CHS earnings fall 21% in fiscal 2013

by Eric Schroeder
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ST. PAUL, MINN. — Coming off a record fiscal 2012, full-year earnings at CHS Inc. slipped 21% in fiscal 2013 as agriculture faced a challenging year. Net income in the year ended Aug. 31 was $992,386,000, down from $1,260,628,000 in fiscal 2012.

Revenues increased 10% to $44,479,857,000, up from $40,599,286,000 in the same period a year ago.

“Fiscal 2013 was a challenging year for agriculture, but once again the strength of our diverse business portfolio, along with a strong domestic and global footprint, combined to deliver economic value for the U.S. farmers, ranchers and cooperatives who own us,” said Carl Casale, president and chief executive officer. “Performance for fiscal 2013, combined with several consecutive years of strong earnings, enabled CHS to invest in growing our business, maintain a strong balance sheet and — most important — return direct economic value to our owners.”

The company’s Ag Business segment, which consists of CHS’s agronomy, grain marketing and retail operations, posted operating earnings of $255,722,000 in fiscal 2013, down 30% from $363,648,000 in fiscal 2012. Sales in the segment totaled $31,909,791,000, up 13% from $28,181,445,000 a year ago.

“Our grain marketing earnings decreased by $61.8 million during the year ended Aug. 31, 2013, compared with fiscal 2012, primarily as a result of lower export margins,” CHS noted in a Nov. 7 filing with the Securities and Exchange Commission. “Earnings from our wholesale crop nutrients business declined $30.5 million for the year ended Aug. 31, 2013, compared with fiscal 2012, primarily due to decreased product margins and $13 million of costs associated with the nitrogen fertilizer manufacturing plant feasibility study described above. Our country operations earnings decreased $15.9 million during the year ended Aug. 31, 2013, compared to the prior year, primarily due to decreased grain margins.”

CHS said a $22.2 million decrease in earnings in its processing and food ingredients businesses for the year ended Aug. 31, 2013, primarily reflected costs associated with a voluntary recall of certain soy protein products produced at the company’s Ashdod, Israel, facility.

“We initiated the recall in May 2013,” CHS said. “We estimate our range of loss associated with this recall to be between $14.4 million and $39.7 million. During the year ended Aug. 31, 2013, we recorded a reserve of $25 million, which is the amount within the range that we believe is the best estimate given the claims experience so far. We maintain product liability and general liability insurance (which includes product liability coverage), which we believe will offset some related product liability expenses. However, as of Aug. 31, 2013, no insurance recoveries have been recorded related to this incident. In addition, we incurred costs of $20.1 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 decrease in earnings in our processing and food ingredients businesses was partially offset by increased margins from our soybean crushing and refining businesses and $5.7 million in acquisition costs related to our acquisition of Solbar during the year ended Aug. 31, 2012.”

Energy earnings in fiscal 2013 fell 16% to $963,699,000 from $1,146,293,000, while sales increased to $12,982,293,000 from $12,816,542,000.
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