All Posts from August 11, 2017

Dakota Co-ops Weigh Second Merger Attempt; Members Rejected Earlier Proposal in 2015

A merger proposal between North Central Farmers Elevator (NCFE) in Ipswich, S.D., and Wheat Growers in Aberdeen, S.D., is back on the table after members rejected an earlier merger plan in 2015.

In separate letters sent to members on July 31, the boards of both co-ops said they had “each approved revisiting the unification opportunity that was considered by the cooperatives two years ago.” The boards said the decision was based on input they had received from member-producers, adding that the “potential advantages of a unification that we identified previously still exist, even more so today given all of the market changes and pressures.”

Those pressure include a downturn in the agriculture economy that has affected the profitability of both co-ops and the farmers they serve. “At the same time, several competitors have entered or grown in the market, and we’re in the midst of a drought year that likely will have a negative impact on yields at harvest,” said Rick Osterday, NCFE board president.

Wheat Growers is a grain and agronomy co-op with more than 5,100 active member-owners and some 40 locations in eastern North and South Dakota. NCFE offers grain, agronomy, feed, and energy products and services from approximately 22 locations in north-central South Dakota and south-central North Dakota, and has more than 2,500 producer-members.

When NCFE and Wheat Growers floated their first merger proposal in 2015 (GM March 9, 2015), NCFE’s voting members responded by rejecting the unification with a 51 percent majority, while Wheat Growers members voted 61 percent in favor of the merger (GM June 22, 2015). Had that merger proceeded, the new co-op would have started operations in August 2015 under the CentraGro Cooperative name, with projected annual sales of $2.23 billion and approximately 7,000 members.

Leaders of both co-ops pushed hard for the 2015 merger, touting benefits that included increased patronage, a stronger balance sheet, greater investments in products, services, and facilities, and a projected $44 million in savings achieved through synergies during the first four years of operation. NCFE and Wheat Growers also stressed in 2015 that the merger would result in no facility closures or employee layoffs.

Opponents of the 2015 merger, however, expressed concerns that the unification would result in less competition, both for the sale of grain and the purchase of fertilizer and other crop inputs. The merger proposal was followed by a steady – and at times contentious – exchange of letters on the op-ed pages of regional newspapers by local farmers both for and against the proposed merger (GM May 25, 2015).

Wheat Growers and NCFE said they are now in a two-week comment period during which they are soliciting input from members on the new merger proposal. “We will compile all comments received and carefully consider them as we proceed with the next steps to refresh the data, benefits, and opportunities of a potential unification,” said Hal Clemenson, Wheat Growers board president. “Following the reexamination process, both boards will determine whether to proceed to a vote of the membership.”

AdvanSix 2Q Income Up 72 Percent; Second-half AS Exports, Price Decline Expected

AdvanSix, Parsippany, N.J., reported second-quarter net income of $25.8 million ($0.83 per diluted share) on sales of $361.4 million, up from the year-ago $15 million ($0.49 per share) and $308.4 million, respectively. EBITDA was up 60 percent, to $54.6 million from the year-ago $34.1 million.

“AdvanSix had a terrific second quarter, capping off a strong first half of 2017,” said CEO Erin Kane. “The performance this quarter continued to be supported by higher production output across our key manufacturing sites and a favorable supply and demand environment. Our proactive mechanical integrity program and reliability improvements are driving higher returns, enabling a 3 percent volume increase in the quarter. We successfully completed our spring turnarounds while the entire organization maintained its relentless focus on safety and efficiency.”

The company said its plants are outperforming historical production rates and achieved a 7 percent improvement on a year-to-date basis.

While market-based pricing was favorable by 4 percent, improved prices for nylon, caprolactam, and chemical intermediates partially offset a modest decline in ammonium sulfate prices. AS sales represented only 21 percent of total AdvanSix second-quarter sales, down from the year-ago 25 percent.

“Our prices for ammonium sulfate have stabilized sequentially, but we expect to see the normal seasonal pricing decline in the back half of the year,” Senior Vice President and CFO Michael Preston told analysts Aug. 10. “Although we continue to face a challenging end market environment overall, we remain focused on delivering all the value proposition of our sulfur nutrition for our customers globally.”

“Our volumes are expected to remain relatively steady in the second-half,” he added. “However, we expect to have a higher amount of products sold to our export markets in the second-half, particularly in Latin America, given the timing of planting seasons relative to the higher domestic granular product we sold in the first half.”

Going forward, the company expects challenging agriculture fundamentals through the 2017-18 plant season, with cautious buyer behavior ahead of new season fill. AS prices are expected to be down for full-year 2017 from 2016.

AdvanSix noted that global urea supply additions continue to pressure nitrogen pricing, and demand has been impacted by low global grain pricing.

AdvanSix has a planned turnaround at the Hopewell, Va., facility in the fourth quarter that will have a $20 million pre-tax impact. The company said the plant will continue production during the turnaround, though at lower rates.

Six-month net income was $53 million ($1.71 per share) on sales of $738.1 million, up from $42.4 million ($1.39 per share) and $608.2 million, respectively. EBITDA was $111.7 million, up from $87.4 million.

Compass Posts 2Q Loss; Plant Nutrition North America Exceeds Expectations

Despite increased operating income from its Plant Nutrition North America business, Compass Minerals, Overland Park, Kan., reported that weaker results from its Salt and Plant Nutrition South America businesses moved the company into the loss column for second-quarter 2017.

“Despite a strong performance this quarter in our Plant Nutrition North America business, our results were pressured by increased costs in the Salt segment and sluggish plant nutrition sales in South America,” said Fran Malecha, Compass Minerals’ president and CEO. “While this has been a challenging period, I am pleased with the progress we have made in positioning our plant nutrition business for growth and in aggressively identifying areas across the company for cost reductions. Because of the expected benefits of these efforts, our full-year earnings-per-share guidance remains unchanged.” The guidance is $3.00-$3.50 EPS.

Malecha told analysts that North American fertilizer sales exceeded company expectations and were driven by both potassium sulfate and micronutrient sales. The unit was also boosted by lower per-unit costs at the Ogden facility and better cost management.

“We continue to execute our strategy to build a leading solutions-oriented specialty fertilizer business based on SOP, higher-value micronutrients, and other specialty products,” he said. “The market for these products has been stabilizing, and we are cautiously optimistic for growth here, although pricing is likely to be relatively flat for the rest of the year as we work to maintain our position versus imports and to convert more acres from MOP to SOP.”

Malecha said the company will introduce its Brazilian specialty products to the U.S. market by the end of the year, and eventually offer them globally. The company said its Brazilian products are water soluble and its current North American products are all dry. “So this will be a broader product offering and be able to meet our farm customer needs throughout the growing season, which I think is a benefit that bodes well for the future.”

Compass reported a second-quarter net loss of $6.4 million ($0.19 per diluted share) on sales of $228 million, down from the year-ago income of $6.3 million ($0.18 per share) and $169.5 million, respectively. Adjusted EBITDA was $34.2 million, off slightly from the year-ago $34.8 million.

Second-quarter Plant Nutrition North America operating earnings were up, at $7.6 million on sales of $50.5 million from the year-ago $4.7 million and $47.8 million, respectively. Fertilizer volumes were up at 78,000 st from 74,000 st, though average sales prices per ton were off at $642/st from $651/st. However, the company said that SOP prices were off only about 4 percent from year-ago levels.

Second-quarter Plant Nutrition South America operating earnings were $800,000, down from the year-ago pro forma $6 million. Total volumes for the unit were also down at 151,000 st from 187,000 st, with average prices up at $439/st from $385/st.

Second-quarter Salt operating earnings dropped to $10.7 million from the year-ago $23.3 million.

Compass initiated a restructuring plan in July designed to reduce ongoing costs and further streamline the organization. In addition to personnel cuts, it has reorganized its operations team to report directly to respective business units. These changes are expected to result in a $4 million charge in the third quarter. Combined with other cost-saving measures taken in the first half, which resulted in $1.3 million in charges, the company expects to achieve about $10 million in cost reductions this year and $20 million in ongoing savings starting in 2018.

Going forward, based on positive results in the Plant Nutrition North America segment, the company has increased its sales volumes expectations to 320,000-340,000 st, up from the earlier 300,000-330,000 st. Average selling prices are expected to remain stable, though the company said second-half margins are expected to contract due to increased depreciation expense related to the final commissioning of new assets at the Ogden, Utah, facility. Second-half volumes are put at 165,000-185,000 st, with average selling prices at $610-$650/st.

As for Plant Nutrition South America, the company has dropped full-year volume expectations to 750,000-850,000 st from 800,000 to 1 million st. The company said sales volumes have been negatively impacted by delayed and reduced purchasing by the company’s distribution customers, though higher-value products sold directly to farmers have remained strong. Compass believes the growth in direct-to-farmer sales will result in a more profitable sales mix and improved operating margins when compared to the prior year. The company expects second-half volumes of 450,000-550,000 st, with average selling prices in the $550-$590/st FOB range.

The company said challenging fundamentals in Salt are expected to result in pricing pressure for deicing products in the second-half, though the company expects sales volumes to exceed prior year results if winter weather conditions are average. Full-years volumes are seen as 11.3-11.6 million st. Second-half volumes are projected at 5.9-6.3 million st, with average selling prices in the $68-$72/st range.

Compass has declared a cash dividend of $0.72 per share payable Sept. 15, 2017, to shareholders of record as of the close of business Sept. 1.

Compass reported six-month net income of $15.1 million ($0.44 per share) on revenues of $615.8 million, down from the year-ago $56 million ($1.65 per share) and $515.2 million, respectively. Adjusted EBITDA was $104 million, down from $129.4 million.

*Year-ago South America figures are pro forma or not available. Compass did not complete the purchase of all of the unit until October 2016.