What do Steve Jobs and Apple (Nasdaq:AAPL) have in common with Ohio agricultural and transportation conglomerate The Andersons(Nasdaq:ANDE)? They both delivered to their respective shareholders annual total returns of 24% over the last 10 years. Simply astonishing. Especially when you consider The Andersons has never been extremely profitable. In the last 10 years, its highest profit came in 2007 when it made $69 million on $2.4 billion in revenue. That's a margin of less than 3%. Before I wrote this article, I hardly knew The Andersons and yet I'm looking at long-term performance equal to one of technology's brightest stars. How is this possible? Let's find out.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Grain and Ethanol
This is the backbone of the company, generating 71% of 2009's $3 billion in total revenue and 85% of its operating income. On the grain side, ANDE operates grain elevators in Ohio, Michigan, Indiana and Illinois with a total capacity of 101 million bushels. A majority of the corn, soybeans and wheat it buys from Midwestern producers are resold to U.S. grain processors with the remainder going to export markets like Canada.

The grain operation's revenues in 2009 were $1.7 billion and the remaining $419 million were from the company's ethanol-related joint ventures, which include a 49% interest in an ethanol plant in Michigan, a 37% interest in a plant in Indiana and a 50% partnership with Marathon Oil (NYSE:MRO) in Greenville, Ohio. The Andersons operates all three plants and receives compensation for this. In addition, the company's paid by the joint-venture partnerships to market ethanol and distillers grain to external customers as well as procuring the corn required to manufacture the ethanol. At the end of the day, its equity investments, which include a 51% interest in a grain trading company, contributed approximately half its total net income in 2009. Ethanol is what drives this train.

Book Value
Although ethanol is the driving force today, it wasn't always this way. The Andersons' joint-venture partnerships only came into existence in 2005, and yet its stock did well between 2000 and 2005, averaging total returns of 29% a year. Consistency appears to be the key ingredient in its success. Although the company's never made more than $69 million in the past decade, on the flip side, it's always made at least $9 million. Retained earnings are an important part of shareholder equity, and if they're always positive, book value per share is most likely on the rise. The Andersons' book value per share over the past decade grew at a compounded annual rate of 15.4% while its return on retained earnings was 14%. That's steady, if not spectacular, returns.

Revenues Irrelevant
When you consider that in 2009, grain activities accounted for 57% of overall revenues, yet gross margins were less than 5%, it's clear they are really just a fee in disguise. If you were to back out the $2.1 billion in grain and ethanol revenues, the revised number would be $1.06 billion with a net margin of 3.6%, instead of the 1.3% stated in its annual report, putting it on par with Archer-Daniels Midland (NYSE:ADM). I'm not an agriculture expert, but this seems very similar to a bank in that it makes money off a spread, which varies based on grain prices, etc.

Bottom Line
In recent weeks, corn and ethanol prices have risen in tandem in hopes of avoiding an ethanol free-fall like the one experienced in 2008 when rising corn prices without corresponding increases in ethanol prices took a tremendous toll on ethanol producers. As a result of these price increases, ANDE's earnings per share for the first half of 2010 were $2.02, six cents shy of its earnings for all of last year. Analysts predict another $1 will come in the final six months of 2010. Whatever the number, The Andersons just win. (To learn more, check out our Commodities Tutorial.)

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Tickers in this Article: ANDE, AAPL, MRO, ADM

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