The last time I discussed Ohio-based agribusiness The Andersons (Nasdaq:ANDE) was in September 2010, when it was enjoying a huge increase in its earnings per share thanks to rising ethanol prices. Twenty months later and its business just keeps chugging along. As of May 8, its stock has risen 32.5% compared to 24% for the Russell 2000 over those 20 months. That's not bad until you realize it's averaged 24.9% annually over the last decade and is currently delivering record earnings. I liked the company back then and I like it even more today. Here's why.

SEE: Is Biofuel A Bad Idea?

Latest Quarter

Search the word "record" in its first quarter earnings release and it comes up a total of five times. Overall, first quarter net income attributable to the company was a record $18.4 million on $1.1 billion in revenue. Its grain group, the largest of its six segments in terms of revenue, generated record operating profits of $19.4 million, 28.5% higher year-over-year. Lastly, its rail group, which has suffered greatly during the economic downturn, generated record operating profits of $8 million on revenue of $36 million. The rail group's operating margin in Q1 was 22.2%, 1000 basis points greater than the first quarter in 2011. Unfortunately, if you read farther down the press release, you'll see that management feels the second quarter will be a challenging one and that 2012 will be its second best year ever; meaning it won't match the profitability of 2011. Not to worry. There's plenty to keep it moving higher.

Looking Back

The Andersons have six segments today including Grain, Ethanol, Plant Nutrient, Rail, Turf & Specialty and Retail. Five years ago, it had just five with grain and ethanol combined into one. In 2006, its ethanol business generated just $21.7 million in revenue or 1.5% overall. It did six times that in the first quarter alone. The grain and ethanol segments combined generated $28 million in operating income in 2006. In 2011, it was $110.6 million. The beauty of its business model is that it's a team effort. When one or two segments aren't doing too well from a profitability standpoint; there are others that are. Case in point is the rail segment.

In 2006, it generated 34% of its overall operating profit. In 2011, it generated just 6.2% overall, yet its total operating profit was 178% higher at $159.2 million. A second example is the retail group, its smallest segment both in terms of revenue and profits, which hasn't achieved an annual operating profit since 2008 and even then it was less than a million dollars on revenues of $173 million. Two years earlier, however, the retail business delivered an operating profit of $3.2 million on $177 million in revenue. At the same time, its plant nutrient business barely registered in 2006, delivering an operating profit of $3.3 million on $265 million in revenue. Five years later, the segment's operating profit was $38.3 million on $690.6 million in revenue. In five years, its operating margin went from 1.2% in 2006 to 5.5% in 2011. What segment will be the star performer in 2016 is anybody's guess, but there will be a star. You can be sure of that.

Stock Performance versus Peers

Company

EV/EBITDA (TTM)

Five-Year Total Return

(Annualized)

The Andersons

7.45

4.38%

Cal-Maine Foods (Nasdaq:CALM)

5.71

26.08%

Tractor Supply (Nasdaq:TSCO)

14.28

30.33%

FreightCar America (Nasdaq:RAIL)

12.10

-13.94%

Central Garden & Pet (Nasdaq:CENT)

10.22

-9.31%


The Bottom Line

Looking at the table above, the only thing that separates the performance of its stock from that of Cal-Maine or Tractor Supply over the past five years is what happened in 2008. While Cal-Maine and Tractor Supply both achieved positive returns in 2008, The Andersons experienced a 62.5% decline in its market cap, far worse than the S&P 500. Given the decline, you'd think it lost money in 2008. But it didn't. In fact, it made $32.9 million. Whatever happens in 2012, this is a company that will continue to perform. Buy some now and then some more if it drops below $40 sometime in 2012. Then, should it ever drop below $20, where it was in 2008, back up the money truck and buy even more. Long-term, you should be very happy with the results.

SEE: Market Capitalization Defined.

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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

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