We reiterate our Neutral recommendation on
The Andersons, Inc.
) as it remains cautious about the second-quarter 2012 results and
fears that wheat space income in the Grain Group would decline in
the quarter. Further, it expects lower margins in the Ethanol Group
as well as the Plant Nutrient Group.
first-quarter 2012 earnings were 98 cents per share, exceeding the
Zacks Consensus Estimate of 90 cents as well as the year-ago
quarter earnings of 93 cents. Total revenues increased 13.5%
year-over-year to $1.137 billion, surpassing the Zacks Consensus
Estimate of $1.107 billion.
Based in Maumee, Ohio, 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. It competes
with the companies like
Archer Daniels Midland Company
) and privately-held Cargill, Inc.
Andersons completed the purchase of Iowa Ethanol Plant in May
2012. The new plant consists of an ethanol production facility with
an adjacent 2.7 million grain terminal with direct access to two
Class 1 railroads in Iowa. It will carry out its operations in the
west of Mississippi which is included in the Andersons Denison
Ethanol LLC. This is Andersons' first ethanol plant in
Through this acquisition, Andersons will extend its geographical
boundaries, diversify and augment the customer base in its Ethanol
Group. It is expected that the new facility will render greater
efficiency to the grain market and other related services of grain
producers based in Iowa. Andersons generates the majority of its
revenues from the Grain and Ethanol Group. Therefore, the company
undertakes constant efforts to upgrade the business and strengthen
its market position in the face of growing competition.
Andersons increased its quarterly cash dividend by 36.4% to 15
cents in first-quarter 2012 adding value to its shareholders. The
company has increased its dividends regularly each year since
However, the economy is still weak and its negative impact on
the Retail group remains a concern. During the first quarter, the
segment had an operating loss of $2.7 million. Stiff competition,
especially from the mass merchandisers and do-it-yourself home
centers, has also added to the company's concerns. Consequently,
Andersons has not achieved much improvement in this segment.
Moreover, it is feared that the company will generate lower
margins in the Ethanol and Plant Nutrient Group. Overcapacity in
the industry along with weak gasoline demand and lower ethanol
exports will pressure the near-term margins of the Ethanol Group.
In the Plant Nutrient Group, the company has been benefiting from
price increase, recurrence of which is unexpected moving ahead.
Our recommendation on Andersons is in line with the short-term
Zacks #3 Rank (Hold).
ARCHER DANIELS (ADM): Free Stock Analysis
ANDERSONS INC (ANDE): Free Stock Analysis
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