CHS Inc. reported a 60 percent decline in net income attributable to CHS for the second quarter ending Feb. 29, 2012, to $78.5 million from the year-ago $194.6 million. Revenues for the quarter, however, were up 14 percent, to $8.8 billion from $7.7 billion.
Decreased income plagued all CHS units, including its Ag Business, which includes crop nutrients, grain marketing, oilseed processing, and country operations, which consists of locally controlled retail service centers. CHS said product margins declined for its CHS wholesale crop nutrients and grain marketing. Overall, merchandise margins increased for retail operations, while grain margins decreased. This, combined with increased operating expenses from acquisitions and expansion, resulted in lower earnings. While the company’s oilseed processing business reported improved margins, earnings decreased, primarily from recent acquisition costs.
Ag Business income before taxes was $36.1 million on revenues of $6 billion, compared to the year-ago $86.9 million on revenues of $5.2 billion. Operating income dropped to $46.4 million from $82.9 million.
Earnings from the wholesale crop nutrient business decreased $21.8 million from the year-ago quarter, mainly due to decreased product margins, which included the effect of lower of cost or market adjustments of $7 million. Second-quarter wholesale crop nutrient revenues totaled $513 million, up from the year-ago $427.5 million. Of the $85.4 million increase (20 percent), CHS said $49.7 million was related to increased average fertilizer selling prices and $35.7 million related to increased volumes.
The average sales price of all fertilizers sold reflected an increase of $46.19/st (11 percent) over the year-ago period. Wholesale crop nutrient volumes were up 8 percent over the year-ago quarter. The costs of fertilizer sold went up to $510.2 million from $405.9 million. Of the net $104.3 million (26 percent) increase, the average cost per ton went up $66/st, or 16 percent.
CHS statistics also showed higher valued fertilizer inventories and fewer purchase and sales contracts as of Feb. 29, 2012. As of that date, crop nutrient inventories were valued at $423.6 million, up from the year-ago $381.5 million. Also on that date, the company had 1.46 million st in crop nutrient purchase contracts and 1.7 million st in sales contracts, versus the year-ago 1.63 million st and 2.2 million st, respectively.
Earnings for country operations, which includes the CHS retail and elevator businesses, decreased $14.2 million during the second quarter from the year-ago period.
For the grain side of the business, CHS is expecting decreased volumes during fiscal 2012, primarily from large crops harvested in the Black Sea, South America, and Australia, which it believes will reduce grain exports and reduce CHS earnings. In addition, CHS said the fall harvest produced short crops in the U.S., which may also negatively impact CHS volumes.
Energy earnings were down, at $42.1 million versus the year-ago $107.2 million. Refining margins declined, though propane and renewable fuel operations reported increased earnings.
The Corporate/Others segment also saw a decline, to $11.6 million from $20 million, due to lower margins in the financing business, as well as decreased margins within the company’s two food-related joint ventures.
CHS six-month earnings were up 25 percent, to $494.7 million on revenues of $18.6 billion, compared to the year-ago $396.3 million on revenues of $15.8 billion. The CHS Energy segment took the credit for boosting company results as it posted income before taxes of $439.4 million for the six-month period, versus the year-ago $164.4 million. This was attributed to higher refining margins during the first quarter. The Ag Business was off 35 percent, to $157.5 million from $241.6 million, while Corporate/Other was also do