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Bear of the Day: The Andersons (ANDE)

ZacksThe Andersons, Inc. (ANDE) continues to struggle as fertilizer prices and the agriculture sector remain in a recession. This Zacks Rank #5 (Strong Sell) is expected to see an earnings decline of 47% this year.

The Andersons was founded in 1947 by Harold Anderson in Maumee, Ohio with a single grain elevator. It has grown into an agribusiness company with numerous business segments across North America, including in grain, ethanol, plant nutrient, and consumer retailing.

It also has rail equipment leasing interests in Canada and Mexico.

Another Miss in the Third Quarter

It has been a rough time in the agriculture business. On Nov 7, The Andersons missed the Zacks Consensus Estimate for the fifth straight quarter reporting $0.06 versus the Zacks Consensus of $0.23.


While the company saw improving conditions in its Grain Group and strong margins in the Ethanol Group, the Plant Nutrient Group, which is the fertilizers, faced weak margins and the Rail Group continued to see softening in utilization.

In the third quarter, nutrient volumes fell as producers and dealers were reluctant to buy in a sustained falling price environment. Basically, if they thought they could get it cheaper at a later date, they would wait to buy.

Advance purchase activity also fell during the third quarter.

The Andersons expects the poor fertilizer conditions to persist throughout the fourth quarter.

In the Rail Group, North American rail traffic volume continued to fall year over year. The soft market conditions are placing pressure on lease renewal rates and railcar utilization levels.

Given the mixed news, the company has initiated a $10 million cost reduction plan in an effort to gain control in the uncertain business environment. It has also shut one of its retail stores and will now operate 2 stores in each of the Toledo and Columbus, Ohio markets.

Estimates Cut for 2016 and 2017

With the outlook for the fourth quarter still looking bleak, it’s not surprising that the analysts cut their 2016 estimates.

The Zacks Consensus Estimate has fallen to $0.77 from $0.97 thirty days ago as 2 estimates were slashed. That’s an earnings decline of 47.2% from 2015.

One estimate has also been cut in the last month for 2017 but the analysts still expect an earnings rebound. The Zacks Consensus is sitting at $1.92, an earnings gain of 151%.

Shares Not Cheap

Many believe that fertilizer prices have bottomed so investors have been buying into some of the agriculture stocks.

Despite falling earnings, The Anderson shares are up 23% year-to-date. It hasn’t been a smooth ride higher, but investors are signaling the worst may be over. Check out this 5-year chart. The shares had been in a 2 year free fall before 2016.

But because earnings are on the decline, the stock isn’t cheap. It trades with a forward P/E of 51.

It looks like investors might be getting ahead of the actual fundamentals in this case.

Most of the agriculture, and fertilizer, stocks are a mess right now. But if you really want to be in one, you might consider Agrium Inc. (AGU), the Canadian agribusiness giant. It’s estimates have also been cut for this year but at least it’s a Zacks Rank #3 (Hold).

More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today’s list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

See today’s Zacks “”Strong Sells”" absolutely free >>.


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ANDERSONS INC (ANDE): Free Stock Analysis Report

AGRIUM INC (AGU): Free Stock Analysis Report

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