Andersons Inc Q1 2010 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Farha Aslam - Stephens, Inc. - Analyst : Good morning. Congratulations on a great quarter.

Question: Farha Aslam - Stephens, Inc. - Analyst : Mike, a couple of questions starting with the Grain Group. Could you give us some color around bases and storage income opportunities in the fiscal second quarter versus the year ago period and versus the first quarter?

Question: Farha Aslam - Stephens, Inc. - Analyst : I can appreciate that. And then in your plant nutrients, clearly the crop is ahead of schedule. In terms of volume versus a year ago period, kind of how should we think about volumes and margins in plant nutrients? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Farha Aslam - Stephens, Inc. - Analyst : And my final question and I'll pass it on is on rail. In terms of your scrapping, you had said you were looking to scrap 800 to 1,500 railcars. Where kind of in that spectrum did you end the fiscal first quarter? And how much more do you anticipate?

Question: Farha Aslam - Stephens, Inc. - Analyst : That's very helpful. Thank you very much.

Question: Michael Cox - Piper Jaffray - Analyst : Congratulations on the quarter, guys.

Question: Michael Cox - Piper Jaffray - Analyst : My first question is on the contribution from Lansing. If I'm doing some rough math here it looks maybe about $5 million of -- in your below the line line item there. I was just wondering if that's a ballpark figure that we could use for the quarter. And if so, how would you expect that to look through the balance of the year?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's very helpful. And as we move to the balance of the year, just simply as a placeholder as we're all trying to model some of these different ventures of yours, is that a reasonable run rate to assume or was there something that occurred (multiple speakers)?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's good. And maybe I missed this on the fertilizer side. Can you quantify the volume benefit that Hartung gave you? You had mentioned volume growth (multiple speakers)?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's great. On the rail business, can you comment on lease rates, what you're seeing there in terms of the trend directionally?

Question: Michael Cox - Piper Jaffray - Analyst : Okay. And my last question, if I could, on the balance sheet over the past -- certainly the last four quarters you have strengthened the balance sheet a great deal. I'd just be curious what your thoughts are in using that as perhaps a competitive strength now that market conditions seem to be stabilizing?

Question: Michael Cox - Piper Jaffray - Analyst : So looking at more acquisitions, is that a reasonable (multiple speakers)?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, thanks.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Good morning, guys, congratulations on a good quarter. Mike, I think you've talked about in previous quarters -- in fact talking about the acquisitions, your thoughts on making strategic investments in railcars. Can you talk about what the environment is right now? Are you still seeing -- are you seeing interesting opportunities out there? And are you seeing the same or a change in requests from third parties in terms of managing asset pools for them in general?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : But, Nick, are you seeing appetite from financial participants for managing their rail fleets or --?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay, that was very helpful. Mike, you typically give us a little bit more color around the utilization rates, kind of how it looks toward the end of the quarter and where you see things (multiple speakers).

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay, great. Were you -- can you talk a little bit about the forward ethanol curve and have you been able to (multiple speakers)?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : No, absolutely, absolutely. And one last question and I'll get back in queue. Last quarter you talked about that you would continue to update us on your thoughts around the retail segment and right sizing that side of the business. Is there any update that you can provide us at this time?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : I think you were still unhappy with at least one of -- one or two of the stores, is that still kind of the --? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Great. Thanks a lot, guys.

Question: Heather Jones - BB&T Capital Markets - Analyst : Good morning. Great quarter.

Question: Heather Jones - BB&T Capital Markets - Analyst : A quick question on the ethanol. So you've locked in -- did I understand correctly? You've locked in roughly two-thirds for Q3 and Q4?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And I thought I heard you earlier say that you had locked those in at positive -- positive margins? I assume you're referring to positive EBIT margins for Q3 and Q4?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay.

Question: Heather Jones - BB&T Capital Markets - Analyst : No, I mean that's -- that's very, very positive in light of what the future strip shows. Could you give us some insight as to frankly how you're able to do that? Because the futures curve like for natural gas, corn, etc., that would have implied pretty unattractive margins for the back half for some time. I mean, how are you -- I know in Q4 you had used some derivatives on like Opus indices and that gave you some kick. I mean how are you able to honestly outperform the future strip so much?

Question: Heather Jones - BB&T Capital Markets - Analyst : What a great philosophical comment.

Question: Heather Jones - BB&T Capital Markets - Analyst : That's understood. So on the ethanol piece are you using forward sales or are you using futures? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, okay. All right, well that's good. On a quick question -- there's talk about trading lanes being shut down around the Gulf given the oil spill there.

Question: Heather Jones - BB&T Capital Markets - Analyst : And that grain would then have to go through the Pacific Northwest. So, my question for you is, have you put any thought to how that could impact you? I mean I would assume it would be good for rail demand and you have a fair number of grain cars. I was just wondering if you put any thought into what the implications could be for your business if that happens?

Question: Heather Jones - BB&T Capital Markets - Analyst : Oh, I know, I know. Your fertilizer business -- you were saying for Q2 not to compare it to 2009 or 2008. But 2007 was still a pretty good year. And given that you have Hartung, given this excellent start to the planting season, volume growth, I mean is 2007 -- and as far as Q2, is that a reasonable comparison?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, okay. Then on your rail side. Did I hear you say that you scrapped about 900 cars in Q1?

Question: Heather Jones - BB&T Capital Markets - Analyst : So that's roughly -- I mean, if my calculator was correct, roughly 4% of your fleet and yet your average utilization came down sequentially. So, just wondering the dynamics and then traffic has now picked up over the past few weeks. So, going forward, given that you're going to scrap more cars, given that traffic seems to be picking up -- I know it's still uncertain, but I mean would it be fair to say that you're fairly confident that your utilization in Q2 should be better than Q1?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And do you all (multiple speakers).

Question: Heather Jones - BB&T Capital Markets - Analyst : Right. I won't hold you to it.

Question: Heather Jones - BB&T Capital Markets - Analyst : Do you have a sense, if I remember correctly, I remember you-all saying at some point that you thought it could be -- I thought it was three years before utilization is back to the point that you could make the $20 million to $25 million a year that you were running at one point. I mean, do you have an updated view on that?

Question: Heather Jones - BB&T Capital Markets - Analyst : So is 2011 -- I mean that's still -- you're using that as year three?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And my final question is on your core grain business, nothing to do with ethanol, nothing to do with Lansing. Given the O'Malley -- I think it's O'Malley Elevators, given the capacity you've added in the past few years -- like if I compared -- and I know the business is volatile. But is it a straight line, so say if you've added 10% capacity, I would assume the O'Malley's are higher value added. Is it a straight line so your normalized earnings power for that business is up 10% or given locations is it up more than that? If you could just give us a sense of a quote unquote normalized earnings base relative to say five years ago before you started adding this capacity?

Question: Heather Jones - BB&T Capital Markets - Analyst : Right, and I know a normalized --

Question: Heather Jones - BB&T Capital Markets - Analyst : -- is sort of a joke given the volatility of the business. But (multiple speakers).

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. All right, well thank you and congratulations again.

Question: Brent Rystrom - Feltl - Analyst : Good morning, thank you. Just a couple quick questions for you. The Hartung business that you acquired, is that primarily more of a dairy driven business?

Question: Brent Rystrom - Feltl - Analyst : The reason I ask is I do a fair amount of farming myself in Wisconsin and have a lot of activities with suppliers in the business and the suppliers in Wisconsin are telling me right now that they're seeing much healthier business environment than say Minnesota, Iowa, Nebraska places like that. And I'm suspecting it has to do with the improving environment for dairy farming from a profit perspective.

Question: Brent Rystrom - Feltl - Analyst : And you're not doing anything like urea or ammonia there?

Question: Brent Rystrom - Feltl - Analyst : Does the stabilizing livestock herds, does that have implications for you on your DDG pricing?

Question: Brent Rystrom - Feltl - Analyst : Stabilizing livestock herds -- we've been in this (multiple speakers).

Question: Brent Rystrom - Feltl - Analyst : And you mean literally international exports or exports say to (multiple speakers) producers?

Question: Brent Rystrom - Feltl - Analyst : Okay, all right.

Question: Brent Rystrom - Feltl - Analyst : Does your fertilizer business see any impact in the last couple of years -- the massive shift to narrowcasting has that had any implications that you can identify?

Question: Brent Rystrom - Feltl - Analyst : All right. When you apply fertilizer historically up until a few years ago you used to apply the fertilizer on a broadcast basis.

Question: Brent Rystrom - Feltl - Analyst : You would apply it typically separate from your planting. Now with the new planters you're narrowcasting your fertilizer application right in with your planting.

Question: Brent Rystrom - Feltl - Analyst : Okay.

Question: Brent Rystrom - Feltl - Analyst : On O'Malley, and again it's a little bit different market, we have similar markets for say wheat for feed use. It seems that you get a $0.50 to $0.75 kind of premium on sale versus say livestock corn. Is that typical O'Malley, that you might see $0.50 to $0.75 more per bushel?

Question: Brent Rystrom - Feltl - Analyst : (multiple speakers)?

Question: Brent Rystrom - Feltl - Analyst : Okay, that was my next question. I've got two final questions for you. One is kind of a long-term strategic question and it's going to seem really odd giving the glut of corn. But when you look at the livestock herd stabilizing and possibly starting to build, you look at the carcass weight starting to build, it's likely we're going to use 700 million to 800 million more bushels of feed corn per year within about a year here on an annualized basis. Then you look at the ethanol plants coming online and, you look at exports of China buying corn for the first time here, or at least contracting to buy corn, we don't know about delivery.

Question: Brent Rystrom - Feltl - Analyst : Yes, looking at 2011/2012 I would almost guess there's a long-term opportunity to lock in some corn pricing here which seems almost like heresy given where corn has been the last year and a half, two years. But when you look at the demand side of corn, particularly 2011, that's probably going to change a lot. Do you have any thoughts on that?

Question: Brent Rystrom - Feltl - Analyst : I have one final question and then thank you for your responses. Any thoughts on the impact of the early planting? My guess would be that looking at the early planting progress to date in corn we're not going to have that late-season shift, that late May/June shift to soybeans that we've seen in the past. Does that have any revenue or margin implications for the Plant Nutrient Group in the second quarter?

Question: Brent Rystrom - Feltl - Analyst : Is that likely focused on nitrogen because of the (multiple speakers)?

Question: Brent Rystrom - Feltl - Analyst : Well, thank you.