Andersons Inc Q3 2009 Earnings Conference Call Transcript

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

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

Question: Heather Jones - BB&T Capital Markets - Analyst : I had a few questions, first on the grain business, you mentioned that in your core markets that the harvest is about three to four weeks behind. Is it your view that the farmers are going to have enough time to get the complete harvests out of the -- get the harvest completed? 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 I have noticed at some of your elevators that corn basis has weakened. And I was just wondering, is that a function of quality concerns and is your capacity full, or is there lower demand, just if you could speak to basis trends in your localities?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, so is it a fair point that this quarter you may make a lot more on the drying, blending side, but maybe not make as much on the basis, the space income side?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. 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 : These quality issues, when you take ownership of this grain, do you bear the risk of quality, or is there some kind of adjustment later if you have a lot of the fracturing, et cetera?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, moving on to ethanol, so you have locked in a good amount of your Q4 and some of your first half of '10, wondering, because current slot margins are in the -- on the cash basis, in the $0.40 to $0.50 range. So, I was wondering how close to the current market is what you have locked on Q4, did you move to lock in as soon as it became positive, and then the same question for the 2010 volumes you have locked in.

Question: Heather Jones - BB&T Capital Markets - Analyst : So, next year it sounds like you still have for the whole year a fairly substantial amount unhedged.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay and my final question is on the fertilizer side. 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 : I understand the whole difficult comparison issue, but if you look at your revenue it was below even Q3 '07 and you have since completed like three acquisitions, and so just wondering what happened in your markets? Is this something that is continuing into Q4? And also, you mentioned that Q3 margins were back to normal, but this loss is worse than any Q3 we have seen for Plant Nutrient.

Question: Heather Jones - BB&T Capital Markets - Analyst : And so I was wondering was there something else going on in the quarter and just, mainly, as it relates to Q4, what should we expect as poor quarter?

Question: Heather Jones - BB&T Capital Markets - Analyst : So, your revenues went from $162 million to $70 million and you are saying volumes were only down 12%, and even though it may -- it was diluted on the bottom line, it should have -- Hartung should have added to sales --

Question: Heather Jones - BB&T Capital Markets - Analyst : -- so how much was the pricing down for you?

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, all right, thank you very much.

Question: Heather Jones - BB&T Capital Markets - Analyst : Very big. Okay, well thank you very much.

Question: Michael Cox - Piper Jaffray - Analyst : Thanks guys. My first question is on the rail side of the business. In the last of quarters you were able to pull out a profit on a similar run rate of revenue. I would be curious what has changed now and your comments around maintaining profitability seemed pretty strong in the last couple quarters, so I would just be curious what has changed and what sort of level of revenue would you need to see to get back to a profitable state in that segment?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's helpful. And I guess what you see today in the business, and you said that the utilization was 72.8% at the end of September, is that where you would expect the fourth quarter to end up? Or do you think that that will have further to slide?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, shifting to the plant nutrient of the business, your comments said that the volumes would be less than you had originally hoped for, but I believe you are up against, if my notes are correct, a 50% drop in volume in last year's fourth quarter. So should we expect on a volume basis that that will be up year-over-year, and then also, secondarily, on a pricing perspective could you talk about where you are, maybe, just at quarter end on pricing versus last year on a quarter end basis? Mike Anderson; On the first one on volume, about two or three weeks ago when we were not getting any grain off, literally it was just really not getting stuff off, I was worried. We know weed acres are going to be down this year, cannot tell exactly how much because there is still some planning, but it would not surprise me if they are 10% to 20% lower in our region. But the volume fourth quarter, as you pointed out, was so bad and that was less because of -- the soil conditions were such that they could take it. The weather was good and it was all primarily price related. We should beat last year's volume number, but if we would turn around into a terrible weather pattern again, and we are just off to a slow start. As far as pricing, I am not 100% sure what you mean by that. Are you talking about --?

Question: Michael Cox - Piper Jaffray - Analyst : On a year-over-year basis as we look just at the fourth quarter, pricing and plant nutrient should be flat, is that a fair assumption?

Question: Michael Cox - Piper Jaffray - Analyst : The price per ton. Potash is down since the beginning of '09 --

Question: Michael Cox - Piper Jaffray - Analyst : -- but the pricing began to fall in phosphate last year.

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's very helpful. That answered my question exactly. And I guess combining these two factors, does the volume lift? Do you expect to see -- will that be enough to offset the price declines that you expect?

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's helpful. One, on the grain and ethanol side, you provided some color around directionally space income down, drying and service income or revenue up, but again, in the same light as my question on the plant nutrients, I wonder if you could combine these and give us some directionally where you think the grain and ethanol business shakes out in the fourth quarter relative to Q3 or relative to last year's fourth quarter, whatever would be the most, the best comparison and by the way you look at it.

Question: Michael Cox - Piper Jaffray - Analyst : Okay, that's very helpful. And my last question is on the balance sheet. You now have carried a pretty sizeable cash position for a couple of consecutive quarters. Could you talk about what your plans are from a capital structure perspective and use of cash?

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

Question: Eric Larson - Soleil Securities - Analyst : Good morning everyone.

Question: Eric Larson - Soleil Securities - Analyst : A couple of questions, first, what is the probability, Mike, that you actually push some of the basis opportunities into Q1 2010, given the four week delay? It seems to me that -- I know we can get this stuff off the fields pretty quickly if we can get on them, but is there a possibility that some of this gets deferred into next year? 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 : Okay, I think that's reasonable. A couple just sort of accounting issues, and maybe Nick can answer this, in your pension, your onetime pension gain in the quarter, did that get recognized as a one lump sum from the income statement, or did you spread it out across the respective divisions?

Question: Eric Larson - Soleil Securities - Analyst : Okay. Wouldn't Retail benefit quite a bit with that as well because isn't that a more labor intensive -- 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 : Okay.

Question: Eric Larson - Soleil Securities - Analyst : Okay, all right. And then, in your -- you did not disclose -- your retailing loss, obviously, was quite a bit more than I had expected and it included closing costs for Lima, or Lima. Are you willing to share what that, what those onetime closing costs penalized Q3 earnings?

Question: Eric Larson - Soleil Securities - Analyst : Okay, and one just final question, and I guess I don't recall seeing this in some of your -- it must be the last three or four press releases, and maybe it is just that I have missed it. You took some bad, additional bad debt expense in the grain ethanol area in the quarter. Is that something you have been doing for the last two or three or four quarters, or is something new that we, what -- can you give us a little more flavor as to what that bad debt number is?

Question: Eric Larson - Soleil Securities - Analyst : Okay, and so -- but you are assuming that is now pretty conservatively funded and so you are -- 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 : -- you think this might be the last. We should not be looking for this for future quarters?

Question: Eric Larson - Soleil Securities - Analyst : Okay, all right, fine. Thank you.

Question: Eric Gottlieb - Value Line, Inc. - Analyst : Yes, this is Eric Gottlieb before Farha. Most of my --

Question: Eric Gottlieb - Value Line, Inc. - Analyst : Thanks. Most of my questions have been answered. My one question has to do with utilization rates. It seems that loan car originations for the industry were at their trough in April, May and have since been improving, but your utilization rates have been going down, and I am just wanting some clarification on why that is. 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 Gottlieb - Value Line, Inc. - Analyst : Okay, that makes more sense. My other comment is some of the potash producers around the industry seem to very constructive on the industry and I want to know if you just agree with them.

Question: Eric Gottlieb - Value Line, Inc. - Analyst : Okay, very good. I'll pass it on. Thank you.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Good morning everyone.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Mike, can you just go back. You talked about, I think, it was 400,000 to 500,000 railcars across the industry. Are -- I don't, at this point -- what is that, can you just give us an understanding railcar number from your viewpoint?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : So your basic, your utilization rates are basically in line with macro rates? 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 : And then, again --

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Right. And then from your viewpoint again, are your scrapping rates kind of, do they appear to be in line with what the industry is going through right now?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay, and then could you just explain one more time -- you answered Eric's question about as capacity to come out of the rail system, to turnaround as it's done more quickly, and I didn't quite follow that. Could you just kind of go through that one more time?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. That I understood. 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 : And then, you talked about Turf and Specialty weakness in the professional market. Does that include the golf course market as well? And are you seeing the weakness that some of your competitors have seen in that group?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay, and then one last question. With Retail, it kind of continues to be either a slight positive or somewhat of a negative drag on earnings. You are closing the Lima store. Can you just give us your thoughts on Retail going forward? Are there plans for -- what were the metrics you used to determine to make the decision to close Lima? Are there other opportunities to kind of streamline the business and kind of what are you hopes and goals for this division?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : I actually do have one last question. You talk a lot about the ethanol business and what -- are there any opportunities or any desire for the Andersons to move into a larger footprint either with your traditional partnership arrangements or outright acquisitions of some of these idle or very constrained assets right now?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : I think that with your balance sheet, some of these assets that are idle, primarily due to the margin environment and working capital constraint, it would seem like you would be someone who could come in, again, individually or as in your traditional partnership arrangement.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Are offering prices still significantly discounted or has the recent profitability --

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : All right, great. Thanks, Mike.