Andersons (ANDE) Poised For Growth Despite Macro Risks

We issued an updated research report on The Andersons, Inc. (NASDAQ:ANDE) on Jul 11, 2016. The company is set to benefit from strength in basic and specialty nutrients. However, volatile oil prices, stiff competition and Chinese import restrictions pose challenges.

Andersons’ core strategy is to continue growing higher-margin specialty product sales at a rate faster than basic commodity nutrients. Several specialty products, which include low-salt liquid starter fertilizer, micronutrients and other value-added products, increased over 35% year on year in first-quarter 2016. The company expects to sustain this momentum through the rest of the selling season.

Notably, the conditions for the plant nutrient group have been good across the farm belt, with April showing consistent strength in basic and specialty nutrients. Assuming that favorable weather conditions will prevail, the second quarter should yield good results for the group.

Andersons has launched an initiative to reduce annual costs by more than $10 million over the next two years. During the first quarter, it cut executive positions in corporate as well as selected roles in its business units. In addition, the company has a number of of productivity, sourcing and continuous improvement projects, which should drive growth.

However, Andersons’ Grain Group will be under pressure until the fall harvest. Nonetheless, it is expected to return to normal levels of profitability in the future. Negative industry fundamentals persist for commercial-grain handlers, including high global inventory levels and moderate movement. These will limit opportunities for improvement for the group in the near term.

Further, the combination of a weak demand for exports and lack of farmers selling commercial grains caused basis levels to trade sideways, curbing opportunities significantly to generate margins. The company anticipates these conditions to persist through the second quarter of 2016.

Ethanol margins are likely to remain modest in the near term due to persistent pressure from low oil prices. The U.S. national average gasoline prices are running below five-year lows, supported by high stocks of crude and low oil prices. Seasonal supply and demand dynamics, along with the effect of higher corn-basis levels in the three facilities in the Eastern Corn Belt, will hurt Andersons’ results.

Finally, Andersons faces increasing competition and pricing pressure from other companies. If the company is unable to compete effectively with these companies, its sales and profit margins would decrease, and earnings and cash flows will be adversely affected.

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

Stocks to Consider

Some better-ranked stocks in the same sector are Bunge Limited (NYSE:BG) , Yamana Gold, Inc. (NYSE:AUY) and Huntsman Corporation (NYSE:HUN) . All these three stocks sport a Zacks Rank #1 (Strong Buy).


HUNTSMAN CORP (HUN): Free Stock Analysis Report

YAMANA GOLD INC (AUY): Free Stock Analysis Report

ANDERSONS INC (ANDE): Free Stock Analysis Report

BUNGE LTD (BG): Free Stock Analysis Report

Original post

Zacks Investment Research