Andersons Inc Q4 2009 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. Congratulations on a great quarter. Quick question on the Grain Group. Sales in that group were up substantially, and you said because of more bushels handled. Could you just give us some color around how many more and what were the reasons behind the increased grain?

Question: Farha Aslam - Stephens Inc. - Analyst : And, so, in terms of basis, you had said that basis was challenging in the third quarter. Did that come back to you in the fourth quarter, and how is it looking in the first quarter?

Question: Farha Aslam - Stephens Inc. - Analyst : Then when you look at ethanol, it was extremely profitable in the quarter. You had mentioned that you don't expect it to remain at historic highs of '04 levels, but could you tell us where you have contracted out and how those levels compare to those you experienced in the fourth quarter, and your outlook for the full year on ethanol?

Question: Farha Aslam - Stephens Inc. - Analyst : But, still, at profitable levels?

Question: Farha Aslam - Stephens Inc. - Analyst : Right. A couple of quick questions on Rail, then I'll pass it on. Your average rail lease rate in the quarter, year-over-year or sequentially, how is it running? 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 : Then your storage costs for rail, do you think they'd keep in the fourth quarter, or do you expect them to go up substantially from fourth quarter levels?

Question: Farha Aslam - Stephens Inc. - Analyst : Great, thank you very much.

Question: Heather Jones - BB&T Capital Markets - Analyst : 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: Heather Jones - BB&T Capital Markets - Analyst : Great quarter. I wanted to go back to Farha's first question on the revenue side. I went back, and this is the biggest revenue number by a pretty significant amount that I have ever seen in 4Q for grain & Ethanol. I understand that your bins were full going into the quarter, et cetera. I was wondering, did this point to point trading that you are trying to do, did that really pick up steam during the quarter and contribute? I am just trying to get a better sense.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. Also, are you holding a significant piece of wheat at this point? It seems like basis, it is still wide but it still seems like it's narrowed some, pretty significantly narrowed. Just wondering if you are benefiting from that.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. Moving on to grain. Looking to 2010. You had a pretty good performance in the core grain business for 2009. But looking at 2010, you're having big carryout of corn, a late harvest there, and then the likelihood of more corn acreage, and then you have the wheat storage you were just REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. referring to. Do you believe that your core grain business could be better as far as earnings, could be better as far as earnings, could be better than 2009 in 2010?

Question: Heather Jones - BB&T Capital Markets - Analyst : Right. The quality issues, we have been reading some stuff that talks about farmers, as they get closer to weather warming up, that they may be rushing corn to the market, just concerned that warmer weather would bring a lot of these quality issues even more to the fore. I am wondering what you are seeing there and your comfort level with how you priced the corn you've gotten so far, as far as potential quality issues.

Question: Heather Jones - BB&T Capital Markets - Analyst : My final question is there has been a lot of concern, fertilizer companies reporting numbers and pricing outlook being a little weaker than some had expected on some of the fertilizers. My impression has been that your inventories are fairly lean, and that as long as volumes are stronger in 2010, those should be a good year for plant nutrients. I wanted to get your take on that.

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay, good. Thank you and congratulations again.

Question: Alex Potter - Piper Jaffray - Analyst : Just a follow-up here on fertilizer. I was wondering what volumes were year-over-year, if you can disclose that in the quarter, and what your volume expectations are for 2010?

Question: Alex Potter - Piper Jaffray - Analyst : That makes sense from a qualitative perspective and I can understand that easy comparisons might make the year-over-year --

Question: Alex Potter - Piper Jaffray - Analyst : Yes. Okay. Also a couple of questions here on Rail. What to you think it is going to take in Rail? Is there a utilization rate that you are shooting for to turn a profit there? Also, another question on Rail. I know that in the past you've mentioned that in down markets, it provides a really good opportunity to acquire more cars. But your fleet size has been basically the same. Have you been increasing the acquisition of cars and that's been offset by the scrapping for the Chinese demand? Just comments on why you haven't been acquiring more cars.

Question: Alex Potter - Piper Jaffray - Analyst : Regarding the acquisition of cars in a down market?

Question: Alex Potter - Piper Jaffray - Analyst : And you mentioned on the down side you would like to have 80% utilization and ideally you'd be looking at 90%. That 80%, though, isn't like a cut off for profitability, right? Am I reading that correctly? Is there a drop dead level that you try to shoot for to achieve profitability in a segment?

Question: Alex Potter - Piper Jaffray - Analyst : Okay. My last question here. Just looking ahead into 2010, balance sheet's in very good shape. You acquired the fertilizer business here, added some grain elevator space in 2009. Just wondering, thematically, what you guys are looking at in terms of potential M&A opportunities here in 2010 and if you intend to put the cash to use for that purpose.

Question: Alex Potter - Piper Jaffray - Analyst : Sure. Okay, thank you very much guys. Good quarter.

Question: Eric Larson - Soleil Securities - Analyst : Good morning, everyone. A couple of real quick questions. First, more of a general question. You alluded to, on the call here as well, clearly the inflation has come out of the grain markets over the past 12 months. It is basically apples to apples now, year-over-year. With that being said, you had your second best year for cash generation. Is there more cash that you can get out of working capital? And then, how do you look at your interest expense to finance your business these days with the value of grain inventories down, your volumes are a little bit up. How should we look at both cash flow and interest expense now that the grain inflation is out of the business?

Question: Eric Larson - Soleil Securities - Analyst : Obviously you have to finance those inventories. The outlook for the interest -- you have record low interest rates here. How should we view your financing costs for the next year?

Question: Eric Larson - Soleil Securities - Analyst : The issue is, substantially more volume opportunities become available, if you are financing more volume then your rates go up. Then your interest expense, if rates are the same, your interest goes up.

Question: Eric Larson - Soleil Securities - Analyst : And any thoughts on your volume outlook? That is really what it gets to.

Question: Eric Larson - Soleil Securities - Analyst : Okay. Two other real quick questions. With the reduced volatility of the grain markets going forward, do you think you can see as many merchandising opportunities going forward here? Obviously, grain volatility is great for grain merchandisers.

Question: Eric Larson - Soleil Securities - Analyst : Yes. We have got some toxin issues, as well. It is becoming an issue with what is still standing on the field. It is actually an issue in the bins, as well. Just a final question. I actually expected on this call to hear you guys say you were basically fully hedged on ethanol for the year, that you'd sold forward. I would have expected you to have more full coverage. Were the opportunities just not there? Is that why you are a little empty on the back half of the year?

Question: Eric Larson - Soleil Securities - Analyst : If we have 350 corn, 350 to 360 corn, do you think we will still see 87 million, 88 million, 89 million-acres?

Question: Eric Larson - Soleil Securities - Analyst : Sounds like you have a long trade on corn right now if you are expecting that kind of acreage.

Question: Eric Larson - Soleil Securities - Analyst : Okay, I am just busting your chops a little bit.

Question: Eric Larson - Soleil Securities - Analyst : Okay. Take care.