CHS earnings fall 46% in fiscal 2016

by Eric Schroeder
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CHS Inc
The Gwinner, North Dakota, U.S., grain shuttle loading facility has 2.4 million bushel storage capacity. It was officially opened on Sept. 19.
 
ST. PAUL, MINNESOTA, U.S. — Lower pre-tax earnings within the company’s Energy and Ag segments contributed to a 46% decline in earnings at CHS, Inc. in fiscal 2016.

Net income in the year ended Aug. 31 was $424.2 million, which compared with $781 million in fiscal 2015. CHS said lower pre-tax earnings within the Energy and Ag segments partly was offset by increased pre-tax earnings in its Foods segment, and seven months of earnings from its Nitrogen Production segment. The Nitrogen Production segment was created following the February 2016 strategic investment CHS made in CF Industries Nitrogen, LLC.

CHS Carl Casale President
Carl Casale

“Like others in our core businesses of agriculture and energy, the ongoing global downturn continued to affect both our earnings and revenues in fiscal 2016,” said Carl Casale, president and chief executive officer of CHS. “Meeting the long-term needs of our owners and customers remains our priority as we continue to take prudent actions to ensure the company remains financially sound and positioned for future opportunities.”

Revenues for the fiscal year were $30.3 billion, down 12% from $34.6 billion for fiscal 2015, primarily due to lower prices for the commodity energy, grains and fertilizer products that comprise much of the company’s business.

“As fiscal 2017 unfolds, CHS will sustain its focus on its financial and operational priorities,” Casale said. “This includes always putting safety first and taking mindful steps to maintain balance sheet strength and profitability. We’ll continue to manage expenses and staffing prudently, while making investments in necessary maintenance and essential operational upgrades and ensuring assets deliver appropriate levels of return.”

The Ag segment, which comprises agricultural inputs, grain marketing, local retail and processing businesses, recorded fiscal 2016 earnings before taxes of $30.9 million, down 79% from fiscal 2015. The year-ago results included a $116.5 million one-time impairment charge resulting from CHS’s decision to cease planned development of a nitrogen fertilizer plant at Spiritwood, North Dakota, U.S.

Within the Ag segment, earnings for the company’s Country Operations local retail businesses declined primarily due to lower grain margins, CHS said. This partially was offset by higher grain volumes in fiscal 2016 compared with fiscal 2015. CHS said lower margins also contributed to a decline in earnings for its wholesale crop nutrients business. Grain marketing earnings fell in fiscal 2016 as a result of lower margins that only partially were offset by higher volumes.

CHS Processing and Food Ingredients sustained lower year-over-year earnings for fiscal 2016, primarily due to costs associated with the sale and impairment of assets, along with a specific customer receivable and, to a lesser extent, lower soybean crushing margins. The company’s renewable fuels marketing and production operations also declined from fiscal 2016, CHS said, reflecting lower ethanol market prices, also partially offset by increased volumes.

Year-over-year pre-tax earnings for the CHS Energy segment declined 49% to $275.4 million for the year ended Aug. 31, 2016, primarily due to significantly lower refining margins for the company’s two refineries. Earnings for the company's transportation business also declined.

CHS said record performance by its propane business for fiscal 2016 was significantly ahead of fiscal 2015, which included reduced crop drying and winter heating demand. The CHS lubricants business also posted record earnings for a second consecutive year.

CHS said it recorded fiscal 2016 pre-tax earnings of $64.8 million, net of allocated expenses, for its ownership in Ventura Foods, LLC, under its Foods segment, but recorded a decline in year-over-year income from its ownership in the Ardent Mills, LLC, wheat milling joint venture.

In fiscal 2016, based on fiscal 2015 earnings, CHS returned $515.7 million to its owners as cash patronage, equity redemptions, preferred stock and dividends on preferred stock to its owners. Based on fiscal 2016 results, the company expects to return about $337 million to owners during fiscal 2017.

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