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    Andersons Inc (ANDE)

    Q1 2024 Earnings Summary

    Reported on Feb 20, 2025 (After Market Close)
    Pre-Earnings Price$51.45Last close (May 8, 2024)
    Post-Earnings Price$51.18Open (May 9, 2024)
    Price Change
    $-0.27(-0.52%)

    What went well

    • The Andersons anticipates increased ethanol exports in 2024, with Q1 exports up over 25% year-on-year. The recent E15 waiver will contribute to continued demand, and the company believes its ethanol plants are some of the best-in-class, enabling them to manage strong results.
    • The company is targeting a $475 million EBITDA run rate by the end of 2025, expecting 50% of growth to come from M&A. They have a strong balance sheet and are seeing increased M&A activity across all segments close to their core businesses, positioning them well to achieve their growth targets.
    • The Andersons is focusing on higher-margin niches such as pet food and specialty food ingredients, having made several bolt-on acquisitions in these areas, which have contributed to improved results. This strategic shift differentiates them from competitors and broadens their portfolio to drive higher margins.

    What went wrong

    • The company is facing constraints in achieving its 2025 EBITDA target of $475 million as it relies heavily on mergers and acquisitions, which may be challenging due to high valuations and limited suitable opportunities. Management acknowledged they "can't achieve that number by organic alone" and have "passed on several deals over the last 3 years" due to pricing.
    • Pulling back from certain international markets due to geopolitical risks has resulted in a decrease in EBITDA of $5 million to $10 million, impacting the Trade segment's earnings. The company is "waiting until some of that liquidity comes back before pursuing more opportunities" in these regions.
    • The Nutrient and Industrial segment expects first-half performance to be "flat year-over-year to maybe down slightly," with "lower volumes but higher margins" compared to last year. This indicates potential challenges in driving growth within this segment.

    Q&A Summary

    1. EBITDA Target & M&A Plans
      Q: How will you achieve the $475M EBITDA target by 2025?
      A: To reach our $475 million EBITDA run rate target by end of 2025, we will require M&A, expecting about a 50-50 split between organic growth and acquisitions. We're seeing increased M&A activity across all segments, with a larger portion allocated to renewables, followed by trade and fertilizers.

    2. Capital Allocation in Grain Assets
      Q: Why invest in grain assets when competitors are selling?
      A: Over the past five years, we've trimmed our asset portfolio and utilized our remaining assets positively. Unlike competitors, we maintain a strong connection from producer to end user, effectively managing logistics and risk. We're focusing on niches where we can differentiate and broaden our portfolio for higher margins.

    3. Ethanol Business Outlook
      Q: What's the outlook for ethanol exports and sustainable fuel?
      A: Ethanol exports were up over 25% year-over-year in Q1, and we believe 2024 ethanol exports will increase over 2023. With the E15 waiver passed, demand continues to grow. We're positioning our ethanol plants to have low carbon intensity, aiming to supply the sustainable aviation fuel market.

    4. International Business Impact
      Q: What's the impact of exiting certain international markets?
      A: Stepping back from some international business due to geopolitical risks resulted in a $5 to $10 million EBITDA change year-over-year. We're focusing on markets with ample U.S. dollar liquidity and see long-term growth opportunities in geographies like Romania.

    5. Ag Cycle Outlook
      Q: How is the ag cycle affecting your business?
      A: Commodity prices have normalized after peaks during the Ukraine war, with strong production in South America and good U.S. crops. Domestic demand remains attractive, and ethanol looks strong this year. Farmers are financially solid, and we expect opportunities from programs that enhance farm income to soften any landing over the next 12 to 18 months.

    6. Capital Expenditures & Carbon Sequestration
      Q: Are you investing in carbon sequestration projects?
      A: Approximately 50% of our capital expenditures will be on base spending versus M&A, including plans for CCUS (Carbon Capture, Utilization, and Storage) for our ethanol plants. These projects involve permitting and equipment installation, positioning us for the low-carbon fuel market.

    7. Trade Business Outlook
      Q: What's the outlook for the Trade business?
      A: The return of carry in the wheat market is positive, especially for storage income in our eastern assets. While farmer engagement has been lower due to lower prices, we expect improvement as the crop year progresses. Our focus on domestic customers in beef, swine, poultry, ethanol, flour milling, and pet food diversifies our portfolio and supports margins.

    8. Nutrient & Industrial Segment
      Q: What's the outlook for the Nutrient & Industrial segment?
      A: The second quarter is typically the strongest for this business. For the first half, we expect results to be flat year-over-year to maybe down slightly, seeing lower volumes but higher margins compared to last year.

    9. Pet Food & Acquisitions
      Q: Are you expanding in pet food and making acquisitions?
      A: We've added a small bolt-on acquisition in our turf business on the East Coast and are looking for opportunities that fit our strategy, including in pet food and specialty food ingredients. The M&A market appears to be improving, offering chances to deploy capital wisely.

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