that align with our growth strategy. Now we'll move on to a review of each of our businesses, beginning with agribusiness on slide eight. The agribusiness segment reported a pre-tax loss attributable to the company of $5 million and break-even adjusted pre-tax income, compared to adjusted pre-tax income of $5 million in the same period of 2024. As Bill mentioned, the threat of tariffs and additional port fees had a dampening impact on the commodity markets in the first quarter. This resulted in stagnant conditions across much of our asset footprint. Our western ag supply chain assets, including Skylan, were faced with declining grain basis. Cross-country commodity merchandising and the premium ingredients portfolio were also impacted by the overall market conditions.

On the agronomy front, we saw improved volumes and margins as customers prepare for potential record corn acres. Agribusiness adjusted EBITDA for the quarter was $31 million, compared to $29 million for the first quarter of 2024. Moving to slide nine, renewables had an outstanding first quarter, generating pre-tax income attributable to the company of $15 million, compared to adjusted pre-tax income of $14 million in the first quarter of 2024. Ethanol margins remained favorable in the quarter on higher yields and board crush. Plant production remained high, and gallons produced exceeded last year. As Bill noted, feed values were lower and are expected to remain challenged. Overall, ethanol and RD feedstock merchandising were up year-over-year. Renewables had EBITDA of $37 million in the first quarter, compared to adjusted EBITDA of $34 million last year.

With that, I'll turn things back over to Bill for some comments about our outlook for the remainder of 2025.

Bill Krueger (CEO)

Thanks, Brian. Overall, we remain positive about our outlook despite the near-term market challenges we've noted in our agribusiness segment. With this being the first quarter reporting in our new segment structure of agribusiness and renewables, I want to acknowledge the work that is occurring to bring together the nutrient and trade groups. We're working very hard on this and will continue to focus on it through 2025 as we anticipate additional commercial, operational, and functional synergies. We are also continuing to invest in our safety culture, particularly around assets new to our portfolio. Our agribusiness outlook remains optimistic, and we expect that the additional clarity recently provided on tariffs and port fee regulations will reduce some of the market uncertainties that we experienced throughout the first quarter. Farmers are in the fields, and planting progress is above the five-year average.

With a solid growing season, we anticipate additional storage and handling opportunities in the last half of the year. The upcoming wheat harvest is being closely watched as both soft bread and hard bread wheat contracts will receive increased variable storage rates. Outlook for the fertilizer and agronomy business for the second quarter is strong as we were well-positioned prior to the start of the planting season, and the large expected corn plantings require higher levels of nutrients. We continue to evaluate additional growth projects and acquisition opportunities while staying focused on execution of previously approved projects. In addition to the integration of Skylan, this includes the improvements and expansion at the Port of Houston to support soybean meal exports. We have several other organic growth capital projects that are in process to support key customer contracts at various stages of completion.

In our renewables segment, we have now successfully completed our spring maintenance shutdowns and expect our plants to continue their highly efficient production. Demand remains solid for ethanol and co-products used in production of renewable diesel, which should benefit from the expected change in the RVO requirements. Since quarter-end, there has been a drawdown of U.S. ethanol supply corresponding to the industry-wide spring maintenance season. We believe export demand will remain strong. However, we expect higher eastern corn basis and natural gas costs. We are very focused on maintaining and improving our four production facilities for optimal efficiency. The renewables business is an important part of our long-term growth strategy. We continue to make progress on plans to increase ethanol production efficiency and capacity and to lower the carbon intensity of our ethanol.

We are implementing process enhancements at two of our plants to improve the yield of distillers corn oil. Also, as we have previously disclosed, we are evaluating potential acquisitions of ethanol production facilities that align with our strategy. I am proud of our team's resilience in this dynamic environment. We increased our cash flow from operations before changes in working capital, and our balance sheet is strong. With our growth projects and potential acquisition opportunities, we remain very excited about our future. We will continue to make responsible decisions that benefit our customers and maximize shareholder value as we execute our strategy. We are happy to answer your questions.

Joe Muller (Coordinator)

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Ben Mayhew with BMO Capital Markets. Please go ahead.

Ben Mayhew (Research Analyst)

Hey, good morning, guys, and congrats on the solid performance in a really difficult environment. My first question has to do with the fertilizer business. It sounds like you have some good visibility on second-quarter fertilizer profits given the strong corn plant. I'm just wondering if you can frame it against maybe the last two years' second-quarter performance. Do you expect it to maybe be a little bit higher from a profit standpoint? That'll be my first question. Thanks.

Bill Krueger (CEO)

Thanks for the question. Yeah. This year's planting season, compared to the last two, has really started off well. We are obviously looking at a much larger geographic area with the addition of the Skylan Farm Centers, doubling our size. But compared to last year, we've seen the opportunities in the fertilizer and nutrient business expand, not only due to increased corn acres, but also we just had a solid plan working with our suppliers coming into this planting season, which has really benefited us.

Ben Mayhew (Research Analyst)

My second question has to do with the ethanol business. I think the first quarter came in probably stronger than at least I expected, and it seems like most others expected. Had another major competitor yesterday post a pretty strong result and give a stronger outlook. You mentioned the difference in corn basis between the eastern and western belt, which I thought was pretty interesting for this year because the last couple of years, the eastern belt has been cheaper. I was hoping you could just dive into that difference this year and what is causing the eastern belt to be a little more expensive on basis versus the western belt?

Bill Krueger (CEO)

Yeah. That relates back to a couple of the comments that I made. The western corn belt has had less demand this year than it has the past couple of years. With the port fees and the looming tariff discussions, we had substantially less sorghum and wheat exports. Sorghum was down materially year-over-year. You had a lot more grain fighting for the demand in the western corn belt than we've had the last couple of years. Also, we've had a substantial drop in the cattle on feed numbers in the west, which is also a competing demand. Those would be the two largest reasons that I would tell you that we've seen a little higher basis in the east than the west versus the last couple of years.

Freight has also been a little easier to get in the west, again, because of the lack of exports. Those would be the three reasons that I would tell you that we've seen kind of a shift this year versus the last two years.

Ben Mayhew (Research Analyst)

Cool. If I could sneak in one more. I saw in the press release that you called out the renewable diesel feedstock trading desk as having a better performance. I am wondering, are you seeing improved transacting ahead of maybe an expected RVO announcement in May? It would seem like we are starting to see more plants kind of step into the market, have a little more confidence, and start buying some feedstocks ahead of this. I am just wondering what your internal visibility is on this and how it might pertain to kind of the rest of the year.

Bill Krueger (CEO)

I think in short, our internal visibility is about as clear as anyone else's in the industry. There is a lot of conversation around the ag and refineries working together on setting the RVO. There is a wide varying range of numbers. A lot of people want to say over the next two years, we will get north of 5 billion. We will wait and see what the number comes out. We have heard that we will likely have more information by the end of May. I agree with you. You are spot on when we have talked a lot about both the RVOs and trying to understand the outlook on soybeans and corn. There has been a focus or a feeling of more positive results potentially for the renewable diesel processing plants.

Ben Mayhew (Research Analyst)

Okay. Thank you so much. I'm going to step back in the queue.

Joe Muller (Coordinator)

Our next question will come from Ben Klieve with Lake Street Capital Markets. Please go ahead.

Ben Klieve (Senior Analyst)

Hi. Thanks for taking my questions. Congratulations. Good start here to the year. First question around the Skylan acquisition. There are a lot of kind of converging factors here. It seems like the macro condition in that it seems like the macro condition has kind of deteriorated over the last six months relative to what you guys had considered, but maybe that this business performed relatively well against that macro backdrop. I'm wondering if you can just kind of talk about its performance relative to your expectations. If you're able to isolate the level of EBITDA generated by that business here in the first quarter, that would be great too.

Bill Krueger (CEO)

Thanks. I'll take the first portion of that question. As we mentioned, the entire network was hit by in Q1, we had a sharp run-up in the board early in the quarter. We saw a second wave of a lot of farmers selling, which put pressure on the basis. Generally, that is exactly what we're looking for after the first of the year. February 21st, you have the announcement by the USTR of the port fees that just absolutely put the brakes on any forward activity. You can look at that, as I mentioned, on the export. All of our western corn belt operations struggled just with the lack of trade flow. Skylan, in particular, is more of an asset-based business versus some of our merchandising businesses.

Yes, they did have the same issue with their business or that portion of our business did as anyone else in the western corn belt did. In terms of thinking through the investment, we're actually doing a very good job on integrating the business into The Andersons. We continue to find synergies and opportunities that look very positive for the long-term investment in Skylan.

Brian Valentine (CFO)

Yeah. Ben, this is Brian. I would just add a few comments to that. I think when we talked in our conference call at the end of the year, we kind of said the first couple of months, November, December, were in the $5 million-$10 million range of EBITDA. And we talked about a $30 million-$40 million expected kind of annual run rate. It built that. I mean, we remained positive about the long-term fundamentals. The first quarter was tough. It was positive EBITDA, but just slightly positive. I would say if we think about the full year for that business, it's probably, I would say we're still comfortable with that $30 million-$40 million range, but I would lean it toward the low end of that range as opposed to the high side.

Ben Klieve (Senior Analyst)

Okay. Fair enough. That all tracks. Last one for me, then I'll get back in queue. It seems like the investments that you are making are kind of continuing without much change. I'm curious to the degree to which that's an accurate assessment. The investments, especially in Houston, a location explicitly focused around international trade flows. Those investments, it seems like, are going on without any kind of change, even against this kind of uncertain macro backdrop. Is that a fair characterization?

Bill Krueger (CEO)

Yeah. It's a very fair characterization. If you think through the net effect of an increase in RVOs, that's going to generate more demand for soybean oil, which will create more supply of soybean meal exports. We feel very confident in the strategy and the investments that we are, as we've talked about in the press release, our long lead item investments as still being very strategic and, quite honestly, today may feel more comfortable than they had previously.

Ben Klieve (Senior Analyst)

Got it. Very good. I appreciate the color from both of you. Thanks for taking my questions, and I'll get back in queue.

Joe Muller (Coordinator)

Our next question will come from Pran Sharma with Stevens. Please go ahead.

Pran Sharma (Analyst)

Thanks for the question, guys. I just wanted to start out and ask about the renewables business. Been seeing ethanol exports meaningfully up year to date through March to Canada. I know we had a little bit of back and forth in terms of trade tariff discussions, but just wanted to ask if you think some of the momentum that we're seeing thus far is a little bit of pull forward, or do you expect this type of momentum to carry for the whole year? Would just love to hear your thoughts on ethanol exports to Canada.

Bill Krueger (CEO)

It's a good observation in looking at the Q1 exports year over year. As we look at the market today, we would tend to agree with you that it is a little bit of a pull forward. Our thoughts are we're at 1.9 billion gallons of exports last year. It feels like the tariff potential is out there. We are not materially lower, nor are we materially higher than that. If you wanted to say 1.85-1.9, that's about as solid a guess as we would have. Obviously, there are a lot of outstanding variables, and the tariffs are the one item that we have to be monitored. Exports have been very strong in Q1 and feel like they're going to at least keep pace with last year in Q2.

Pran Sharma (Analyst)

Great. Appreciate that. I wanted to kind of just hone in about grain here. A, just ask, I think you addressed it in your prepared comments, but with prospective plantings, there is 95 million acres, and then we have just been hearing reports that planting pace is ahead of schedule. I wanted to see what this means for your ability to store for storage income within your grain business?

Bill Krueger (CEO)

Yeah. First quarter, as we stated, was hit with a lot of headwinds. Simultaneously, we're looking at the potential of a relatively large wheat crop with substantial carries. And we are looking at north of 95-95.5 million acres. There is a small area of the country in the Ohio River Valley that is struggling to get corn in, but that's not going to be material, we don't think. Yeah, we are hopeful that we have the opportunity in the last half of the year to make up any shortfalls that we had in the first quarter. Now, that all is going to vary on the size and quality of both the wheat crop and the fall harvest, and the assumption that we will see this recent increase in wheat exports coming out of the U.S. maintained. There is a lot of variables.

We like to think that most of them are positive as we look at the market today.

Pran Sharma (Analyst)

Great. Appreciate the color.

Joe Muller (Coordinator)

This concludes our question and answer session. I'd like to turn the conference back over to Mike Hoelter for any closing remarks.

Mike Hoelter (VP, Corporate Controller and Investor Relations)

Thanks, Joe. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Tuesday, August 5th at 8:30 A.M. Eastern Time, when we will review our second quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon.