Yahoo Finance Will Andersons be Able to Cope With Headwinds in 2015?
We issued an updated research report on The Andersons Inc. ANDE on Aug 14, 2015. Andersons’ performance will be negatively impacted by higher corn costs, increase in effective tax rate, rise in expenses due to SAP implementation and expected lower production volume.
On Aug 5, 2015, Andersons posted disappointing second-quarter 2015 earnings, which plunged 30% to $1.09 per share. Revenues in the quarter also declined 7.9% year over year to $1.21 billion. This was primarily due to a 38% drop in ethanol sales because of lower commodity prices. Notably, deteriorating crop conditions have compressed margins owing to higher corn costs and lesser corresponding increases in ethanol prices. Further, cost of ethanol depends on oil prices, which have declined in the recent past. Hence, volatility in oil prices will hurt ethanol prices. Andersons also witnessed decline in the value of distillers dried grains relative to corn price in recent times, mainly due to Chinese import restrictions. These factors will remain the headwinds for the company’s growth.
Andersons’ outlook for the Grain Group remains conservative as it is expected to take some time to fully address its performance in the western region. Further, excessive rain in late May and June in most of the Eastern Corn belt had a negative impact on agriculture.
Andersons recorded income tax expense of $18 million for an effective tax rate of 35.7% in the second quarter, up 1.5% from the year-ago quarter rate of 34.2%. The higher effective tax rate this quarter is primarily due to the decreased impact of income attributable to non-controlling interest in the ethanol business. The company expects 2015 effective tax rate to be approximately 35%, which is more than the 2014 tax rate of 33.4% and may hurt earnings.
Andersons rolled out the new SAP Financial system company-wide and implemented the new grain system at two locations in May 2014. Pertaining to this, Andersons’ focus will shift from development to implementation in 2015; project team size and work effort will remain relatively stable. However, the amount of team effort will be greatly reduced, resulting in higher expense. Project expense, along with the amortization of previously capitalized cost and system support cost is expected to reduce earnings per share by 25 cents to 35 cents in 2015, relative to 2014.
Further, global economic downturn and increased competition remain headwinds for Andersons in the near term.
Moreover, this Zacks Rank #5 (Strong Sell) stock has witnessed downward estimates revision over the last 30 days. The Zacks Consensus Estimate for 2015 and 2016 decreased roughly 6% to $2.38 per share and 3% to $3.17 per share, respectively.
Stocks that Warrant a Look
Some better-ranked stocks in the same sector are Gruma S.A.B. de CV GMK, Syngenta AG SYT and Wilmar International Limited WLMIY. While Gruma sports a Zacks Rank #1 (Strong Buy), Syngenta and Wilmar International carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SYNGENTA AG-ADR (SYT): Free Stock Analysis Report
ANDERSONS INC (ANDE): Free Stock Analysis Report
GRUMA SA-ADR B (GMK): Free Stock Analysis Report
WILMAR INTL LTD (WLMIY): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
