Q2 2024 Earnings Summary
- Large upcoming harvest expected to benefit grain handling volumes and elevation margins: The Andersons anticipate a sizable grain volume to handle in the upcoming harvest, with farmers needing to move grain off-farm prior to harvest due to near-record on-farm stocks and potentially record-breaking corn yields. This is expected to benefit their grain assets through increased elevation margins and storage income.
- Active pursuit of growth opportunities through M&A and strong cash position: The company is evaluating several M&A opportunities, including the potential acquisition of an ownership interest in Skyland Grain LLC, which could significantly expand their geographic reach and increase the size of their farm center fertilizer business. With over $500 million in cash and negligible short-term borrowings, they have significant capacity to support growth investments and are confident in achieving their $475 million EBITDA target by 2025 through disciplined investments.
- Continued growth in Renewables business, confident in reaching renewable diesel feedstock volume targets: The Andersons' renewable diesel feedstock volumes continue to grow, and they are as confident as ever in reaching their target of 2 billion pounds, potentially even exceeding it. This growth is expected to contribute positively to the company's profitability, especially in the context of industry demand and potential favorable market conditions such as restrictions on imported used cooking oil.
- Decreased Financial Performance Compared to Last Year: The Andersons reported a significant decline in financial results for the second quarter of 2024. Net income attributable to the company decreased from $55 million in Q2 2023 to $36 million in Q2 2024, and adjusted EBITDA dropped from $144 million to $98 million during the same period. This decrease indicates potential challenges in maintaining profitability.
- Reliance on Mergers and Acquisitions to Achieve 2025 EBITDA Targets: Management acknowledged that reaching their $475 million EBITDA target by 2025 will likely require more mergers and acquisitions due to the current lower commodity price environment. This reliance on M&A introduces execution risks and may strain financial resources if not managed effectively.
- Expected Challenges in the Second Half of 2024 Due to Lower Commodity Prices and Reduced Volatility: The company anticipates a more challenging second half of 2024 compared to the same period in 2023. Lower commodity prices and decreased market volatility are expected to negatively impact merchandising opportunities and overall profitability. This outlook suggests potential headwinds for the company's near-term financial performance.
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2025 EBITDA Target and M&A Plans
Q: Can you achieve the 2025 EBITDA target with current M&A?
A: Management believes reaching the $475 million EBITDA target by 2025 will require more M&A than originally expected, but they are confident due to a robust deal pipeline. They are seeing increased deal flow, including sizable opportunities like Skyland Grain, which fit strategically and could be larger than past acquisitions. They are committed to being disciplined and generating appropriate returns for shareholders. -
Ethanol Business Outlook
Q: What's the outlook for ethanol margins and growth?
A: The company expects strong ethanol demand and bullish margins into year-end, supported by robust exports projected to reach up to 1.9 billion gallons for 2024. They continue to invest in their ethanol plants to enhance efficiency and reduce carbon intensity, aiming to be industry leaders and to grow in the renewable space ahead of potential future opportunities in sustainable aviation fuel (SAF). -
Renewable Diesel Feedstock Growth
Q: Are you on track to reach 2 billion pounds in renewable diesel feedstock trading?
A: Management is confident they will achieve and likely exceed 2 billion pounds of renewable diesel feedstock trading. As plants reach maximum capacity, focus shifts to better utilization and increased run times, with quarter-over-quarter volume increases supporting this trajectory. -
Trade Group Performance
Q: How will the Trade Group perform in a lower price, lower volatility market?
A: The last half of 2024 is expected to be more challenging than 2023 due to a lower price environment and reduced volatility. However, management anticipates higher elevation margins from handling a large crop, which should benefit their assets, potentially offsetting lower merchandising opportunities. -
Animal Feed and Pet Food Demand
Q: What's the demand outlook for animal feed and pet food?
A: Demand in the beef cattle and dairy markets is increasing, while the pork industry faces challenges. A shift from premium to value pet food products is occurring, which fits well with The Andersons' specialty ingredients model, allowing them to meet customer needs in the value segment. -
Grain Inventories and Harvest Expectations
Q: Will elevated grain inventories persist through harvest?
A: Management expects farmers will need to move grain to market before harvest due to very high on-farm storage and an anticipated record-breaking corn yield. They believe farmers will sell stored corn, reducing elevated inventory levels. -
Market Correction for Corn Oversupply
Q: How might the ag market correct the corn oversupply?
A: The market will self-correct through global supply and demand dynamics. With abundant stocks and large crops, corn prices are expected to remain muted into 2025. Management focuses on merchandising and risk management to navigate both high and low price environments. -
Impact of UCO Import Investigation
Q: Will the investigation into counterfeit used cooking oil imports affect your business?
A: Management believes the investigation is unrelated to their operations. Any restrictions on UCO imports could drive domestic distillers corn oil (DCO) prices higher, benefiting their renewable diesel feedstock business and ethanol profitability. They do not participate in importing UCO but support domestic suppliers.