Andersons, Inc.: Form 10-Q for the period ended Jun 30, 2025

Forward Looking Statements

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by these forward-looking statements. Such factors include, but are not limited to, the effects of economic, weather and agricultural conditions, regulatory conditions, competition globally and in the markets the Company serves, geopolitical risk, fluctuations in cost and availability of commodities, the effectiveness of the Company's internal control over financial reporting and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors. The reader is urged to carefully consider these risks and others, including those risk factors listed under Item 1A of the 2024 Form 10-K. In some cases, the reader can identify forward-looking statements by terminology such as may, anticipates, believes, estimates, predicts, or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These forward-looking statements relate only to events as of the date on which the statements are made and the Company undertakes no obligation, other than any imposed by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates

The critical accounting policies and critical accounting estimates, as described in the 2024 Form 10-K, have not materially changed through the second quarter of 2025.

Executive Overview

Effective January 1, 2025, the Company realigned its organizational structure to better reflect updates in management reporting resulting in a change in reportable segments. As a result, the former Trade segment was combined with the former Nutrient & Industrial segment in the newly formed Agribusiness segment along with several smaller business lines being moved between the Agribusiness and Renewables segments. All prior period segment information has been recast to conform to the current year presentation.

The agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices. Therefore, increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and merchandising revenues and cost of sales and merchandising revenues and a much less significant impact on gross profit. As a result, changes in sales and merchandising revenues and cost of sales and merchandising revenues between periods may not necessarily be indicative of the overall performance of the business and greater emphasis should be placed on changes in gross profit.

The Company has considered the potential impact of the book value of the Company’s total shareholders’ equity exceeding the Company’s market capitalization during the quarter for impairment indicators. Management ultimately concluded that an impairment triggering event had not occurred. The Company believes that the share price is not an accurate reflection of its current value as conditions in both agriculture and renewables spaces remain stable with a positive long-term outlook. Management believes that the market’s impact on the Company’s equity value does not actually reflect the impact of these external factors on the Company. As a result of prior period tests, reviews of current operating results and other relevant market factors, the Company concluded that no impairment trigger existed as of June 30, 2025.

Agribusiness

The Agribusiness segment’s second quarter operating results fell behind the prior year as a surplus of grain and weak customer demand continue to exist in western markets. This has resulted in low grain prices and limited forward contracting. Both physical assets and merchandising have been impacted by these stagnant markets. Nutrient results improved year-over-year with increased sales volumes on customer demand for nitrogen due to the increase in planted corn acres, partially offsetting the difficult conditions in grain markets.

An anticipated large harvest and on-farm storage limitations are expected to make large quantities of grain available at favorable values in the last half of 2025. This should provide sales and merchandising opportunities in the latter part of 2025 and into 2026. The balanced asset and merchandising portfolio enables opportunities in various market conditions, including this period of higher supply.

Total Agribusiness storage space capacity at company-owned or leased grain facilities, including temporary pile storage, was approximately 278 million and 168 million bushels at June 30, 2025 and 2024, respectively. The increase in grain storage capacity from the same period of the prior year was due to the Skyland acquisition in the fourth quarter of 2024. The storage capacity at our nutrient facilities was evenly split between dry and liquid storage at approximately 1.0 million tons at June 30, 2025 and 2024.

Renewables

The Renewables segment's second quarter operating results were lower than the prior year. The ethanol plants continue to run efficiently, resulting in higher year-over-year yields and production. Lower board crush, higher eastern corn basis, and increased natural gas costs led to lower overall margins. Plant co-product values also declined, with corn-based feed ingredients continuing to compete against an oversupply of soybean meal.

Although later than expected, an uptick in the ethanol board crush occurred in July and is expected to remain through the summer driving season. This expectation is bolstered by strong demand, including exports, and an expected reduction in corn costs post-harvest.

In future quarters, as a result of our acquisition of the remaining 49.9% interest in TAMH on July 31, 2025, results will include all the ethanol plants’ earnings, including the share previously attributable to the noncontrolling interest. As the company previously consolidated the entity and managed the plants, there should be limited costs to achieve these accretive results. The regulatory environment may support new opportunities, including at our Clymers, Indiana facility, where a Class VI well permit has been filed with the EPA for potential carbon sequestration.

Ethanol and related co-products volumes sold were as follows:

(in thousands)

(a) Includes corn oil, soybean oil, and other fats, oils, and greases.

(b) Dried distillers grains ("DDG") tons shipped converts wet tons to a dry ton equivalent amount.

Other

Our “Other” activities include corporate income and expense and cost for functions that provide support and services to the operating segments. The results include expenses and benefits not allocated to the operating segments and other elimination and consolidation adjustments.

Operating Results

The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 9, Segment Information.

Comparison of the three months ended June 30, 2025, with the three months ended June 30, 2024, including a reconciliation of GAAP to non-GAAP measures:

(in thousands)

(in thousands)

The Company uses Income (loss) before income taxes attributable to the Company, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company is a useful measure of the Company’s performance as it provides investors additional information about the Company's operations, allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be an alternative to Income (loss) before income taxes, the most directly comparable measure reported under GAAP.

Agribusiness

Operating results for the Agribusiness segment declined from the same period of the prior year. Sales and merchandising revenues increased by $305.5 million and cost of sales and merchandising revenues increased by $301.5 million resulting in increased gross profit of $4.0 million. The majority of the increase in sales and merchandising revenues and cost of sales and merchandising revenues can be attributed to the acquisition of Skyland which added $212.1 million of sales and merchandising revenues and $194.2 million of cost of sales and merchandising revenues. The $4.0 million increase in gross profit can be attributed to $17.9 million of additional gross profit from the Skyland acquisition, which was partially offset by reduced results from our legacy asset and merchandising businesses from limited trade flows due to a surplus of grain supplies and weak customer demand.

Operating, administrative and general expenses increased by $16.1 million, with $21.2 million of the increase attributable to the newly acquired Skyland business, which was partially offset by lower incentive compensation expense.

Interest expense increased by $5.2 million due to increased borrowings in the acquired Skyland business.

Other income, net increased by $7.6 million as a result of $10.5 million of property insurance recoveries in the newly acquired Skyland business, which was partially offset by a $4.4 million impairment of an equity method investment.

Renewables

Operating results for the Renewables segment declined by $13.3 million from the same period last year. Sales and merchandising revenues increased by $35.2 million and cost of sales and merchandising revenues increased by $56.2 million compared to prior year results. As a result, gross profit decreased by $21.0 million compared to 2024 results. Both sales and merchandising revenues and cost of sales and merchandising revenues were increased modestly when compared to the prior year. Increased ethanol sales volumes were almost fully offset by reduced volumes in our renewable feedstocks business as prices remained consistent with the prior year. The $21.0 million decrease to gross profit in the current period were mainly driven by a $16.8 million decrease at the ethanol plants. The plants continued to run efficiently with higher year-over-year yields and production, but could not overcome market headwinds stemming from lower ethanol crush margins and higher input costs in the current year.

Income Taxes

For the three months ended June 30, 2025, the Company recorded income tax expense of $8.0 million. The Company's effective tax rate was 32.3% on income before taxes of $24.8 million. The difference between the 32.3% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to interest accrued on unrecognized tax benefits and valuation allowances on losses in foreign tax jurisdictions offset by the tax impact of noncontrolling interest.

For the three months ended June 30, 2024, the Company recorded income tax expense of $4.9 million. The Company's effective tax rate was 8.5% on income of $57.3 million. The difference between the 8.5% effective tax rate and the U.S. federal statutory tax rate of 21.0% was primarily attributable to the tax impact of noncontrolling interest, federal tax credits, and the reversal of certain unrecognized tax benefits offset by state and local income taxes and nondeductible compensation.

Operating Results

The following discussion focuses on the operating results as shown in the Condensed Consolidated Statements of Operations and includes a separate discussion by segment. Additional segment information is included herein in Note 9, Segment Information.

Comparison of the six months ended June 30, 2025, with the six months ended June 30, 2024, including a reconciliation of GAAP to non-GAAP measures:

(in thousands)

(in thousands)

The Company uses Income (loss) before income taxes attributable to the Company, a non-GAAP financial measure as defined by the Securities and Exchange Commission, to evaluate the Company’s financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Management believes that Income (loss) before income taxes attributable to the Company is a useful measure of the Company’s performance as it provides investors additional information about the Company's operations, allowing evaluation of underlying business performance and period-to-period comparability. This measure is not intended to replace or be an alternative to Income (loss) before income taxes, the most directly comparable amounts reported under GAAP.

Agribusiness

Operating results for the Agribusiness segment decreased by $18.5 million from the prior year. Sales and merchandising revenues increased by $237.3 million, and cost of sales and merchandising revenues increased by $214.2 million for an increased gross profit impact of $23.1 million. The increase in sales and merchandising revenues and cost of sales and merchandising revenues can be attributed to the acquisition of Skyland which added $376.6 million of sales and merchandising revenues and $341.5 million of cost of sales and merchandising revenues. The increase in sales and merchandising revenues and cost of sales and merchandising revenues was partially offset by reduced commodity prices. Gross profit increased by $23.1 million from the prior year with $35.1 million of the increase as a result of the Skyland acquisition, which was partially offset by reduced results from our legacy asset and merchandising businesses from limited trade flows due to a surplus of grain supplies and weak customer demand.

Operating, administrative, and general expenses increased by $43.7 million from the prior year. Substantially all of the increase was attributable to the newly acquired Skyland business.

Interest expense increased by $11.4 million due to increased borrowings in the acquired Skyland business, which was partially offset by lower incentive compensation.

Other income, net increased by $10.1 million as a result of $14.2 million of property insurance recoveries and patronage income in the newly acquired Skyland business, which was partially offset by a $4.4 million impairment of an equity method investment.

Renewables

Operating results for Renewables decreased by $15.3 million from the same period of the prior year. Sales and merchandising revenues increased by $44.2 million, and cost of sales and merchandising revenues increased by $59.7 million compared to prior year. As a result, gross profit decreased by $15.5 million. Both sales and merchandising revenues and cost of sales and merchandising revenues were increased modestly when compared to the prior year. Increased ethanol sales volumes were almost fully offset by reduced volumes in our renewable feedstocks business as prices remained consistent with the prior year. The $15.5 million decrease to gross profit in the current period results was mainly driven by an $11.7 million decrease at the ethanol plants. The plants continued to run efficiently with strong yields and production, but could not overcome market headwinds stemming from lower ethanol crush margins and higher input costs in the current year.

Other income, net decreased from the prior year by $4.1 million as the Company recorded an additional $3.1 million gain as a result of the deconsolidation of the ELEMENT ethanol plant in the prior year.

Income Taxes

For the six months ended June 30, 2025, the Company recorded income tax expense of $5.9 million. The Company's effective tax rate was 21.1% on income before taxes of $28.0 million. The 21.1% effective tax rate was consistent with the U.S. federal statutory tax rate of 21.0% as state and local income taxes and valuation allowances on losses in foreign tax jurisdictions offset the tax impact of noncontrolling interest.

For the six months ended June 30, 2024, the Company recorded income tax expense of $6.2 million. The Company’s effective tax rate was 8.7% on income before income taxes of $71.3 million. The difference between the 8.7% effective tax rate and the U.S. federal statutory rate of 21.0% is primarily attributable to the tax impact of noncontrolling interest, stock-based compensation, and federal tax credits partially offset by state and local income taxes, nondeductible compensation, and other discrete tax items.

The Company’s subsidiary partnership returns are under U.S. federal and certain state tax examinations for tax years 2018 through 2022. The Company’s subsidiary is under federal tax examination by the Mexican tax authorities for tax year 2015. The U.S. federal, state, and Mexican tax authorities’ examinations could potentially be resolved within the next 12 months. The resolution of these examinations could change our unrecognized tax benefits and favorably impact income tax expense by a range of zero to $10.7 million.

On December 20, 2021, the Organization for Economic Co-operation and Development ("OECD") issued Pillar Two model rules introducing a global minimum tax of 15% on large corporations. Although the U.S. has not adopted the Pillar Two model rules, several foreign countries have enacted legislation which closely follows OECD’s Pillar Two guidance. The impact of Pillar Two legislation in our relevant jurisdictions is immaterial to the Company's 2025 effective tax rate.

On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act which provides for modification of the existing U.S. international tax framework plus permanent extension of certain Tax Cuts and Jobs Act provisions. The Company is currently assessing the impact of this legislation on our consolidated financial statements.

Liquidity and Capital Resources

Working Capital

At June 30, 2025, the Company had working capital of $1,094.8 million, a decrease of $69.7 million from the prior year. This decrease was attributable to changes in the following components of current assets and current liabilities:

(in thousands)

Current assets as of June 30, 2025, decreased $73.9 million in comparison to those as of June 30, 2024. Lower average commodity prices in the current year were the main contributor to the decrease. Partially offsetting the decrease was the acquisition of Skyland which resulted in a $211.0 million increase of current assets from the prior year.

Current liabilities slightly declined from the same period of the prior year. The acquisition of Skyland resulted in a $158.9 million increase of current liabilities from the prior year. However, similar to the move in current assets, lower average commodity prices in the current year were the main contributor to the decrease, excluding the impact of the Skyland acquisition.

Sources and Uses of Cash

(in thousands)

Operating Activities

Operating activities used cash of $50.7 million and provided cash of $64.8 million in the first six months of 2025 and 2024, respectively. The $115.5 million change in the amount of cash used in operating activities is mainly due to an unfavorable change of $78.2 million in operating assets and liabilities through the normal course of business combined with a $43.0 million decrease in earnings as the Company continues to navigate challenging markets in the current year.

Investing Activities

Investing activities used cash of $75.7 million through the first six months of 2025 compared to $58.1 million in the prior period. Cash used in investing activities increased $17.6 million from the prior year due to $40.0 million of increased capital spending in the current year to fund previously announced growth projects, which was partially offset by $14.0 million of insurance proceeds in the current year and the acquisition of a business in the prior year. Management expects to invest approximately $175 million to $200 million in property, plant and equipment in 2025.

Financing Activities

Financing activities used cash of $87.0 million and $119.9 million for the six months ended June 30, 2025, and 2024, respectively. This $32.9 million reduction from the prior year was due to $45.9 million less distributions to the noncontrolling interest and partially offset by additional net borrowings on the Company's short-term credit facilities in the current year.

The Company paid $13.4 million in dividends in the first six months of 2025 compared to $13.0 million paid in the prior period. The Company paid dividends of $0.195 and $0.19 per common share in January and April of 2025 and 2024, respectively. On June 19, 2025, the Company declared a cash dividend of $0.195 per common share payable on July 22, 2025, to shareholders of record on July 1, 2025.

The Company is party to borrowing arrangements with a syndicate of banks that provide a total of $2,161.6 million in borrowing capacity. As of June 30, 2025, the Company had $2,053.3 million available for borrowing.

Certain long-term borrowings include covenants that, among other things, impose minimum levels of working capital and various debt leverage ratios. The Company is in compliance with all covenants as of June 30, 2025. In addition, certain long-term borrowings are collateralized by mortgages on various facilities.

The Company is typically in a net short-term borrowing position in the first half of the year. The majority of these short-term borrowings bear interest at variable rates, and an increase in interest rates could have a significant impact on the Company's profitability. In addition, periods of high grain prices could require us to make additional margin deposits on exchange traded futures contracts. Conversely, in periods of declining prices, the Company could receive a return of cash.

Management believes the Company's sources of liquidity will be adequate to fund operations, capital expenditures and service indebtedness. At June 30, 2025, the Company had standby letters of credit outstanding of $3.7 million.

For further information, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2024. There were no material changes in market risk, specifically commodity and interest rate risk during the six months ended June 30, 2025.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2025, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the second quarter of 2025, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2024 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.