CHS earnings down 22% in first quarter

by Susan Reidy
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CHS Inc
CHS opened the Gwinner grain shuttle loading facility in September 2016 and it has 2.4 million bushel storage capacity.
 
ST. PAUL, MINNESOTA, U.S. – Lower pretax earnings in its Energy and Food segments contributed to a 22% drop in earnings for CHS, Inc. in the first quarter of fiscal year 2017, the company reported on Jan. 12.

 

Net income for the period from Sept. 1-Nov. 30, 2016, was $209.2 million, which compared to $266.2 million in the same period a year earlier. Declines in the Energy and Food segments and Corporate and Other were partially offset by increased pretax earnings in the CHS Ag segment as well as earnings from the new Nitrogen Production segment.

CHS Carl Casale President
Carl Casale, president and chief executive officer of CHS.

"We've been in business for nearly nine decades, so we've experienced these types of cycles before," said Carl Casale, president and chief executive officer of CHS. "Although it's not possible to predict how long the current down cycle in the ag and energy industries will continue, we'll navigate through this period by continuing to run our businesses efficiently and effectively, by maintaining a strong balance sheet and by ensuring we serve our owners' and customers' needs in all we do."

The CHS Energy segment generated a pretax income of $70 million for the first three months of the 2017 fiscal year, compared to $192.9 million for the same period in 2016, representing a decline of 64%. The decline primarily reflected the down cycle in the energy sector and significantly reduced refining margins for the company's two refineries, CHS said. In addition, earnings for the company's transportation business declined while the lubricants business remained flat and propane earnings increased from the same period a year ago.

The CHS Ag segment, which includes its domestic and global grain and crop nutrients businesses, renewable fuels, local retail operations and processing and food ingredients, generated income of $109.2 million, an increase of 58% over the same period a year ago.

Grain marketing earnings increased as a result of increased grain margins. Earnings from renewable fuels marketing and production operations increased as a result of higher ethanol sales margins. The wholesale crop nutrients business increased mainly due to increased margins. Country operations earnings increased because of increased grain volumes and other income, which was partially offset by loan loss reserves, CHS said. CHS processing and food ingredients businesses experienced decreased earnings due to the sale of an international location and lower margins in the domestic soybean crushing business. These reductions were partially offset by higher margins in the canola crushing and soybean refining businesses.

The Nitrogen Production segment generated income of $27 million before taxes during the first three months of the fiscal year. This increase in income primarily was driven by a gain of $29.1 million associated with an embedded derivative asset established due to the terms of our strategic investment in CF Industries Nitrogen, LLC. There are no comparable results in the prior year as this segment represents the company’s investment in CF Nitrogen, which occurred in February 2016.

First-quarter results for the Foods segment, which was previously reported as a component of Corporate and Other, generated pretax earnings of $10.6 million during the first quarter of 2017. This represents a decrease of $7.7 million compared to the same period the year before. This segment consists solely of the company’s equity investment in Ventura Foods, LLC.

Corporate and Other generated pretax earnings of $8.8 million during the first quarter of fiscal 2017, compared to $9.4 million during the same time period the previous year. This segment primarily represents the company's equity investment in the Ardent Mills, LLC wheat milling joint venture and Business Solutions operations.

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