We are downgrading our recommendation on Andersons from neutral to
underperform with a target price of $42 as its estimates have
undergone negative revisions following its third-quarter results.
Andersons' earnings in the third quarter of 2014 declined 3% year
over year to $0.59 per share. Revenues also plunged 19% year over
year to $952 million. Andersons' earnings per share will be reduced
by $0.25 to $0.35 in 2015, relative to 2014, due to higher project
expense related to the roll out of the new SAP Financial system.
Further, Andersons' growth will be hurt by recent decline in the
value of distillers dried grains due to Chinese import
restrictions. In addition, poor railroad service, increased
competition and volatility in raw material price remain headwinds
for the company in the near term.
Founded in 1947 in Maumee, Ohio, The Andersons, Inc. (ANDE) is a
diversified company operating in six different business segments,
ranging from buying, selling and storing grain to leasing railcars
and running retail stores catering to the latest home hardware
needs. The company has operations across the U.S. and in Puerto
Rico, plus rail equipment leasing interests in Canada and
The Grain Group (60% of total revenue in third quarter of 2014)
operates grain elevator facilities in the U.S. Corn Belt. In
addition to storage, merchandising and grain trading, the Grain
group provides marketing, risk management, and corn origination
services to its customers and affiliated ethanol production
facilities. Grain is a significant investor in Lansing Trade Group,
LLC (LTG), an established commodity trading, grain handling and
merchandising business, with operations across the country and
global trading/merchandising offices.
The Ethanol Group (19%) has ownership interests in ethanol
production facilities organized as separate limited liability
companies. The plants are located in Iowa, Ind., Mich., and Ohio,
with a combined capacity of 330 million gallons of ethanol. The
business purchases and sells ethanol, offers facility operations,
risk management, and ethanol, corn oil and distillers dried grains
marketing to the ethanol plants where it invests and operates, as
well as to third parties.
The Plant Nutrient Group (12%) manufactures and distributes
agricultural and related plant nutrients and pelleted lime and
gypsum products in the U.S. Corn Belt, Florida and Puerto Rico. The
Group provides warehousing, packaging, and manufacturing services
to basic nutrient manufacturers and other distributors.
The Retail Group (4%) operates retail stores under the name "The
Andersons" in the cities of Columbus and Toledo in Ohio, and also a
specialty food store under the name "The Andersons Market" in the
same state. The retail store provides home improvement products and
other mass merchandise categories as well as specialty foods, wine,
and indoor and outdoor garden centers. The specialty food store
includes fresh product offerings like produce, deli, bakery items
and fresh meat, specialty and conventional dry goods, and wine.
The Rail Group (3%) repairs, sells and leases a fleet of over
23,000 railcars and locomotives of various types, as well as a
small number of containers. The group has a diversified fleet of
car types (boxcars, gondolas, covered and open top hoppers, tank
cars and pressure differential cars), locomotives, and containers.
The Group mainly operates in the used car market by purchasing used
cars, and repairing and refurbishing them for specific markets and
The Turf and Specialty Group (2%) produces and markets turf and
ornamental plant fertilizer products and control products for use
in lawns and gardens, and professional golf and landscaping
industries, as well as corncob based products to the pet and the
industrial markets. Professional turf products are sold directly
and through distributors to golf courses.
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