Executive Summary / Key Takeaways

• Strategic Portfolio Transformation: The Andersons is actively reshaping its portfolio through significant acquisitions (Skyland Grain, full ownership of TAMH ethanol plants) and divestitures of non-strategic assets, aiming to streamline operations and unlock substantial shareholder value.
• Renewables as a Core Growth Engine: Full ownership of its ethanol plants, coupled with a focus on efficiency, increased capacity, and carbon intensity reduction (e.g., 45Z tax credits, carbon sequestration initiatives), positions the Renewables segment for robust, accretive growth.
• Agribusiness Resilience and Opportunity: Despite recent headwinds from trade uncertainty and low grain prices, the newly integrated Agribusiness segment is poised for a stronger second half of 2025, leveraging a large anticipated harvest, expanded storage capacity, and synergies from combining nutrient and trade operations.
• Strong Financial Foundation for Growth: The company maintains a healthy balance sheet with ample liquidity and low debt-to-EBITDA, enabling disciplined capital deployment for both organic growth projects (e.g., Port of Houston expansion) and strategic M&A.
• Clear EPS Target: Management has converted its 2026 EBITDA target to an EPS measure, aiming for approximately $4.30 per share by the end of 2026, reflecting the full earnings benefit from recent acquisitions and anticipated tax credits.

The Andersons: Sowing the Seeds of Integrated Agricultural Leadership

The Andersons, Inc., founded in 1947 and based in Maumee, Ohio, has long been a foundational player in the North American agricultural supply chain. The company's core business revolves around three historically distinct but increasingly integrated sectors: Trade, Renewables, and Nutrient & Industrial. Its overarching strategy centers on leveraging its extensive asset footprint, deep farmer relationships, and operational expertise to provide comprehensive solutions across the agricultural value chain, from crop inputs and grain origination to processing and distribution of essential commodities and renewable fuels. This integrated approach, particularly its recent strategic realignments and technological advancements, forms the bedrock of its investment thesis.

The company's journey has been marked by strategic evolution. After a period of significant revenue growth, reaching $17.33 billion in 2022, The Andersons faced a more challenging macro environment in 2023 and early 2025, characterized by global supply/demand imbalances, commodity price volatility, and regulatory uncertainties. In response, the company initiated a bold transformation, culminating in a major organizational realignment effective January 1, 2025. This move consolidated the former Trade and Nutrient & Industrial segments into a new, unified Agribusiness segment, while the Renewables segment continues its focused growth trajectory. This restructuring is designed to unlock commercial, operational, and functional synergies, particularly as the industry increasingly emphasizes climate-smart agriculture and carbon intensity reduction.

Technological Edge and Sustainable Innovation

The Andersons' competitive differentiation is increasingly rooted in its operational efficiency and strategic investments in technology, particularly within its Renewables segment. The company's ethanol plants are recognized for their high efficiency, consistently delivering strong yields and production volumes. Management actively pursues process enhancements, such as improving the yield of distillers corn oil (DCO) at two of its plants. While specific quantifiable metrics for these enhancements are not publicly detailed, the strategic intent is to boost co-product value and overall plant profitability.

A significant technological differentiator and future growth driver is the company's commitment to lowering the carbon intensity (CI) of its ethanol production. This includes evaluating carbon sequestration and utilization opportunities at its three Eastern plants, where geological conditions are favorable. The company has already filed a Class VI well permit with the EPA for a potential carbon sequestration project at its Clymers, Indiana facility. If approved, this initiative would enable the generation of additional tax credits through on-site sequestration. Furthermore, The Andersons is developing regenerative agriculture programs with its producers, aiming to acquire lower-CI corn as feedstock in the future. These efforts are strategically aligned with anticipated regulatory support, such as the 45Z tax credits, which all four of its ethanol plants are expected to begin generating within the next year. This focus on low-CI ethanol positions The Andersons favorably in a market increasingly valuing sustainable solutions, potentially leading to higher pricing power and enhanced competitive advantage over less technologically advanced producers.

Competitive Landscape and Strategic Positioning

The Andersons operates in a competitive environment with both large, diversified global players and specialized niche competitors.

Against Agricultural Giants: In its Agribusiness segment, The Andersons competes with global agricultural processing and trading powerhouses like Archer Daniels Midland (ADM) and Bunge Limited (BG). ADM, with its vast international network and diversified operations, often exhibits greater economies of scale and more robust financial performance, including higher gross profit margins (ADM TTM: 7.0%, ANDE TTM: 6.08%) and operating profit margins (ADM TTM: 2.0%, ANDE TTM: 0.82%). Similarly, BG's global supply chain and integrated model provide strong pricing power and resilience. The Andersons, while smaller in global scale, differentiates itself through localized expertise and comprehensive, integrated services for U.S. farmers, fostering stronger customer loyalty. Its network of grain elevators and distribution channels provides a tangible advantage in regional supply chain efficiency, potentially enhancing pricing power in domestic segments. However, ANDE's lower asset turnover (ANDE TTM: 1.61 vs. ADM TTM: 1.61, BG TTM: 2.13) suggests less efficient asset utilization compared to these larger rivals.

In the Renewables Sector: In ethanol production and marketing, The Andersons faces competition from specialized biofuels producers like Green Plains Partners (GPRE). While GPRE focuses solely on biofuels, The Andersons' integrated approach, combining renewables with its trade expertise, offers greater operational synergy. The company's emphasis on efficient plant operations, co-product sales, and ethanol marketing allows for consistent performance even when ethanol board crush margins are volatile. GPRE's operating profit margin (TTM: -2.0%) indicates recent struggles, while ANDE's Renewables segment, despite Q2 2025 declines, has shown strong operational performance. The Andersons' strategic pursuit of carbon intensity reduction and 45Z tax credits provides a technological edge that could lead to superior profitability and market positioning over less innovative ethanol producers.

In Crop Inputs: For plant nutrients and crop services, Corteva Agriscience (CTVA) is a key competitor. CTVA excels in biotechnology and R&D, leading to faster innovation cycles and higher gross profit margins (CTVA TTM: 44.0%, ANDE TTM: 6.08%). The Andersons, through its retail farm centers and application services, offers localized, integrated nutrient distribution. While it may lag CTVA in specialized R&D, its direct farmer relationships and ability to offer a unified solution (grain, nutrients, and eventually climate-smart programs) provide a distinct value proposition.

The Andersons' overall market positioning is that of a strong regional leader with growing national reach, particularly through recent acquisitions. Its vertical integration across segments acts as a competitive moat, allowing it to capture value at multiple points in the agricultural supply chain and offer a more holistic solution to its customers, distinguishing it from more specialized or purely global competitors.

Financial Performance and Operational Momentum

The Andersons' financial performance in the first half of 2025 reflects a mixed but strategically active period. For the six months ended June 30, 2025, total sales and merchandising revenues reached $5.79 billion, a modest increase from $5.51 billion in the prior year. However, gross profit saw a slight increase to $311.29 million from $303.69 million. Net income attributable to The Andersons, Inc. for the six months was $8.14 million, down significantly from $41.56 million in the prior year, resulting in diluted EPS of $0.24 compared to $1.21. This decline was primarily driven by challenging agricultural fundamentals and a difficult comparative period in Renewables.

The Agribusiness segment reported a segment income of $9.22 million for the first six months of 2025, a substantial decrease from $31.12 million in the prior year. This was largely due to a surplus of grain and weak customer demand in western markets, leading to low grain prices and limited forward contracting. The Skyland acquisition, while contributing to revenue, was partially offset by these legacy business headwinds. Operating, administrative, and general expenses increased by $43.7 million year-over-year for the six months, primarily due to the Skyland acquisition.

Conversely, the Renewables segment generated a segment income of $42.31 million for the first six months of 2025, down from $63.79 million in the prior year. Despite efficient plant operations, higher yields, and increased production, lower ethanol board crush, higher eastern corn basis, and increased natural gas costs compressed margins. Plant co-product values also declined due to an oversupply of soybean meal.

Despite these headwinds, the company's liquidity remains robust. Cash and cash equivalents stood at $350.97 million as of June 30, 2025. The debt-to-EBITDA ratio was approximately 1.9x, well below the company's stated target of less than 2.5x, providing significant capacity for future growth investments. Operating activities used $50.7 million in cash during the first six months of 2025, a shift from the $64.8 million provided in the prior year, reflecting the challenging market conditions and increased working capital needs. Capital spending for the first six months of 2025 was $75.71 million, an increase of $17.6 million from the prior year, driven by investments in long-term growth projects.

Strategic Initiatives and Forward Outlook

The Andersons is executing a clear strategy to drive future growth and enhance shareholder value.

Renewables Expansion and Value Capture: The acquisition of the remaining 49.9% ownership in The Andersons Marathon Holdings LLC (TAMH) for $425 million on July 31, 2025, is a pivotal move. This transaction, funded by cash on hand and existing credit facilities, is expected to be immediately accretive to EPS, with an estimated incremental annual EPS impact of $0.70 to $0.75, potentially exceeding $1 in peak years. This full ownership allows The Andersons to capture 100% of the EBITDA and cash flow from these four efficient ethanol plants, which collectively represent approximately 250 million gallons of capacity. Management anticipates a stronger margin environment for Renewables through the end of 2025, driven by an uptick in ethanol board crush, strong demand (including record exports), and an expected reduction in corn costs post-harvest.

Agribusiness Optimization and Growth: The Agribusiness segment is expected to see improvement in the latter half of 2025. A large anticipated fall harvest, combined with on-farm storage limitations, should create significant storage and merchandising opportunities for the company's expanded U.S. grain asset footprint. The Skyland Grain acquisition, while facing initial challenges, is now expected to contribute $25 million to $30 million in EBITDA for the full year 2025, with optimism for meeting or exceeding expectations in the second half. The $70 million investment in the Port of Houston export facility, slated for full operation by 2026, is projected to deliver $15 million to $20 million in annual EBITDA by facilitating soybean meal exports, capitalizing on the anticipated surplus from increased domestic soybean crush.

Capital Allocation and Shareholder Returns: The company expects capital spending, excluding acquisitions, to reach approximately $200 million for 2025, funding growth projects like the Houston expansion and process enhancements at ethanol plants. Management has converted its previous $475 million EBITDA run rate target for 2026 into an equivalent EPS target of approximately $4.30 per share, reflecting the full earnings benefit from the TAMH acquisition and future 45Z tax credits. This revised target underscores a commitment to delivering tangible shareholder value.

Risks and Considerations

While the outlook is positive, several risks warrant investor attention. Global trade uncertainty, including potential tariffs and port fees, can disrupt grain flows and negatively impact commodity values and merchandising activities. Commodity price volatility remains a constant factor, directly affecting margins, particularly in the merchandising business where a lack of volatility can be detrimental. The Renewables segment is exposed to fluctuations in corn basis and natural gas costs, which can compress ethanol crush margins. Regulatory uncertainty surrounding carbon intensity reduction initiatives, particularly the final rules for the Inflation Reduction Act and the 45Z tax credit, could impact the timing and magnitude of expected benefits. Furthermore, the majority of the company's short-term borrowings bear interest at variable rates, making profitability sensitive to interest rate movements.

Conclusion

The Andersons is undergoing a profound strategic transformation, repositioning itself for sustainable, profitable growth in a dynamic agricultural and renewable energy landscape. By fully integrating its ethanol operations, expanding its agribusiness footprint through acquisitions like Skyland Grain, and investing in critical infrastructure like the Port of Houston, the company is building a more resilient and synergistic portfolio. Its commitment to technological differentiation, particularly in lowering the carbon intensity of its ethanol, is a key strategic pillar that promises future tax credits and enhanced market positioning.

Despite near-term headwinds in some agricultural markets, the company's strong balance sheet, disciplined capital allocation, and clear EPS target of approximately $4.30 by the end of 2026 underscore a compelling investment thesis. The Andersons is not merely reacting to market shifts but actively shaping its future, leveraging its integrated model and technological leadership to cultivate long-term shareholder value in the evolving global food and energy systems.