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Andersons’ (ANDE) Grain Business Solid, Margin Issues Linger

Zacks

On Nov 8, we issued an updated research report on The Andersons, Inc. ANDE. The company is poised to gain from solid prospects in its Grain business, sale of retail-store properties and productivity initiatives. However, margin issues in the Ethanol Group and headwinds in the Rail Group are expected to thwart results.

Upbeat Grain business

Notably, Andersons anticipates its Grain business results and underlying grain fundamentals to improve, going forward. The company remains comfortable with grain-ownership positions and continues to enjoy wide carrying charges in wheat. While the 2017 corn harvest is behind its normal pace, the company predicts robust high-quality crops in dry areas. It also anticipates to earn good storage income through the remainder of 2017 harvest and into early 2018.

Retail-Store Sale to Propel Growth

In the Retail Group, Andersons remains optimistic about its key initiatives, including the sale of retail-store properties, productivity and cost-saving efforts. The company accomplished the sale of two of its four retail-store properties during the third quarter. It expects to close the sale of the third store in the fourth quarter and the last one in 2018.

Productivity Initiatives to Boost Results

Andersons will continue to work on its productivity initiatives, with total targeted run-rate savings of $20 million by the end of 2018. The company estimates to achieve 75% of the goal by the end of this year. During the third quarter, it implemented a new company-wide indirect procurement system, which will help control, reduce and consolidate spending, and improve the time and accuracy of processing payables, as well as manage payment terms more effectively.

Lower DDG Margins Dampen Ethanol Group

Despite the above-mentioned upbeat factors, Andersons’ Ethanol Group continues to be affected by lower DDG margins due to problems with vomitoxin in the group's three facilities. Lower international demand for DDGS also continues to put pressure on pricing and margins. Margins also continued to be impacted by higher ethanol production in inventory, regardless of strong exports.

Headwinds in the Rail Group

In addition, the company remains concerned about headwinds in the Rail business. Based on some normal required maintenance, Andersons expects to record around $3 million higher tank car re-certification expense in 2018 compared to 2017. Also, changes in accounting standards by the Financial Accounting Standards Board for revenue recognition and leasing remain a drag for this segment’s performance.

Share Price Performance

In the last year, Andersons has underperformed its industry with respect to price performance. The stock has lost around 12.9%, while the industry has recorded growth of 16.7% during the same time frame.



Zacks Rank & Stocks to Consider

Andersons currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector are BHP Billiton Limited BHP, Stora Enso Oyj SEOAY and Sociedad Química y Minera de Chile S.A. SQM. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BHP Billiton has an expected long-term growth rate of 5.3%.

Stora Enso has an expected long-term growth rate of 9.6%.

Sociedad Química y Minera has an expected long-term growth rate of 32.5%.

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