10-Q: Andersons Q3 Profit Drops Amid Agribusiness Headwinds

The Andersons, Inc. reported a significant decline in third-quarter net income and diluted EPS, primarily due to challenging agribusiness market conditions and increased operating expenses, despite strong performance in its Renewables segment.

Summary

• Net income attributable to The Andersons, Inc. decreased to $20.1 million for the three months ended September 30, 2025, from $27.4 million for the same period in 2024.
• Diluted earnings per share attributable to The Andersons, Inc. common shareholders decreased to $0.59 for the three months ended September 30, 2025, from $0.80 for the same period in 2024.
• For the nine months ended September 30, 2025, net income attributable to The Andersons, Inc. was $28.3 million, down from $68.9 million in the prior year.
• Diluted earnings per share for the nine months ended September 30, 2025, was $0.82, down from $2.01 in the prior year.
• Sales and merchandising revenues increased to $2.68 billion for the three months ended September 30, 2025, from $2.62 billion for the same period in 2024.
• Gross profit decreased to $170.9 million for the three months ended September 30, 2025, from $177.1 million for the same period in 2024.
• Income before income taxes decreased to $25.8 million for the three months ended September 30, 2025, from $62.2 million for the same period in 2024.
• The Agribusiness segment's operating results declined due to trade policy uncertainty, low prices, and volatility, partially offset by the Skyland acquisition.
• The Renewables segment's operating results improved, benefiting from two months of full ownership of ethanol plants and $20.2 million in 45Z clean fuel production credits.
• Cash and cash equivalents significantly decreased by $480.1 million for the nine months ended September 30, 2025, primarily due to the $425.0 million acquisition of the remaining noncontrolling interest in The Andersons Marathon Holdings LLC (TAMH).
• Working capital decreased by $522.5 million to $630.7 million at September 30, 2025, compared to $1,153.2 million at September 30, 2024.

Sentiment

Score: 4

Explanation: While the Renewables segment shows promise with full ownership of ethanol plants and clean fuel credits, the overall financial performance, particularly net income and EPS, significantly declined due to persistent headwinds in the Agribusiness segment and increased operating costs. The substantial reduction in cash and working capital due to the TAMH acquisition also presents a liquidity concern, despite management's assertion of adequate liquidity.

Positives

• The Renewables segment's operating results improved year-over-year.
• Recognized $20.2 million in 45Z clean fuel production credits for the three and nine months ended September 30, 2025.
• Full ownership of ethanol plants (TAMH acquisition) added approximately $12 million in pretax earnings, or $0.28 per share, to the third quarter's results.
• The Skyland acquisition contributed $101.9 million in sales and merchandising revenues and $19.3 million in gross profit for the third quarter of 2025.
• Wheat harvest was completed with higher-than-expected volumes, allowing elevators to accumulate bushels at favorable basis values.
• The nutrient business saw increased margins and higher year-over-year volumes in the seasonally slow third quarter.
• Ethanol plants continue to run efficiently, resulting in slightly higher year-over-year yields and gallons produced.
• Strong ethanol demand, including exports, and an expected reduction in corn costs post-harvest should provide support for ethanol values.
• 45Z tax credits remain in effect through 2029, providing continued policy support for renewable fuels and future growth opportunities.
• Progress is being made on a Class VI well permit for the Clymers, Indiana facility, which will enable on-site carbon sequestration and further decrease carbon intensity scores.

Negatives

• Net income attributable to The Andersons, Inc. decreased to $20.1 million in Q3 2025 from $27.4 million in Q3 2024.
• Diluted EPS decreased to $0.59 in Q3 2025 from $0.80 in Q3 2024.
• Nine-month net income attributable to The Andersons, Inc. decreased to $28.3 million in 2025 from $68.9 million in 2024.
• Nine-month diluted EPS decreased to $0.82 in 2025 from $2.01 in 2024.
• The Agribusiness segment's operating results declined from the prior year due to trade policy uncertainty, low prices, and volatility.
• Lower margins across grain assets and merchandising businesses (excluding Skyland) and lower put-through volumes contributed to the decline in Agribusiness.
• The Renewables segment's gross profit decreased by $13.8 million in Q3, primarily due to a $21.4 million decrease at the ethanol plants.
• Ethanol plants faced market pressures from elevated input costs (lower board crush, higher corn basis, increased natural gas costs) and depressed feed product values.
• Operating, administrative and general expenses increased significantly by $52.1 million in Q3 2025 compared to Q3 2024, and by $96.4 million for the nine months.
• Interest expense, net increased to $10.5 million in Q3 2025 from $8.4 million in Q3 2024, and to $35.1 million for the nine months from $21.5 million.
• Cash and cash equivalents decreased by $480.1 million for the nine months ended September 30, 2025.
• Working capital decreased by $522.5 million year-over-year.
• A $1.4 million pension plan settlement charge was incurred in the third quarter of 2025.
• A $3.3 million impairment charge related to equipment used in corn oil refinement was incurred for the nine months ended September 30, 2025.
• Reduced demand for farmer fertilizer sales is expected in the fourth quarter due to low grain prices.

Risks

• The business, financial condition, and operating results can be affected by economic, weather, and agricultural conditions.
• Regulatory conditions, including changes in environmental laws and tax regulations, pose risks.
• Competition globally and in the markets served can impact performance.
• Geopolitical risk can affect operations and financial results.
• Fluctuations in the cost and availability of commodities can impact profitability.
• The effectiveness of internal control over financial reporting is a risk factor.
• The unpredictability of existing and possible future litigation could result in unexpected losses.
• Trade policy uncertainty, low prices, and volatility in grain markets can reduce gross profit.
• Reduced demand for farmer fertilizer due to low grain prices could impact future sales.
• Elevated input costs (e.g., corn basis, natural gas) and depressed feed product values can negatively affect Renewables segment margins.
• Changes in the calculation of the carbon intensity score may significantly affect the value of clean fuel production credits.
• Material non-compliance with Environmental Laws could lead to liabilities.
• An increase in interest rates could have a significant impact on profitability due to variable rate debt.
• Periods of high grain prices could require additional margin deposits on exchange-traded futures contracts.

Future Outlook

Management expects elevation margins and merchandising opportunities to increase in the fourth quarter. Fourth-quarter farmer fertilizer sales and applications, weather permitting, should realize higher margins but may see reduced demand due to low grain prices. Strong ethanol demand, including exports, and an expected reduction in corn costs post-harvest should provide support for ethanol values. The 45Z tax credits remain in effect through 2029, providing continued policy support for renewable fuels and future growth opportunities. The OBBBA legislation is not expected to materially affect the effective tax rate for 2025 or 2026, with the exception of clean fuel production credits, where changes in carbon intensity score calculation may significantly affect credits. Management believes the Company's sources of liquidity will be adequate to fund operations, capital expenditures, and service indebtedness, with anticipated total investments in property, plant, and equipment for 2025 to be approximately $200 million.

Management Comments

• "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."
• "Our balanced asset and merchandising portfolio enable opportunities in various market conditions, including this current period of higher supply with limited volatility."
• "The ethanol plants continue to run efficiently, resulting in slightly higher year-over-year yields and gallons produced."
• "Management anticipates total investments in property, plant, and equipment for 2025 to be approximately $200 million."
• "Management believes the Company's sources of liquidity will be adequate to fund operations, capital expenditures and service indebtedness."

Industry Context

The agribusiness segment is facing challenges from trade policy uncertainty, low commodity prices, and volatility, reflecting broader market conditions of surplus grain supplies. In contrast, the Renewables segment is benefiting from government incentives like the 45Z clean fuel production credits, aligning with global trends towards renewable energy and decarbonization, though it remains subject to commodity price fluctuations for inputs like corn and natural gas. The company's strategic acquisitions, such as Skyland and TAMH, aim to expand core businesses and capitalize on renewable energy growth, positioning it within evolving industry landscapes.

Corporate Governance

Legal Proceedings

• The Company is party to litigation, or threats thereof, both as defendant and plaintiff with some regularity, though individual material cases are infrequent.
• Management believes it is unlikely that current legal proceedings for which the company is a defendant, even if unfavorable, will be material.
• Estimated losses for outstanding claims considered reasonably possible and estimable are not material.
• 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 resolution of these tax examinations could potentially be resolved within the next 12 months and could favorably impact income tax expense by a range of zero to $2.8 million.

Related Party Transactions

• On July 31, 2025, the Company acquired the remaining 49.9% ownership interest in The Andersons Marathon Holdings LLC (TAMH) from MPC Investment LLC ("Marathon") for $425.0 million. Following this transaction, Marathon is no longer classified as a related party, and any remaining related party activity is considered de minimis.
• The company has 'Revolving Parent Loans' which are indebtedness incurred by the Borrower from the Parent (The Andersons, Inc.) or its wholly-owned affiliates, provided the lender has subordinated repayment and enforcement in favor of the Lenders.
• The company may make 'Parent Dividends' to the Parent, not exceeding $75.0 million in aggregate during the term of the Loan Agreement, subject to certain financial conditions.

Stakeholder Impact

• Shareholders: Decreased net income and EPS may negatively impact shareholder value. The company continues to pay dividends, and management believes the share price does not accurately reflect current value.
• Employees: A one-time pre-tax settlement charge of $1.5 million related to the Supplemental Retirement Pension Plan was incurred.
• Creditors/Lenders: The company is in compliance with all loan covenants, and a Third Amended and Restated Loan Agreement updates borrowing terms and conditions.
• Customers/Suppliers: The Agribusiness segment faces reduced demand due to low grain prices, potentially impacting customer purchasing and supplier relationships.
• Regulatory Authorities: Ongoing tax examinations by U.S. federal, state, and Mexican authorities are noted, along with compliance with environmental laws.

Next Steps

• Continue progress on the Class VI well permit for the Clymers, Indiana facility to enable on-site carbon sequestration.
• Monitor fourth-quarter elevation margins and merchandising opportunities in the Agribusiness segment.
• Monitor farmer fertilizer sales and applications in Q4, considering potential reduced demand due to low grain prices.
• Anticipate total investments in property, plant, and equipment for 2025 to be approximately $200 million.
• Continue to apply 45Z credits to reduce income tax liability and monetize any remaining credits through sales to third parties.
• The U.S. federal and certain state tax examinations for tax years 2018 through 2022, and the Mexican tax authority examination for tax year 2015, could potentially be resolved within the next 12 months.

Key Dates

Recommendation

The company faces significant headwinds in its Agribusiness segment, leading to a notable decline in net income and EPS. While the Renewables segment shows growth potential, bolstered by the TAMH acquisition and clean fuel credits, the overall financial performance is currently weak. The substantial cash outflow for the TAMH acquisition has impacted liquidity, though management asserts adequacy. The stock's current valuation is considered by management to not accurately reflect its value, suggesting a potential undervaluation if long-term outlooks materialize. However, until the Agribusiness segment shows signs of recovery and the Renewables segment's growth fully offsets these challenges, a "hold" recommendation is appropriate, advising investors to monitor performance closely.

Keywords

Agribusiness, Renewables, Ethanol, Grain, Nutrients, Commodity merchandising, SEC filing, 10-Q, Financial results, Clean fuel credits, Risk management, Corporate governance, The Andersons