Andersons Inc Q3 2010 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.

Question: Farha Aslam - Stephens Inc. - Analyst : A couple of questions -- first of all, in your Plant Nutrients group, clearly the group's having a great year. Looking into the fourth quarter and into next year, how much more upside is there because of the very good grain situation and rising fertilizer prices?

Question: Farha Aslam - Stephens Inc. - Analyst : And when you look at that business, your normalized earnings, kind of what you expect that business to deliver on a normal basis, and clearly probably next year is going to be ahead of that.

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And so would you think that that business on a pre-tax basis, year-in, year-out, is a sort of a $25 million to $30 million business now?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And then on to ethanol, the tax credit expires December 31st. I was wondering, your thoughts on the extension of the tax credit and how you're managing around it?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay.

Question: Farha Aslam - Stephens Inc. - Analyst : And so your ethanol hedging, you said you're largely hedged for the fourth quarter. Do you have any hedges in place for 2011?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And my final question is on rail. In terms of this year, profitability was supported by staffing. Next year it looks like your lease rates are going up and your utilization is going up. Could earnings in that segment double next year, or how would you expect projections of earnings to go?

Question: Farha Aslam - Stephens Inc. - Analyst : Thank you very much.

Question: Michael Cox - Piper Jaffray & Co. - Analyst : Good morning, guys.

Question: Michael Cox - Piper Jaffray & Co. - Analyst : My first question is on the fertilizer plant nutrient side. When should we start to see some FIFO inventory benefit like what we saw back in I guess in '08 when prices were escalating? Should that start to show up in 4Q?

Question: Michael Cox - Piper Jaffray & Co. - Analyst : Okay. And shifting to the rail segment, that was a $20 million pre-tax profit business '06 through '08 when the utilization rates were in the 90's I believe. If 80% is the right run rate, are you trying to make structural changes to the business that could get you back to those types of run rates of pre-tax profit? Or is it really a prerequisite to be at that sort of utilization rate to get back to those pre-tax profit levels?

Question: Michael Cox - Piper Jaffray & Co. - Analyst : Okay, that's helpful. And one last quick question on the ethanol side -- with the forward ethanol margin looking more compressed, do you see the potential for more M&A activity in 2011, and do you see yourself as a player in that market?

Question: Michael Cox - Piper Jaffray & Co. - Analyst : Great, thank you very much. 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 : Good morning, everyone.

Question: Eric Larson - Soleil Securities - Analyst : In the quarter, I want to get into the Grain division a little bit here. Of your $6.4 million decline in operating profit, how much of that was attributable to basis loss on wheat?

Question: Eric Larson - Soleil Securities - Analyst : Okay. Then let's translate that into Q4. When the October 8th West report came out, I think I was shocked to see the basis contract again on corn. Obviously we had fairly strong demand coming in for corn, and so could you lose basis on corn in Q4 as a result of what happened in early October?

Question: Eric Larson - Soleil Securities - Analyst : Okay, yes.

Question: Eric Larson - Soleil Securities - Analyst : Okay, that actually makes some sense. Now, you talked about the quality of the corn crop. This year we only had to dry about, we're at 15% moisture. I think last year you probably had some pretty good drying income in your numbers. Would that be a swing factor in your Q4 versus this year, where I'm not so sure on the Eastern corn belt you may have had more moisture. But Western corn belt, it was virtually ideal, it was ideal crops coming off the field. 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 : Correct, yes. So it comes back in different ways on you, obviously.

Question: Eric Larson - Soleil Securities - Analyst : Okay. I'm just trying to get a (inaudible -- multiple speakers).

Question: Eric Larson - Soleil Securities - Analyst : Okay. Alright gentlemen, thank you.

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

Question: Brent Rystrom - Feltl and Company - Analyst : Good, thank you. Just out of curiosity, I was looking at the ethanol use of corn year over year for the first four weeks in [your] trade year, and it's running 18% higher than it was a year ago. Are you seeing any signs of price rationing out there from a corn consumption perspective?

Question: Brent Rystrom - Feltl and Company - Analyst : Sure. We're seeing ethanol-related corn demand up 18% for the first four weeks here of the trade year.

Question: Brent Rystrom - Feltl and Company - Analyst : Are you seeing any price rationing, despite this surge in corn price? Are you seeing the price come in at all?

Question: Brent Rystrom - Feltl and Company - Analyst : Then a quick follow-up on Eric's question -- on the drying, if I recall, you said the drying will be a big impact to income. If I recall, drying --

Question: Brent Rystrom - Feltl and Company - Analyst : Yes. And what I'm wondering, drying, if I recall, is at relatively lower margin isn't it? 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 : Alright. So there could be a big impact on the --

Question: Brent Rystrom - Feltl and Company - Analyst : Two quick questions on fertilizer, and then one on wheat, and then I'm done. Are you seeing any issues with Fall application with as warm as it has been, you know getting that soil temp down below 50 to be able to put the nitrogen in? Are you seeing any impact here this quarter relative to that?

Question: Brent Rystrom - Feltl and Company - Analyst : The final question on fertilizer then is really one of the only ways they can create expenses to handle what's going to be a very high taxable income for farmers, are you seeing a lot of pre-buys on next year where they can?

Question: Brent Rystrom - Feltl and Company - Analyst : The final quick question -- I know you guys, I think you were more heavily involved in spring wheat than winter wheat. But any thoughts on [whether it's you] or Lansing Trade on the developing drought for winter wheat?

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Hello, it's Heather Jones.

Question: Heather Jones - BB&T Capital Markets - Analyst : I was having difficulties on my line so I had to hop on his line, so I apologize.

Question: Heather Jones - BB&T Capital Markets - Analyst : Well that's good to hear. Real briefly, just a clarification question -- you said nowhere near to half you've hedged for your 2011 ethanol margins. Would you, is it close to a third or is it much less than a third?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And moving onto first of all in your guidance, you had originally back on your Q2 call said that you expect the second half to be similar to the second half of 2009. Do you still believe that's feasible?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And per Eric's question, basis for corn did collapse during September but now it's back up nicely. Did you bring in a fair amount of corn during that period, so that I mean, should the basis appreciation we've seen there be a nice benefit to you during Q4, or are you just moving it as soon as you get it?

Question: Heather Jones - BB&T Capital Markets - Analyst : When you say substantially more in wheat, are you talking about just relative to last year or are you holding more wheat than you're holding corn or beans? 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.

Question: Heather Jones - BB&T Capital Markets - Analyst : Right. Well one thing I don't understand, I mean to your earlier point that basis has appreciated considerably in wheat really over the last week or so.

Question: Heather Jones - BB&T Capital Markets - Analyst : And what is driving that? I mean is it export demand finally filtering down to the local level or what is driving such a big move in such a short period of time?

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. I just had never seen it, well I shouldn't say never, but I haven't seen it move this quickly.

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

Question: Heather Jones - BB&T Capital Markets - Analyst : So was it your expectation that you should be able to make back the deterioration from Q3, you should be able to make back the entire amount in Q4?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. I have just two more quick questions. The maintenance repair cost and then the other input costs that negatively impacted ethanol for the quarter, should that extend into 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 the final question is on the improvement in rail utilization towards the end of the quarter. Is that more a pickup and more cars out on longer-term leases, or have you seen a pickup more in the per diem demand?

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

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Just a quick question, Mike, when we were up at the office you kind of gave an acreage outlook for 2011. With the recent run-up we've seen in the commodity prices, has the Company's outlook on acreage shifts changed at all significantly?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : But it's --

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

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Right, so your conservative estimate on growth on corn seems to be more because there are other crops that are quite soft --

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Is there any ability for any of that to come out this year?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. And then a question on the Plant Nutrient group -- application rates on a per-acre basis, have they shifted at all due to the lack of applications that we've seen on previous seasons? Should we expect a even stronger Fall this year out of this group?

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

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. And then last question on the retail segment, we talked kind of every corner and you said you'd give updates about reevaluating this segment and looking at the opportunities and how to kind of [right-size] it. Is there any update for this quarter?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay, great. Thanks a lot guys. 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: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Hey good morning guys, thanks for taking my call.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Hey congratulations on a mixed quarter. I was a bit surprised, I kind of expected the booming grain business to more than compensate for the weakness in the ethanol, but that certainly didn't occur. A question I have for you on the ethanol business, then, is because it seems like we've had a structural shift or would expect one in the corn price at this point. Is that going to, are you making plans for just higher corn across the board? And is there any way for you to offset that which seems to be the primary cost component to that operation?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Right.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Okay, so as long as oil prices stay high, you guys can still make money, oil and corn [whiskey] essentially.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Right, okay. My second question then, it seems like most people have gotten around to the other thing, was if you look like a fairly significant share repurchaser during the quarter. Am I mistaken, or is that correct?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : There wasn't?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Okay.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Oh, I see, oh okay. I thought there was a big boost there and I was wondering about that.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Which would lead me to the second half of what that question would have been was M&A opportunities, are you seeing a lot of stuff? It didn't seem like there was a lot of activity. I'm wondering, are asset prices just a little too high, you think, or just not enough attractive opportunities that really fit strategically with your organization?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : So no big plans in the fourth quarter?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Okay. Alright, now Nick will you be available the rest of the day?

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Oh okay, super. Thanks guys.

Question: Chaz Janesh - Morgan Joseph & Co., Inc. - Analyst : Bye bye.

Question: Farha Aslam - Stephens Inc. - Analyst : Hi, thanks for the follow-up. Three quick housekeeping items -- one, Nick what do you expect interest expense in the fourth quarter?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. And then my second question is the other income was up pretty substantially in the third quarter.

Question: Farha Aslam - Stephens Inc. - Analyst : I was wondering what drove it and do you expect it to continue in the fourth quarter? 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 my final question is on Lansing Trade Group. Earnings this quarter were below the year-ago period. Is it due to one-time items or will they continue this quarter?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay, so you would expect next quarter to be similar to current quarter's, all else being equal?

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