CHS earnings slide in third quarter

by Eric Schroeder
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ST. PAUL, MINN. — Delayed spring planting in many areas and lower grain exports contributed to a decline in earnings at CHS Inc. in the third quarter of fiscal 2013. Net income in the period ended May 31 was $250,796,000, down 38% from $405,062,000 in the same period a year ago. Revenues were higher, though, increasing 8% to $11,936,556,000 from $11,022,955,000.

The company’s Ag Business segment, which consists of CHS’s agronomy, grain marketing and retail operations, posted operating earnings of $54,043,000 in the third quarter of fiscal 2013, down 61% from $139,857,000 in the same period a year ago. Sales in the segment totaled $8,831,866,000, up 10% from $7,999,120,000.

CHS said its grain marketing earnings decreased by $14.6 million during the third quarter, primarily as a result of decreased margins.

“Cold weather and high precipitation in our trade areas delayed the spring planting season this year,” the company said in a July 10 filing with the Securities and Exchange Commission. “Due to the late planting season, fewer crops were planted and less acreage was fertilized as some crops were planted without fertilizer during our third fiscal quarter when compared to the same period of the previous fiscal year, which benefited from an early planting season. We anticipate a late harvest in the fall due to the late planting season, which could possibly bring additional risks such as frost. Additionally, we expect lower grain volumes across our Ag segment during the fourth fiscal quarter driven by a short U.S. crop during the last harvest and the expectation of decreases in grain prices.”

The company said its processing and food ingredients businesses experienced a decrease in earnings of $16.7 million during the third quarter, primarily due to costs associated with a voluntary recall of certain soy protein products produced at the company’s Ashdod, Israel, facility.

“We initiated the recall during our third fiscal quarter, which resulted in a $15.5 million reserve based on the minimum amount in our estimated loss range of $15.5 million to $65 million,” CHS said. “We maintain liability insurance, which we believe is sufficient to offset most related product liability expenses. However, as of May 31, 2013, no insurance recoveries have been recorded related to this incident. In addition, we incurred costs of $8.9 million in connection with plant downtime, inventory write-downs and other costs in connection with the recall. Additional costs may be incurred in the future related to the recall. The decreased earnings in our processing and food ingredients businesses was partially offset by increased margins from our soybean crushing and refining businesses.”

The company’s share of earnings from its 50% ownership of Ventura Foods, L.L.C., a vegetable oil-based food manufacturing business, increased $3.8 million during the third quarter, while those from its 24% share of Horizon Milling, L.L.C. increased $3.1 million, primarily due to improved margins. On March 4, CHS entered into a definitive agreement with Cargill and ConAgra Foods, Inc. to form Ardent Mills, a joint venture combining the North American flour milling operations of the three parent companies, with CHS holding a 12% interest. The transaction is expected to close in fiscal 2014.

Energy earnings in the third quarter of fiscal 2013 fell to $265,569,000 from $346,450,000, while sales increased 3% to $3,205,340,000 from $3,117,272,000. CHS said that during the three months ended May 31 it had a net gain on the mark-to-market for its refinery margin hedges of $51.7 million compared with a net loss of $2.7 million during the same period of the previous year.

“Earnings in our propane, lubricants and transportation businesses improved, while our renewable fuels marketing and refined fuels businesses experienced decreased earnings during the three months ended May 31, 2013, when compared to the same period of the previous year,” CHS said. “Our refined fuels margins decreased primarily due to the turnaround at our Laurel, Mont., refinery during the third quarter of fiscal 2013.”

Net income at CHS in the nine months ended May 31 was $869,589,000, which compared with $899,740,000 in the same period a year ago. Revenues for the first nine months of fiscal 2013 totaled $33,528,872,000, up 13% from $29,600,926,000.

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