Andersons Inc/The 2026 Q2 Earnings Call

Please proceed. Good morning, everyone, thank you for joining us for The Andersons second quarter earnings call.

We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via the webcast, the slides and commentary will be in sync. This webcast is being recorded, the recording and the supporting slides will be made available on the investors page of our website shortly. Please direct your attention to the disclosure statement on slide two, as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC.

We encourage you to review these factors. This presentation, today's prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Bill Krueger, President and Chief Executive Officer, and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Bill.

Thanks, Mike. Good morning, everyone, thank you for joining our call to discuss our second quarter results, outlook. I'd like to start off by thanking our entire team for their hard work and focus during an unpredictable first half of 2026. We are proud of the results our teams are generating for our shareholders, their commitment to delivering for our customers during a time of rapid change. Our second quarter results were led by record earnings in renewables. Agribusiness had year-over-year improvement as our fertilizer business performed above expectations. Adjusted earnings per share of $2.15 and adjusted EBITDA of $140 million for the quarter compares favorably to some of our best historical quarters and reflects our commitment to the strategy we presented at our Investor Day to deliver long-term shareholder value.

As an industry, we need to continue to build North American demand for grains, grain products, and oilseeds. With the RVO finalized earlier in the year and the recent release of the updated 45ZCF-GREET model, substantial progress has been made to increase domestic demand for U.S. corn and soybeans. These actions support the U.S. farmer and enhance both of our business segments moving forward. Renewables quarterly results were driven by record ethanol production and higher margins. Our renewables trading desks also improved significantly across all products that we merchandise due to the increased demand. With some volatility back in the grain markets, we have established a larger forward book of purchases versus last year. Our fertilizer results came from improved operating efficiency, continued integration into the agribusiness segment, and focused risk management during their primary application season.

Our current long-term growth capital remain on track. Later during the outlook, I will discuss them in a little more detail. With that overview, I'll turn the call over to Brian to discuss our financial results. I will be back to discuss the outlook for the rest of 2026 after his update.

Thanks, Bill. Good morning, everyone. We're now turning to our second quarter results on slide number five. In the second quarter of 2026, the company reported net income attributable to The Andersons of $57 million, or $1.65 per diluted share, and adjusted net income of $74 million, or $2.15 per diluted share. This compares to adjusted net income of $8 million, or $0.24 per diluted share in the second quarter of 2025. Gross profit increased over 40% as fundamentals in both groups were improved over the second quarter of 2025. Adjusted pre-tax earnings were $93 million compared to $15 million in 2025, with most of the improvement coming from renewables. Adjusted EBITDA for the second quarter was $140 million compared to $65 million in 2025.

Our effective tax rate varies each quarter based primarily on tax credits earned and the amount of income or loss attributable to non-controlling interests. We recorded taxes at an effective rate of 20% for the second quarter and expect our full year adjusted effective tax rate to be in the range of 14%-18%. Next, we'll move to slide six to discuss cash, liquidity, and debt. We generated cash flow from operations before changes in working capital of $113 million in the second quarter of 2026 compared to $43 million in 2025, with the increase being driven by our strong earnings this quarter. Our short-term borrowings are up compared to the prior year, as we have seen increased market volatility in 2026. Our readily marketable grain inventories continue to be well in excess of our short-term debt, which is consistently the case throughout the ag cycle.

Next, we'll take a look at capital spending and long-term debt on Slide seven. Second quarter capital spending totaled $76 million compared to $49 million in 2025, which includes the funding of previously announced long-term growth projects, as well as normal maintenance capital. We continue to take a disciplined, responsible approach to capital spending, which we expect will be approximately $225 million for the year, excluding acquisitions. Our long-term debt to EBITDA is 1.3 times, which remains well below our stated target of less than two and a half times. We continue to evaluate various acquisitions and organic growth projects and have a strong balance sheet that will support investments that meet our strategic and financial criteria. Now, we'll move on to a review of each of our business segments, beginning with agribusiness on Slide eight.

The agribusiness segment reported adjusted pre-tax income attributable of $20 million compared to $17 million in the second quarter of 2025. Our fertilizer business had a strong application season with improved margins and operational efficiencies. We saw higher commodity prices and volatility during the quarter, which provided more opportunities for our merchandising businesses. However, in these market conditions, our asset footprint experienced limited space income. Our premium ingredients business continues to operate well. Agribusiness had adjusted EBITDA of $53 million for the second quarter, compared to $46 million last year. Moving to Slide nine, renewables had another outstanding quarter, generating adjusted pre-tax income of $88 million compared to pre-tax income attributable of $10 million in the second quarter of 2025. Our ethanol plants continued to perform well with efficient operations resulting in record second quarter production.

Ethanol margins were up significantly year-over-year on strong domestic and export demand, as well as higher co-product values. We recorded $24 million of 45Z tax credits in the quarter. Our merchandising businesses performed well as corn oil prices and volumes improved over the prior year. Renewables had adjusted EBITDA of $103 million in the second quarter compared to $30 million last year. With that, I'll turn things back over to Bill for some comments about our outlook.

Thanks, Brian. As we look forward to the remainder of 2026, the market has more variables than usual when combining geopolitical tension, biofuels, and farm bill policy, and weather events. Our diversified portfolio should support our base business and the current environment should provide more merchandising potential. We are evaluating several opportunities for long-term growth focused on increasing shareholder value. At the same time, we are making investments to increase productivity and efficiency across the enterprise while also ensuring that we keep our employees safe. In agribusiness, we're just finishing wheat harvest, and while the overall crop was smaller, we're pleased with the ownership we accumulated. We expect increased demand later in the year for our ownership due to the geographic dispersion of harvested bushels for both hard and soft wheat. Current corn and soybean crop conditions are generally comparable to last year in our key regions.

We are currently in a weather market as the U.S. is experiencing above normal temperatures with reduced rainfall across much of the Western Corn Belt. Our investments in premium ingredients, including those used in food and pet food manufacturing, continue to deliver profitable growth. While significant corn acreage should support demand for fall fertilizer applications, farm gate pricing may have an impact on purchasing decisions. We will continue to monitor global fertilizer supply issues, and while we were well-positioned for spring planting, ongoing tensions in the Middle East will continue to influence agribusiness dynamics. In renewables, we expect increased production to continue throughout the biofuels industry. Ethanol exports are expected to remain strong, but we have seen some recent competition from Brazil. Elevated global fuel prices continue to enhance ethanol's appeal. We remain hopeful that year-round E15 will be passed this year.