Q3 2024 Earnings Summary
- The Andersons is making strategic investments, such as the $70 million Port of Houston facility and the $85 million Skyland Grain LLC acquisition, which are expected to contribute EBITDA of $15–$20 million and $30–$40 million per year respectively, positioning the company for significant future growth.
- The company is well-positioned to capitalize on favorable ethanol market conditions due to increased export demand (expected to reach 1.9 billion gallons, up from 1.43 billion last year), higher blend rates, and lower corn basis values, combined with their efficient ethanol plants and focus on lowering carbon intensity scores, enhancing profitability in the Renewables segment.
- With a strong balance sheet and long-term debt to EBITDA of approximately 1.5x, well below their target of less than 2.5x, the company has significant capacity to support growth investments and pursue attractive M&A opportunities, aiming to generate appropriate returns for shareholders.
- The Andersons anticipates lower profits in their merchandising business due to a lack of volatility in commodity markets, stating that "lack of volatility is not a friend of a merchandising business" and expecting "singles and doubles" in 2025.
- They plan significant capital expenditures of up to $150 million with expected returns ranging from high single digits to low double digits, which poses a risk if these returns are not realized as projected.
- The increasing soybean meal supply due to rising crush capacity may lead to oversupply and lower margins, potentially challenging their investment in the Port of Houston facility focused on the soy meal market.
-
Capital Allocation and M&A Plans
Q: Will you be more active in M&A or share buybacks?
A: We have a $100 million share repurchase authorization and aim to use it judiciously while balancing our growth objectives. With more deals coming to market and potentially tempered seller expectations, we aspire to remain active in M&A when opportunities align with our strategic goals and generate appropriate returns for shareholders. -
Ethanol Market Outlook
Q: What gives you confidence in ethanol fundamentals?
A: Increased export demand is projected to reach nearly 1.9 billion gallons in 2024, up from 1.43 billion last year. We anticipate stable to slightly increasing demand, lower corn basis levels, and efficient plant operations to continue providing opportunities in the ethanol market. -
Potential Acquisition of Ethanol Plants
Q: Are you interested in acquiring more ethanol plants?
A: Yes, we're interested in adding ethanol plants that meet our criteria for size, location, and price. While we've evaluated several opportunities, valuations haven't met our standards yet. We consider the entire value chain—including corn origination and co-product marketing—to enhance returns beyond a stand-alone plant. -
Investment in Port of Houston
Q: What's your strategy behind investing in the Port of Houston?
A: We're investing in the Port of Houston to capitalize on additional soybean meal capacity coming online, especially from the Western Corn Belt. We believe the U.S. will produce excess soybean meal that needs to be exported, and this investment positions us to drive efficiencies in that market. -
Skyland Acquisition Synergies
Q: How will the Skyland acquisition contribute to your business?
A: By combining our merchandising expertise with Skyland's strong team, we expect synergies to materialize quickly. Engaging with an additional 7,000 producers, we believe the acquisition will accrete value promptly as we integrate our operations. -
Carbon Intensity Reduction Initiatives
Q: Are you positioning to capture carbon credits?
A: Yes, we're focused on reducing the carbon intensity (CI) of corn entering our plants and exploring carbon sequestration and utilization projects. We anticipate the industry will be rewarded for low-CI ethanol through initiatives like regenerative agriculture and carbon capture. -
Merchandising Environment Outlook
Q: What's your outlook for merchandising in 2025?
A: While lack of volatility isn't favorable for merchandising, we're diversifying our portfolio to capitalize on current market conditions. We expect to be in a positive position in 2025 but acknowledge that higher income levels and greater volatility would be beneficial. -
Capital Investments and Returns
Q: Can you update us on your capital investments and expected returns?
A: We anticipate total capital expenditures reaching $150 million this year. Investments include the Port of Houston and projects at our ethanol facilities, such as enhanced corn oil extraction and automation. Expected returns are generally in the low double digits to low teens, depending on the project. -
Sustainable Aviation Fuel Participation
Q: How do you view participating in sustainable aviation fuel (SAF)?
A: We're focused on SAF and are closely monitoring technological and policy developments. We believe we're well-positioned to capitalize on ethanol-to-jet fuel opportunities as SAF regulations evolve. -
Soybean Meal Market Outlook
Q: How do you view the increasing soybean meal capacity?
A: We anticipate that soybean meal will need to reach export parity as domestic demand won't grow fast enough to absorb increased production. Our investment in Houston aligns with this outlook, positioning us to export the excess meal the U.S. will produce.