The Andersons expects better 2017 with focus on operating efficiency

by Susan Reidy
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Andersons corn facility
Grain group expected to sustain fourth quarter recovery into the new year.
 
MAUMEE, OHIO, U.S. – While 2016 presented significant challenges, the Andersons addressed underperforming areas of the business, putting it in position for an improved 2017, said Pat Bowe, chief executive officer, in an earnings call with analysts.

The Andersons
Pat Bowe, chief executive officer.

“As we look forward to our 2017 year, we expect our overall company results to improve significantly over those of 2016,” he said. “More specifically, we will continue our focus on operating efficiency by lowering our costs to serve and thus improve the performance of our core businesses. We'll continue to look to improve our portfolio via asset optimization and investment in our core and targeted growth areas.”

In 2016, the company addressed three key areas: portfolio management, productivity and targeted investments. It closed two cob facilities in the fourth quarter and announced plans to exit its retail businesses, which will allow the company to focus its capital on higher performing assets, Bowe said.

Bowe said the company has been streamlined to improve operational efficiency with a reduction in senior corporate leadership positions and an overall workforce reduction of 10%.

Targeted investments were made in core businesses, including expansion of an ethanol plant in Albion, Michigan, U.S., and IT investments for the grain and plant nutrient groups.

The Andersons’ full-year results were reflective of significant challenges in the grain business, which showed a $29.6 million decline in pretax income versus adjusted pretax income for 2015. The segment showed improvement in the fourth quarter, with pretax income of $12.9 million, up from $9.8 million in the same quarter a year earlier.

But the fourth quarter was not enough to offset the large losses from the first half of the year, resulting in pretax loss of $15.7 million. Going forward, the segment is positioned for a much better 2017, Bowe said.

A return to more normal grain production last fall in the Eastern Corn Belt has resulted in higher ending stocks, and soybean acreage is expected to be 5% higher than last year’s 83 million acres.

“Weather conditions and crop deals that are comparable to those of 2016 should provide good opportunities for the grain group to sustain its recovery,” Bowe said.

Conditions also are expected to improve for the rail group, which felt the impact from lower rail traffic in 2016. Car load movements so far in 2017 suggest that this may be the bottom of the downturn, Bowe said.

“We expect our utilization rates to continue to feel the impact of last year's lower traffic through mid-2017, after which, we expect conditions to improve,” he said. “Our rail car fleet is highly diversified in terms of equipment types, customer base, commodities carried and the lease term expirations. And as such, is well positioned for solid performance over the rail cycle.”

Ethanol is off to a better start than the previous year, although first-quarter margins are off from the fourth quarter, as is typical for this time of year, Bowe said.

Late in 2016 the cost to acquire corn at the company’s eastern facility was higher due to localized incidences of vomitoxin. Chinese tariffs and the impact of vomitoxin on distiller’s dried grains, a by-product of ethanol production, led to lower pricing in the fourth quarter.

“Overall, we believe our ethanol facilities are well positioned geographically with efficient technology which allow the group to perform well in 2017,” Bowe said. “The group continues to focus on driving operational efficiencies, achieve higher yields and lower costs. We expect that we will complete the project to double the Albion annual capacity in Michigan up to 130 million gallons and will be running at full capacity by the end of the second quarter.”

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