Agricultural transportation company The Andersons Inc. (NASDAQ: ANDE) reported good numbers for first-quarter 2007 on May 2. The company is composed of five segments, three of which returned increases in revenues and profits. Overall, revenues were $409 million for the quarter, and net income was $9.2 million, which works out to diluted EPS of $0.51. These numbers are all improvements over 1Q 2006 figures. For the 43rd straight quarter, Andersons will pay a cash dividend, this time $0.0475 per share.
Grain and Ethanol is Andersons's largest business unit. On total revenues of $247 million, it earned operating income of $10.2 million, five times what it earned in 1Q 2006. Andersons was helped by a 40% average increase in grain prices, and by continuing demand for ethanol, of which Andersons sold more than $30 million in the quarter. The company just brought a second ethanol production plant into operation in May. So many companies are rushing into ethanol production that there may soon be excess production capacity, which will lead to price reductions and lowered earnings down the road.
Andersons specializes in the transportation of grain commodities by rail. Its Rail segment showed a small operating income for the quarter, $3 million, about half of what this unit earned in 1Q 2006. Total rail transport revenues were down due to a 5% decline in US rail traffic across the board. This unit sold fewer rail cars and had substantially higher maintenance costs for its wholly owned railcar fleet. 1Q 2006 was a particularly profitable quarter for this unit with the repair of so many rail cars damaged in Hurricane Katrina, so quarter-over-quarter comparisons are not completely accurate.
Andersons also specializes in the production and transport of crop fertilizers. The first quarter of any year is very slow for this cyclical business unit. 1Q 2007 was exceptional in that this unit made a small profit of $400,000, but a profit nonetheless. Winter weather persisted well into March in many parts of the country, so Andersons' Turf Grass unit had very slow sales. Raw materials cost more and sales and profits were essentially flat from 1Q 2006 to 1Q 2007. Andersons also has a retail unit, which saw revenue increase by 5.2%, but this unit is still operating at a loss, just as in 1Q 2006.
Andersons management forecasts FY 2007 diluted EPS to be $2.35-$2.60. Potential investors need to keep an ear tuned to federal energy policy and the part ethanol may or may not play in any national policies to reduce US dependence on foreign fossil fuels. Most analysts are hold/neutral on Andersons. The stock has gone exactly nowhere since January 1, 2007, when it opened at $40.21. Shares yesterday closed at $39.11.
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