Ag Coop CHS Reports Softening Earnings

While personally I am not worried about the longer term performance of giant Ag Coop CHS (untraded), but the short term outlook remains dicey.

CHS has just filed their earnings for the quarter ending 11/30/2019 and there isn’t a sector that they operate in that is showing strength.

Obviously the agriculture sector has been hammered pretty good and to derive a hefty chunk of revenue from this area makes for dicey earnings. The coop reported a pretax loss in the ag segment of $13.9 million compared to the year ago report of a pretax profit of $80.3 million.

The coop has been propped up in recent quarters with stellar energy segment earnings, but these are now softening with pretax earnings of $162 compared to a year ago pretax profit of $232 million.

Earnings in their smaller segments of grain milling and nitrogen production also fell.

With all the above in mind I note that the company had a total net profit for the quarter of $177 million–which is a decent chunk of change, but it pales as compared to the year ago number of $347 million.

I like to look at depreciation (a non cash charge against earnings) to see what type of free cash they generate and they show $136 million in depreciation which when added to $177 million means they had free cash generation of $310 million (just a quicky look at cash generation and not meant to be a total look at cash flows).

As you all know CHS has 5 issues of perpetual preferreds outstanding which can be seen here. Quarterly dividends on the preferreds are about $42 million–so dividends are not now–and won’t likely be affected by the downward trend in earnings.

The preferred stock issue have not reacted whatsoever to the earnings which is no surprise as they seem to always trade strongly.

The earnings release from the company can be read here.

The SEC 10Q can be read here.

Thanks to Affinity4Investing for being right on top of this earnings release.

4 thoughts on “Ag Coop CHS Reports Softening Earnings”

  1. …And all five preferred issues are up nicely today. Perhaps the market is relieved earnings were not worse.

  2. Does the China Tariff issue impact them?

    I know the Federal Govt has subsidized the farmers.

    Could this be part of the issue?

    1. Yes, they said it definitely had an impact on the quarter. DISCLOSURE: I own the M and N flavors of this puppy.

      Here is a snippet from Dow Jones: Agribusiness cooperative CHS Inc. (CHSCP) reported first-quarter net income of $177.9 million, down from $347.5 million in the year-ago period.

      Revenue was $7.6 billion, down from $8.5 billion a year earlier.

      CHS, which supplies energy, crop nutrients, seed, crop-protection products, grain-marketing services, production and agricultural services, animal-nutrition products, foods and food ingredients, and risk-management services, said of the quarter:

      “Poor weather conditions that occurred in fiscal year 2019 and the first quarter of fiscal year 2020 continued to negatively impact our Ag segment’s operations, resulting in lower crop yields, poor grain quality in some areas and lower fall crop nutrients sales.”

      The company on the effect of trade issues:

      “Pressure on grain volume and margins due to slow movement of grain associated with unresolved trade issues between the United States and foreign trading partners.”

      CEO Jay Debertin on industry challenges:

      “We are not immune to the challenges of our industry, and our first quarter results reflect the difficulties brought on by fall weather and ongoing trade tensions.”

      On increased propane needs:

      “During a cold and wet harvest, we leveraged our supply chain to meet the significant increase in propane needs of our owners and customers.”

Leave a Reply

Your email address will not be published. Required fields are marked *