CHS reports $180.1 million first quarter earnings for fiscal 2018
CHS reported net income of $180.1 million for the first quarter of its 2018 fiscal year (three-month period ended Nov. 30, 2017), compared to net income of $209.2 million for the same period a year ago.
Consolidated revenues for the first quarter of fiscal 2018 were $8.0 billion, the same as fiscal 2017. Pretax income was $199.6 million and $225.6 million for the first quarter of fiscal 2018 and 2017, respectively.
“Despite challenging market conditions, CHS experienced a solid first quarter thanks to our continued focus on three key priorities: strengthening relationships, sharpening operational excellence and restoring financial flexibility,” said CHS President and Chief Executive Officer Jay Debertin. “In the first quarter, we recorded solid earnings from our businesses and reduced long-term debt. These actions are helping to strengthen and grow CHS.”
For the first quarter of fiscal 2018, reporting segment results were:
- Energy generated pretax income of $113.1 million during the first quarter, compared to $70.0 million during the same period last year.
- The $43.1 million increase was primarily driven by improved margins within refined fuels.
- The Ag segment, which includes domestic and global grain marketing and crop nutrients businesses, renewable fuels, local retail operations, and processing and food ingredients, generated pretax income of $74.5 million for the three months ended Nov. 30, 2017, compared to $109.2 million for the same period the previous fiscal year.
- The $34.7 million decrease was primarily the result of lower margins in grain marketing, processing and food ingredients and renewable fuels. Lower volumes in grain marketing and processing and food ingredients also contributed to the decrease.
- The decrease was partially offset by an increase in earnings in the crop nutrients and country operations businesses.
- This segment is comprised of the company’s investment in CF Industries Nitrogen, LLC (CF Nitrogen), and generated pretax income of $5.7 million during the first quarter of fiscal 2018, compared to $27.0 million during the same time in fiscal 2017.
- The decrease in earnings was primarily due to a gain of $29.1 million from an embedded derivative associated with CF Nitrogen that was recognized in fiscal 2017. There was no comparable gain in the current fiscal year.
- This decrease was partially offset by higher urea and urea ammonium nitrate prices.
Corporate and Other
- This segment is comprised of the company’s investment in Ventura Foods, LLC (Ventura Foods), and generated pretax income of $1.0 million in the first quarter of fiscal 2018, compared to $10.6 million during the same period of fiscal 2017.
- The decrease in earnings was due to lower margins at Ventura Foods.
- This category is primarily comprised of the company’s wheat milling joint venture and its financing, hedging and insurance operations, and generated pretax income of $5.3 million in the first quarter of 2018, compared to $8.7 for the same period of fiscal 2017.
- The decrease in earnings was due to lower earnings from the wheat milling joint venture and less interest revenue due to amending a receivables securitization agreement in late FY17, pursuant to which we no longer receive interest income from those receivables.
CHS Inc. Earnings
| ||For the Three Months Ended || |
| ||Nov. 30, || |
| ||2018 |
| ||2017 |
| || |
|Energy ||$113.1 || ||$70.0 || |
|Ag ||74.5 || ||109.2 || |
|Nitrogen Production |
Corporate and Other
| ||27.0 || |
| 8.8 |
|Income before income taxes ||199.6 || ||225.6 || |
|Income taxes || (19.9) || || (16.6) || |
|Net income ||179.7 || ||209.0 || |
|Net income attributable to non-controlling interests || 0.4 || || 0.2 || |
|Net income attributable to CHS Inc. ||$180.1 || ||$209.2 || |
| || || || || || |
Changes to IRS Section 199 DPAD affect CHS owners
The U.S. House and Senate have passed the Tax Cuts and Jobs Act, and the President has signed it, which repeals the IRS Section 199 Domestic Production Activities Deduction (DPAD), effective Dec. 31, 2017. As a result of this pending change, CHS will share fiscal 2017 DPAD allocations with eligible owners by Dec. 31, 2017.
Past federal income tax law allows agricultural cooperatives, like CHS, to pass through Section 199 Domestic Production Activities Deduction known as DPAD to eligible patrons. The CHS Board of Directors determined that, based on fiscal 2017 performance, eligible owners will receive the unused portion of the company’s DPAD, totaling nearly $151 million generated from patronage-related business conducted with CHS for the fiscal year ending Aug. 31, 2017.
The fiscal 2017 allocations being made by the end of December 2017 replace the DPAD allocations eligible owners would have typically received in May 2018. You are encouraged to consult a tax professional to determine how this deduction can be claimed for federal and state purposes.
CHS farmer-owners will receive a statement outlining their Section 199 DPAD allocation for fiscal year 2017 within the next week. The Section 199 DPAD allocated to you is available as a deduction for the tax year in which you received this statement. For most individuals, this means the deduction can be used on your 2017 federal tax return. The deduction allocation will also be shown in Box 6 of a 1099 PATR that you will receive by mail in January 2018. Deductibility for state purposes varies by state.
Click here for answers to frequently asked questions about DPAD and this change. If you have additional questions, please contact the CHS Patron Equities team at 1-800-328-6539, ext. 6124.
CHS elects directors at 2017 CHS Annual Meeting
With a pledge and priority to strengthen relationships in 2018, CHS kicked off its annual cooperative meeting in Minneapolis, Minn., on Dec. 7. The two-day annual meeting was filled with networking, educational sessions, board and management reports, and director elections.
“Strengthen and grow: These words represent so much more than an annual meeting theme. This is a priority that we have. It captures how we will operate our company moving forward,” said CHS Board Chairman Dan Schurr, an Iowa farmer, during the general session.
With approximately 2,200 owners in attendance, Jay Debertin, CHS president and CEO, promised that strengthen and grow, which has been a focus of CHS for 85 years, will continue to be the cooperative’s focus for a long time to come - just as it has been the driving force behind local cooperatives.
The business meeting featured regional caucuses; board, financial and management reports; and company governance with an open question-and-answer session.
In conjunction with the 2017 CHS Annual Meeting, 110 young producers, nominated by cooperative partners in 11 states, attended the CHS New Leaders Forum. Both crop and livestock operations were represented with nearly half (44 percent) managing more than 2,000 acres. Two participants already serve on local cooperative boards and 85 percent of the others expressed interest in serving on a local board in the future.
CHS New Leader Forum participants had the opportunity to network with other future ag leaders, learn about and practice strategies for effective leadership and communication, and learn more about CHS and related businesses.
Find pictures from the 2017 CHS Annual Meeting on the CHS Flickr page, watch video featuring local cooperatives, and read the 2017 CHS Annual Report here.
2017 officer slate elected
CHS owners elected farmers from Illinois, Minnesota and Washington, and re-elected five other farmers to serve terms as directors of the CHS Board. CHS directors must be full-time farmers or ranchers to be eligible for election to the 17-member board.
Newly elected Director Scott Cordes of Wanamingo, Minn., succeeds Curt Eischens of Minneota, Minn., who had served on the board since 1990. With his brother and nephew, Cordes operates a 1,000-acre corn and soybean farm. He received his bachelor's degree in agricultural economics from the University of Minnesota and previously served as the president of CHS Hedging.
Newly elected Director Tracy Jones of Kirkland, Ill., succeeds Greg Kruger of Eleva, Wis., who had served on the board since 2008. Jones, who operates a corn, soybean and wheat farm, and also finishes 1,400 head of feedlot cattle annually, has been chairman of the CHS Elburn Producer Board since 2011.
Newly elected Director Russ Kehl of Quincy, Wash., fills the final year of a three-year term previously held by David Bielenberg, who resigned in June 2017. Kehl raises potatoes, dry beans and other crops on a 12,000-acre farm. A director for CHS Connell Grain (now CHS SunBasin Growers) since 2004, Kehl also operates a dry bean processing facility and cow-calf operation.
Re-elected were C.J. Blew, Castleton, Kan.; Jon Erickson, Minot, N.D.; Edward Malesich, Dillon, Mont.; Perry Meyer, New Ulm, Minn., and Dan Schurr, LeClaire, Iowa.
Following the annual meeting, the CHS Board re-elected Schurr to a one-year term as chairman. Other directors selected as officers for 2018 were:
CHS announces equity management decisions
C.J. Blew, first vice chairman
David Johnsrud, Starbuck, Minn., secretary-treasurer
Jon Erickson, second vice chairman
Steve Riegel, Ford, Kan., assistant secretary-treasurer
At its September meeting, the CHS Board of Directors made a number of decisions regarding equity management. The following letter from CHS Board Chairman Dan Schurr outlines these decisions:
Dear Cooperative Owner,
CHS was built on the shared values of managing our business with the highest integrity, building lasting and mutually rewarding relationships, and partnering for our collective success.
These values guide every decision your CHS Board of Directors makes on your behalf. Thanks to the dedication and hard work of those owners and employees that came before us, CHS is a cooperative that’s been built for the long haul. Your Board of Directors will ensure that tradition continues. It’s with this spirit that we share recent Board decisions around equity management.
Despite solid performance in our core businesses, a few large events have resulted in substantial fiscal 2017 financial losses in certain patronage-based businesses. These events included a loss attributed to a large producer loan and business unit asset impairments in the United States.
It has been the Board’s practice to offset patronage-sourced operating losses against the income in patronage allocation units. This practice will continue for fiscal year 2017, with some modification due to the size of the operating losses. Specifically, some of these patronage-based business operating losses will be offset against patronage income from specific allocation units and some will be offset against the unallocated capital reserve. In addition, the CHS Board made the following patronage-related decisions at its September meeting:
- The CHS Board will retain 10 percent of patronage-sourced earnings to the unallocated capital reserve, as in years past.
- CHS will issue non-qualified equity certificates for FY17 patronage-based earnings. No cash patronage will be issued in 2018 based on FY17 performance. These non-qualified equity certificates will be included in the equity revolvement program and will be redeemed at the discretion of the CHS Board. Non-qualified equity certificates are generally not taxed until redeemed.
- The CHS Board has designated a $10 million cap for individual member redemption for estates and age 70 retirements, per the established redemption policy. No member-cooperative equity will be redeemed in 2018. The Board will continue to review equity retirements on a quarterly basis.
- Eligible CHS owners will share in the benefit of unused IRS Sec. 199/DPAD deductions.
These decisions were not made lightly and came after much discussion and assessment about how best to serve CHS and all of our owners for the long term.
While CHS experienced a challenging year, we are taking necessary steps to restore financial flexibility and minimize operational risk to ensure a strong future for our owners.
Your CHS Board of Directors remains committed to serving you. Your continued business is vital to the strength and growth of CHS, and is greatly valued. If you have questions specific to your equity, please feel free to contact CHS Patron Equities at 800-328-6539, ext. 6124.
Chairman, CHS Board of Directors