Andersons, Inc. Q1 FY2025 earnings call

• Mixed results in Q1 with Renewables strong and Agribusiness weaker due to global trade uncertainty. - Agribusiness was hit by tariffs and trade flow issues, but agronomy had increased volumes and margins. - Renewables had one of its best first quarters with improved yields, ethanol margins, and merchandising contributions. - Outlook includes optimism for Agribusiness post-tariff clarity, Renewables focusing on efficiency and growth projects, including evaluating acquisitions and process enhancements.

In the first quarter of 2025, the Agribusiness segment reported a pretax loss attributable to the company of $5 million and breakeven adjusted pretax income, with adjusted EBITDA of $31 million compared to $29 million in the first quarter of 2024. It was impacted by tariffs, port fees, and trade flow uncertainties, but agronomy had increased volumes and margins. The Renewables segment had an outstanding first quarter, generating pretax income attributable to the company of $15 million compared to $14 million in the first quarter of 2024, with EBITDA of $37 million compared to $34 million last year. It benefited from improved yields, ethanol margins, and merchandising contributions.

• Expect full year adjusted effective tax rate between 18% and 22%. - Renewables expects higher Eastern corn basis and natural gas costs but strong export demand. - Agribusiness expects improved conditions post-tariff clarity and potential storage/handling opportunities in the last half of the year. - Continues to evaluate growth projects and M&A opportunities aligned with strategy.

• Global trade uncertainty from tariffs and port fees disrupting commodity markets. - Oversupply of alternative protein sources affecting dried distiller grains values. - Higher Eastern corn basis and natural gas costs impacting Renewables' results.

Q: Good morning, guys. And congrats on the solid performance in a really difficult environment. So my first question has to do with the fertilizer business. So it sounds like you have some good visibility on second quarter fertilizer profits given the strong corn plant. So I'm just wondering if you can frame it against maybe the last 2 years second quarter performance. Do you expect it to maybe be a little bit higher from a profit standpoint?

A: Thanks for the question. Yeah, this year's planning season compared to the last 2 has really started off well. We are obviously looking at a much larger geographic area with the addition of the Skyland Farm Centers, doubling our size. But compared to last year, we've seen the opportunities in the fertilizer and nutrient business expand, not only due to increased corn acres, but also we just had a solid plan working with our suppliers coming into this planting season, which has really benefited us.

Q: And so my second question has to do with the ethanol business. So I think the first quarter came in probably stronger than at least I expected, and it seems like most others expected. Had another major competitor yesterday post a pretty strong result and give a stronger outlook. You mentioned the difference in corn basis between the Eastern and Western Belt, which I thought was pretty interesting for this year because the last couple of years, the Eastern Belt has been cheaper. So I was hoping you could just dive into that difference this year and what's causing the Eastern Belt to be a little more expensive on basis versus the Western belt.

A: Yeah. That relates back to a couple of the comments that I made. So the Western Corn Belt has had less demand this year than it has the past couple of years. With the port fees and the looming tariff discussions, we had substantially less sorghum and wheat exports. Sorghum was down materially year-over-year. So you had a lot more grain fighting for the demand in the Western Corn Belt than we've had the last couple of years. Also, we've had a substantial drop in the cattle on feed numbers in the West, which is also a competing demand. So those would be the 2 largest reasons that I would tell you that we've seen a little higher basis in the East than the West versus the last couple of years. Freight has also been a little easier to get in the West, again, because of the lack of exports. But those would be the 3 reasons that I would tell you that we've seen kind of a shift this year versus the last 2 years.

Q: Thanks for taking my questions. And congratulations, good start here to the year. First question around the Skyland acquisition. There's a lot of kind of converging factors here. It seems like the macro condition in that - it seems like the macro condition has kind of deteriorated over the last 6 months relative to what you guys have considered, but maybe that - this business performed relatively well against that macro backdrop. I'm wondering if you can just kind of talk about its performance relative to your expectations. And then if you're able to isolate the level of EBITDA generated by that business here in the first quarter, that would be great, too.

A: Thanks. I'll take the first portion of that question. As we mentioned, the entire network was hit by - in Q1, we had a sharp run-up in the board early in the quarter. So we saw a second wave of a lot of farmer selling, which put pressure on the basis. Generally, that is exactly what we're looking for after the first of the year. But then February 21, you have the announcement by the USTR of the port fees that just absolutely put the brakes on any forward activity. And you can look at that, as I mentioned, on the export. So all of our Western Corn Belt operations struggled just with the lack of trade flow. Skyland, in particular, is more of an asset-based business versus some of our merchandising businesses. So yes, they did have that the same issue with their business as - or that portion of our business did as anyone else in the Western Corn Belt did. In terms of thinking through the investment, we're actually doing a very good job on integrating the business into the Andersons, and we continue to find synergies and opportunities that look very positive for the long-term investment in Skyland.

Q: Thanks for the question, guys. I just wanted to start out and ask about the Renewables business. Bill [ph] seeing ethanol exports meaningfully up year-to-date through March to Canada. I know we had a little bit of back and forth in terms of trade tariff discussions. But just wanted to ask if you think some of the momentum that we're seeing thus far is a little bit of pull forward? Or do you expect this type of momentum to carry for the whole year? Would just love to hear your thoughts on ethanol exports to Canada.

A: It's a good observation in looking at the Q1 exports year-over-year. As we look at the market today, we would tend to agree with you that it is a little bit of a pull forward. Our thoughts are we are at 1.9 billion gallons of exports last year. It feels like the tariff potential is out there. So we're not materially lower nor are we materially higher than that. If you wanted to say 1.85 to 1.9, that's about as solid a guess as we would have. Obviously, there are a lot of outstanding variables and the tariffs are the one item that we have to be monitoring. But exports have been very strong in Q1 and feel like they're going to at least keep pace with last year in Q2.