Andersons Inc Q1 2011 Earnings Conference Call Transcript

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

Question: Farha Aslam - Stephens, Inc. - Analyst : Hi. Good morning. 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 : Mike, maybe you could expand on your comments about the weather. How long do you think it will take farmers to get into the field, we've heard recently that weather in your area has improved a bit and how do you read the likelihood of them getting that crop in?

Question: Farha Aslam - Stephens, Inc. - Analyst : Okay. And then, Denny, thanks for joining us on the call. Maybe you could follow up on Mike's comments. Your volumes in the first quarter were surprisingly flat in Plant Nutrients and then with the compacted planting season, do you think that's going to impact how much fertilizer is used by farmers?

Question: Farha Aslam - Stephens, Inc. - Analyst : Hi. 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 : Okay. And then my final question, and I'll pass it along, relates to ethanol. Recently in Washington we've seen a lot of headlines out about the $0.45 tax credit, whether it's going to go away, whether it's going to be reduced to $0.20, kind of your commentary around that? And then just your kind of the level of hedges that you have in your Ethanol Division?

Question: Farha Aslam - Stephens, Inc. - Analyst : And your ethanol positions? 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 : Thank you. That's very helpful.

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Hey, good quarter.

Question: Heather Jones - BB&T Capital Markets - Analyst : A couple of questions. I was wondering first, Denny, on fertilizer volumes, let's assume the optimistic view prevails and we get the corn in the ground. Do you think -- do you have enough of a window left that your volumes could be up year-on-year, as farmers return to more normal application rates or is that just not going to happen at this point?

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Yes, I'm referring to quarter two.

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And on the pricing front, if I remember your model correctly, it's sort of like a balance sheet type thing and since at this point in time, so like if there is no more price appreciation between the end of March and the end of June, then your profitability, it's going to be more driven by volumes as opposed to further inventory appreciation, right?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. Okay. Then moving on to the Grain business, it looks like, I mean hardwood winter crop is obviously at risk, but the softwood winter crop looks like it's going to be very robust and you all are one of the biggest -- it's not the biggest stores. And so -- and then VSR, it looks like it's just set to move up again. And so, I guess I'm wondering at the front end, how much discretion do you have with the farmer as far as to take ownership or just a store and just be able to clip the coupon. And I would assume that would be your preference right now would be just a store, but just wondering how much discretion you have to drive that?

Question: Heather Jones - BB&T Capital Markets - Analyst : In the wheat market specifically? 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 : So you're ambivalent as to whether you store or you take ownership and benefit for the space income, could you think the opportunity is considerable either way?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And my final question is on the rail business. You talked about leasing profitability being impacted by maintenance expense. When should we expect that issue to be behind us so that you start getting some leverage on the earnings line?

Question: Heather Jones - BB&T Capital Markets - Analyst : It was. Thank you.

Question: Heather Jones - BB&T Capital Markets - Analyst : Good, good. Thank you.

Question: Stephen Share - Morgan Joseph - Analyst : Good morning.

Question: Stephen Share - Morgan Joseph - Analyst : Thanks for breaking out Grain & Ethanol. I think it makes it more easily transparent to understand your Company.

Question: Stephen Share - Morgan Joseph - Analyst : And along those lines, in the Grain business, gross profit was up almost 50%, however, I'm a little surprised that if you kind of exclude Lansing, it looks like it was -- results were kind of flat on the operating income line. Could you talk about that, were there unique operating expenses? 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: Stephen Share - Morgan Joseph - Analyst : Okay. That's helpful.

Question: Stephen Share - Morgan Joseph - Analyst : Sure. Sure. I appreciate that. And then just on the Rail business, you said you had -- the gain was $4.8 million this quarter versus $2.6 million last quarter?

Question: Stephen Share - Morgan Joseph - Analyst : Okay. And then did you say what your ending capacity utilization was?

Question: Stephen Share - Morgan Joseph - Analyst : I see. I see.

Question: Stephen Share - Morgan Joseph - Analyst : Okay. I just -- you had mentioned capacity utilization for now average, but I was wondering (inaudible) throughout the quarter?

Question: Stephen Share - Morgan Joseph - Analyst : 83.3%, okay. And then my last question is back on ethanol, I believe you said last quarter that you had a what, did you price 30% of your corn need for ethanol and I was wondering if you could talk that number?

Question: Stephen Share - Morgan Joseph - Analyst : Sure. Got it. Okay. Thanks a lot.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Hi, good morning guys.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Mike, I may have missed it, but did you mention the actual or Nick, maybe, the number of cars and the number of locomotives in the fleet now?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. Okay. And maybe the question is for Denny or maybe for Mike. Have you seen -- we've heard some of it going on in other regions, but has there been a lot of replanting of the new crop in your area or are people still waiting to get out? Was there a moment where they could get out and try and then it's -- the crop's failing or is this still waiting to get out and do the work?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : So I guess my question was if there is some tightness in terms of the window of opportunity, there isn't some sort of counterbalancing effect of being able to double-apply or -- in a replanting situation, correct?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Yes. If you tried once and it's not working, would you go back and reapply fertilizer as well as replant the corn?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. And Mike, you talked about -- everyone's kind of talked about this window and 30 days of planting, what have you seen historically in your region if you move beyond that window and --

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : A rule of thumb to look at?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : And then are any of your markets being impacted right now by the Mississippi flooding and the levee breaks?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : But your markets are relatively untouched by this?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. And then lastly, Mike, I tried to get Nick to answer this recently, but he's been reluctant, I think he defers to you. With the high-priced commodities and the difficulties, the need for a significant balance sheet to kind of operate in this environment. Can you talk a little bit about The Andersons, the target hit lists or opportunities to acquire some of these more challenged competitors or people in different segments? I know you talked a little bit about looking for rail opportunities, but beyond rail we're seeing ethanol margins that are extremely difficult right now, like I said the inventory costs are very high as well.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : No, of course not. But I mean are you looking across your business segments?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Would it be safe to say that you're kind of actively involved in the M&A situation right now or?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : I tried.

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

Question: Eric Larson - Soleil Securities - Analyst : Hi, guys. Let me try now.

Question: Eric Larson - Soleil Securities - Analyst : Hi, guys.

Question: Eric Larson - Soleil Securities - Analyst : I know you didn't give me a phone number. I had to coerce Sandra to get it, and then she didn't give me the access code. So I had to really finagle to get on this call today.

Question: Eric Larson - Soleil Securities - Analyst : I don't take it personally. 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: Eric Larson - Soleil Securities - Analyst : Mike, I am going to kind of focus a little bit on M&A and I need some help. The AIG railcar business was recently sold to a private equity holder for $600 million, they had 11,000 cars. You've got 22,000 cars. $600 million is almost 60% of your total market cap. Now, I don't know what the difference is. The difference is in the AIG portfolio, I mean I'm sure that there is a lot of -- I'm just looking at it very simplistically. How should we look at valuing and now of course GE has put their big rail business up for sale. So there is -- what's going on in the railcar business right now is pretty dynamic and the one that I just have a needle on is the recent sale of the AIG business, again $600 million for 11,000 cars. I'm kind of saying, whoa, what am I missing, how do we look at valuation on these things and what would be a parameter for us to shoot for?

Question: Eric Larson - Soleil Securities - Analyst : Yes. Well, that -- I mean that's a starting point. It's just a very simplistic -- saying that I just looked at and of course it was -- this is so simplistic, it's almost embarrassing to put on the call, but go pay $1.2 billion for your 22,000 cars and get the rest of the company for nothing. 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: Eric Larson - Soleil Securities - Analyst : Yes. As I said, that is so simplistic, but that was the first thing that went through my mind is what are -- what should we -- how should we be looking at your business on an asset basis, and you -- highlight that.

Question: Eric Larson - Soleil Securities - Analyst : Sure.

Question: Eric Larson - Soleil Securities - Analyst : Yes, yes, yes. I mean that makes perfect sense and that explanation that Nick gave does help. So that's what I needed to really hear. Another question we'll move off of rail, obviously you still have cash, corn prices that are above -- the near futures, cash prices that are above basically everything. I'm assuming that you still have a relatively favorable carry in your inventories, hence it's giving you the ability to continue to profitably merchandise your corn?

Question: Eric Larson - Soleil Securities - Analyst : That's right.

Question: Eric Larson - Soleil Securities - Analyst : Yes, yes, yes. No, I agree. And then finally, Mike, I mean I'm sure you're concerned on this window of corn planting, it is getting tight. And the problem that we have here in the Midwest, upper Midwest at least particularly, it's our soil temperature is still -- it's been cold. Our soil temperature is still 5 to 6 degrees below where we need to have them before you really put the crop in. I mean we haven't even warmed up the diesels yet, I mean that's really delayed.

Question: Eric Larson - Soleil Securities - Analyst : Yes. It's got us pretty nervous too, so -- but anyway thanks for your comments, appreciate it and I'll follow up with Nick on anything else.

Question: Brent Rystrom - Feltl and Company - Analyst : Hi, good morning guys.

Question: Brent Rystrom - Feltl and Company - Analyst : How are you?

Question: Brent Rystrom - Feltl and Company - Analyst : Good. Just a couple of quick questions. Thinking about and we're talking about here as far as the late planting went out, what are the official cut-off states or your key states as far as the ability to get the full into crop insurance. For North Dakota, say, it's May 25, I'm just curious what it would be in Ohio or Indiana?

Question: Brent Rystrom - Feltl and Company - Analyst : All right. And so from a decision to go which direction basically around the end of May or June 1 then technically would be the time that people will be shifting acres that they're going to do it. And they would have planned for it prior to that, but that would be the real goal date to try to get it out of the way then.

Question: Brent Rystrom - Feltl and Company - Analyst : The fertilizer pricing tax, when you look at some of the other people have been reporting, you look what Agrium and what Agrium said they did in North America here. Your fertilizer sales look like they're delayed, what some of the broader industry was doing and I'm wondering if there is something specific in the region or is it just --

Question: Brent Rystrom - Feltl and Company - Analyst : Sure. I'm -- I got a problem in my phone evidently. I'm wondering about your fertilizer sales. When we look at like what Agrium reported yesterday, their North American sales of fertilizers were up much faster growth rate than yours were. I'm wondering if there is a regional issue or if it's just an issue of how dealers take inventory from you or is that just a way -- I assume your business is going to be as robust as what some of the other players are seeing right now. 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: Brent Rystrom - Feltl and Company - Analyst : So proportionally we should see a bigger growth rate in the second quarter because as we get into that side-dress application and some of the other stuff you do a little bit later into the plant -- or right after the planting season, that should really kick in more here. What you're talking about is the preparation application shifted 4Q and as we get into side-dressing and whatnot, in June we should see the normal seasonality kick in a little bit better.

Question: Brent Rystrom - Feltl and Company - Analyst : Yes, when I said volume and really I'm talking pricing, because when you look at anhydrous or you look at DAP and MAP, I mean really only potash is up modestly. When you look at everything else it's up 30%, 40%, 50%, 60%. I would imagine that should correlate into a higher growth rate than your 20-ish% growth rate or so during the first quarter?

Question: Brent Rystrom - Feltl and Company - Analyst : In revenue, In revenue.

Question: Brent Rystrom - Feltl and Company - Analyst : On flat tons with pricing up. Anhydrous is up 50%, DAP and MAP are up 55% ,60% from where they were a year ago. If volume is flat, your revenue should to some degree track that kind of a pricing increase.

Question: Brent Rystrom - Feltl and Company - Analyst : Yes, I understand it. Just a philosophical question, when you look at the 4 million acre increase the USDA is predicting for 2011 and you look at 850,000 acres, that's going to be in South Dakota, 450,000 acres coming from North Dakota. And what Eric was talking about earlier, my farm's up in North Dakota, it was snowing in 36 on Monday. Lot of the supply that's expected to come this year in corn is coming from some of those fringe states. If we have the difficulty that it feels like we're starting to have as far as corn getting planted and possibly corn yield, what are the implications for your business in 2012, I would imagine for the ethanol business it could be fairly negative?

Question: Brent Rystrom - Feltl and Company - Analyst : But that was giving my next question. I'm glad you raise that point, and this is my final question then. I would imagine the volatility environment that we're looking at would be very good for Lansing for the next year, year-and-a-half, if some of these issues develop?

Question: Brent Rystrom - Feltl and Company - Analyst : All right. Thanks guys.

Question: Brent Rystrom - Feltl and Company - Analyst : That forms actually a question and I apologize for running on here. If we indeed -- everything -- obviously it's getting planted real late here and after May 15 you start to have potential yield problems with corn at least we do up here if you plant too late. Just thinking about the physical aspects of an 18-day carryout in a year in which yields could be impacted negatively, in a year in which the actual, physical harvested grain could come in a little bit late as well. I would imagine that July, August, September time frame talking about physically securing grain could be a good opportunity for them.

Question: Brent Rystrom - Feltl and Company - Analyst : No, it just makes a lot of sense.

Question: Brent Rystrom - Feltl and Company - Analyst : Well, thank you. 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: Charlie Rentschler - Boenning & Scattergood - Analyst : Boenning & Scattergood. Hi, Mike and Nick and Denny.

Question: Charlie Rentschler - Boenning & Scattergood - Analyst : Hey, I know we're running over and I just got a couple questions. But on the basis that the ethanol industry in the United States is in fair amount of trouble right now with corn in the area of what $7.25, $7.30. What would corn have to get to, Mike, to have this industry really in deep trouble? I mean is it $7.75, $8 that kind of a thing, what's your sense, what are you hearing about your competitors?

Question: Charlie Rentschler - Boenning & Scattergood - Analyst : Well, just as a follow-up question and I'll let you go, but if I understood what you said earlier, you would have an open mind, you would have a certain amount of appetite to make additional investments in the ethanol industry. I mean if things got worse, if you've found something that really fit well with your business you might be interested. I mean you're not ruling that out.

Question: Charlie Rentschler - Boenning & Scattergood - Analyst : Okay. All right. Thank you.