Andersons Inc Q2 2011 Earnings Conference Call Transcript

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

Question: Farha Aslam - Stephens Inc. - Analyst : Hey, good morning.

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

Question: Farha Aslam - Stephens Inc. - Analyst : And you had pointed out that your Grain Group will not have earnings in the second half that will equal your first half. But do you think you can deliver earnings in Grain that would be equal to second half of last year? So year-over-year, are second-half earnings flat?

Question: Farha Aslam - Stephens Inc. - Analyst : Good, thanks.

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And then in terms of wheat basis, we're looking that wheat basis has continued to rise in the July period.

Question: Farha Aslam - Stephens Inc. - Analyst : Will you continue to benefit from the basis opportunities in wheat?

Question: Farha Aslam - Stephens Inc. - Analyst : And that should benefit you in the second half of the year, that continued basis improvement. 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 then when you look at your holdings, generally you're more heavily weighted to wheat and corn versus soybeans. This year, are you even more weighted to weight, given that you had a good crop in your area?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And then my final question, and then I'll pass it on. In terms of rail, Mike, you had mentioned that rail lease rates are getting back to historical levels. I think you were pointing to '05?

Question: Farha Aslam - Stephens Inc. - Analyst : Is the D&A per car that's under utilization similar to what you were recording in '05, or is it higher? So can we expect that margin eventually to recover to kind of that $20 million earnings level that you've posted historically, in the future?

Question: Farha Aslam - Stephens Inc. - Analyst : Great. Thank you for the additional color.

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

Question: Stephen Share - Morgan Joseph - Analyst : Excellent quarter.

Question: Stephen Share - Morgan Joseph - Analyst : I wanted to focus a little bit more on ethanol, because I was pleasantly surprised, but surprised nonetheless. I kind of thought the language on the last call was that, for the three -- the second, third, and fourth quarter of 2011, that we'd be near break-even profitability. Maybe I misunderstood exactly what was said, but what happened that you were so profitable? I thought you had hedges in place, and yet you still made good money in ethanol this quarter.

Question: Stephen Share - Morgan Joseph - Analyst : And now when we look into July, ethanol prices have been real strong. I realize you're going to have a higher corn cost in the third quarter, but are you going to be able -- should ethanol prices stay as high as they are right now? Is it possible that you will be able to take advantage of that higher price, obviously not with all of your supply, but maybe 50% of your supply?

Question: Stephen Share - Morgan Joseph - Analyst : I see. And then just one more thing from me -- on the Plant Nutrient side, you mentioned that volume declined year over year. Any sense of the cause? I mean, we had a late planting. I know your area in particular had some flooding right around the time the crops were going in. What's your speculation on why you had a little bit of volume decline year over year?

Question: Stephen Share - Morgan Joseph - Analyst : I see. I'll pass it along. Thanks a lot.

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

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

Question: Heather Jones - BB&T Capital Markets - Analyst : I have quite a few questions. I guess the real detail-ish one first.

Question: Heather Jones - BB&T Capital Markets - Analyst : (Inaudible).

Question: Heather Jones - BB&T Capital Markets - Analyst : What was your rail utilization at the end of the quarter?

Question: Heather Jones - BB&T Capital Markets - Analyst : Oh, okay. All right. And as far as bushels in storage, how did that look at the end of the quarter relative to last year? Was it up, flat, down?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. 'Cause my question is -- obviously, everyone's talking about the very tight availability of corn. Basis has continued to appreciate strongly, so I was just wanting to make sure that you had enough inventories in your [fence] to benefit from that appreciation. So is it a fair assumption that you should be able to?

Question: Heather Jones - BB&T Capital Markets - Analyst : Well, wheat and corn, but honestly, I was really thinking corn. I was looking at basis appreciation for the end of the Q2 yesterday, and it looks like in many of your regions it's continued to appreciate nicely. And so I guess, do you have enough in storage to really benefit?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. So speaking about -- going to the harvest, and the heat, and the late planning, especially in your core footprint, do you have any concerns about yield and what that's going to mean for volumes through your elevators around the time of the harvest?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, so the fretting and the rumors we're hearing of 151, 152 for corn, you don't see that?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. Well, then I guess to interpret it another way then, you do see substantial downtime, then, from the current USDA projection, then.

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Two more questions. Ethanol -- as far as -- you mentioned half locked in for Q3. Do you have any locked in for Q4? 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. And then, finally, going to 2012, as far as the ethanol outlook, exports have been very strong. ADM said on their call that roughly 0.5 billion gallons are offline due to issues with access to corn. If those come back online, going into 2012, some concern that ethanol margins could be weaker than 2011. Just wondering what your take is on that.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, thank you. That was very helpful color. Appreciate it.

Question: Christine Healy - Scotia Capital - Analyst : Thanks. Hi, guys. A couple of questions on your ethanol business. Wondering if you can talk about the performance of your ethanol plants over the last couple of months, just given that there have been some shutdowns due to the tight corn supply. Should we assume that your plants are still running at relatively high levels, and could you also speak to some of the reports that we're seeing that you're feeding wheat in your plants? 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: Christine Healy - Scotia Capital - Analyst : Okay, so that's not a long-term plan, then; that's just an opportunistic thing that you guys could do from time to time.

Question: Christine Healy - Scotia Capital - Analyst : Okay, and then you guys have adequate corn supply, I guess, for the next quarter until harvest?

Question: Christine Healy - Scotia Capital - Analyst : And are you seeing that some of the smaller players, maybe some of the farmer co-ops that have these ethanol plants, that they're struggling here? Are you seeing some increased opportunities for potential investments down the road? 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: Christine Healy - Scotia Capital - Analyst : Okay. That leads into my last question just on your balance sheet, that you guys have been paying down your debt. Good to see. Just want to know what your cash spend priorities are right now. So if you have excess cash, are you more likely just to fund growth, pay down debt? And also, when do you next revisit your dividend?

Question: Christine Healy - Scotia Capital - Analyst : Okay, great. Thanks so much, guys.

Question: Brent Rystrom - Feltl and Company - Analyst : Don't want to try pronouncing that, huh?

Question: Brent Rystrom - Feltl and Company - Analyst : Yes, I was going to say, you had to be kind of scratching your head with some of the fertilizer this year, I know. I would've sensed that, in a lot of your markets, you had a lot of farmers basically mining the potash and potassium -- or the phosphates in their own soil. And so you're going to have a cycle next year for those two nutrients that's probably pretty decent. Would that be reasonable?

Question: Brent Rystrom - Feltl and Company - Analyst : All right. From a pricing perspective, I'm tracking about 30 [hydronymy] centers in your primary region there. And it looks like, where you can find pricing for next year, it looks like it's going to be up certainly teens to 20s over where it is this spring. Do you have inventory from this year that will be carrying into next spring, or will it all be gone this fall?

Question: Brent Rystrom - Feltl and Company - Analyst : And I guess what I'm getting at, Mike, is --

Question: Brent Rystrom - Feltl and Company - Analyst : -- that there's a margin opportunity there. 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 : Okay, and then from a corn perspective, I'm just literally finishing up a couple-day tour across Nebraska, Iowa, and Illinois. Seen a lot of corn that looks like it pollinated on V6 or V7, so you're looking at 12- and 14-row corn instead of 16-row kernels. And Iowa supposed to be the hot, sweet spot with Nebraska this year, so their 12- or 14-row corn -- implications are we could be looking at yields even in the 140s. If we're in the 140s for a yield this year, what are the implications for The Andersons?

Question: Brent Rystrom - Feltl and Company - Analyst : Two quick questions, then. From a price discovery perspective, I'm hearing that low-grade wheat, primarily -- I'm assuming you're talking about coming out of the Black Sea, kind of at $209, $210 a ton. It's hitting North Africa at about $260 a ton. What are you seeing it in the Southeast at?

Question: Brent Rystrom - Feltl and Company - Analyst : So they were probably buying it sub-200, I would guess, to make the --

Question: Brent Rystrom - Feltl and Company - Analyst : -- (multiple speakers).

Question: Brent Rystrom - Feltl and Company - Analyst : And then final question -- getting back, Mike, to what you had said about acreage. My bet is, if we get good spring planting conditions next year, you could finally look at that 95-million-acre corn year. Any particular thoughts on what 95 million acres of corn, and particularly hopefully a better weather cycle for you, would mean for spring activity next year on the [turf] side?

Question: Brent Rystrom - Feltl and Company - Analyst : Thank you, guys.