The Andersons(ANDE) - 2023 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents unaudited consolidated financial statements, detailing Q2 2023 sales, net income, and improved H1 operating cash flow Condensed Consolidated Statements of Operations This statement details Q2 2023 sales and net income, with six-month results impacted by an $87.2 million asset impairment Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales and merchandising revenues | $4,020,183 | $4,450,617 | $7,901,421 | $8,428,571 | | Gross profit | $221,937 | $230,841 | $369,948 | $350,376 | | Asset impairment | $0 | $0 | $87,156 | $0 | | Income before income taxes | $104,418 | $118,153 | $39,417 | $128,760 | | Net income attributable to The Andersons, Inc. | $55,046 | $79,805 | $40,296 | $85,307 | | Diluted earnings per share (Continuing Ops) | $1.61 | $2.34 | $1.18 | $2.52 | Condensed Consolidated Balance Sheets The balance sheet shows total assets of $3.57 billion as of June 30, 2023, primarily reflecting reduced inventories and accounts receivable Condensed Consolidated Balance Sheet Highlights (In thousands) | Account | June 30, 2023 | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $96,293 | $115,269 | $86,035 | | Inventories | $990,789 | $1,731,725 | $1,618,326 | | Total current assets | $2,537,265 | $3,465,953 | $3,572,879 | | Total assets | $3,570,046 | $4,607,996 | $4,737,175 | | Short-term debt | $102,752 | $272,575 | $1,161,428 | | Total current liabilities | $1,393,239 | $2,521,322 | $2,577,576 | | Total liabilities | $2,131,564 | $3,178,227 | $3,319,969 | | Total equity | $1,438,482 | $1,429,769 | $1,417,206 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to a $207.4 million source in H1 2023, primarily due to favorable working capital changes Cash Flow Summary (In thousands) | Activity | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $207,404 | $(721,799) | | Net cash used in investing activities | $(71,673) | $(30,094) | | Net cash (used in) provided by financing activities | $(154,987) | $622,113 | | Decrease in cash and cash equivalents | $(18,976) | $(130,409) | Notes to Condensed Consolidated Financial Statements These notes detail the discontinued Rail segment, an $87.2 million impairment, ELEMENT deconsolidation, and a post-quarter acquisition - The Rail segment's operating results are classified as discontinued operations for all periods presented following the sale of the business[22] - A $87.2 million impairment charge was recorded in Q1 2023 for the ELEMENT, LLC joint venture ethanol plant due to operational and market challenges, with 49% attributed to noncontrolling interests[30] - On April 18, 2023, ELEMENT was placed into receivership, leading the company to deconsolidate the entity and recognize a net pretax gain of $6.5 million[34][87][94] - On July 10, 2023, the company acquired ACJ International LLC, a pet food ingredient company, for $41.4 million[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, emphasizing gross profit, and analyzes segment results, liquidity, and capital resources Segment Performance This section analyzes Q2 2023 segment performance, noting mixed results in Trade, strong Renewables, and improved Nutrient & Industrial segments - Trade: Gross profit declined in Q2 despite strong merchandising, as agricultural inventory throughput decreased from Q2 2022[102] - Renewables: Q2 results were strong due to rallying crush margins and robust co-product values, outperforming the prior year when excluding a $17.6 million USDA grant and mark-to-market gains from 2022[104] - Nutrient & Industrial: Gross profit improved by $4 million in Q2 as higher sales volumes offset margin compression from declining market prices[108] Comparison of Operating Results This section compares Q2 and H1 operating results by segment, highlighting the impact of the Renewables segment's $87.2 million asset impairment charge Income (Loss) Before Income Taxes by Segment (In thousands) | Segment | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Trade | $4,990 | $23,666 | $44,354 | $27,335 | | Renewables | $66,604 | $67,776 | $(15,909) | $73,738 | | Nutrient & Industrial | $42,565 | $38,311 | $32,127 | $49,054 | | Other | $(9,741) | $(11,600) | $(21,155) | $(21,367) | | Total | $104,418 | $118,153 | $39,417 | $128,760 | - The H1 2023 Renewables segment loss was driven by an $87.2 million asset impairment charge related to the ELEMENT ethanol plant[132] Liquidity and Capital Resources Working capital increased to $1.14 billion, driven by lower commodity prices, with strong liquidity and $1.74 billion available for borrowing - Working capital from continuing operations increased to $1.14 billion at June 30, 2023, from $984.0 million a year earlier[139][140] - The decrease in both current assets and current liabilities is largely attributed to the stabilization of agricultural commodity prices in 2023 compared to significant price increases in 2022[140][141] - The company expects to invest approximately $125 million to $150 million in property, plant and equipment in 2023[144] - Total borrowing capacity was $1.87 billion, with $1.74 billion available as of June 30, 2023[145] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in market risk, including commodity and interest rate risk, during the first six months of 2023 - There were no material changes in market risk, specifically commodity and interest rate risk, during the first six months of 2023[149] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2023[150] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2023[151] Part II. Other Information Item 1. Legal Proceedings Management believes there is no reasonable possibility of a material loss from current legal proceedings beyond recorded accruals - In management's opinion, there is not a reasonable possibility of a material loss from current legal proceedings beyond what has been accrued[153] Item 1A. Risk Factors The company refers to its 2022 Form 10-K for detailed risk factors, indicating no new material risks are presented in this report - The company refers to the risk factors disclosed in its 2022 Form 10-K and does not present any new material risks in this filing[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2,113 shares in Q2 2023 under its $100 million plan, with $85.5 million remaining available Share Repurchase Activity (Q2 2023) | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 0 | N/A | | May 2023 | 2,113 | $35.95 | | June 2023 | 0 | N/A | | Total | 2,113 | $35.95 | - As of June 30, 2023, $85.5 million remained available for share repurchases under the current plan, which expires in August 2024[155][156] Item 5. Other Information The company will continue annual say-on-pay votes, and a treasurer entered a Rule 10b5-1 plan to sell company stock - The company will continue to hold an annual advisory vote on named executive officer compensation[157] - Treasurer Brian K. Walz entered into a Rule 10b5-1 plan to sell up to 3,414 shares of common stock between August 2023 and August 2024[157]