Q4 Year End 2010 Andersons Inc 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 : Congratulations.

Question: Farha Aslam - Stephens Inc. - Analyst : I'm now faced with a very high-quality problem of trying to figure out how much of these amazing earnings are sustainable and maybe we can focus on the Grain Group. In terms of the wheat basis recovery versus -- how much of that did you think you got back that you didn't have in the third quarter and the fourth quarter, and how much is still to come?

Question: Farha Aslam - Stephens Inc. - Analyst : Great. Then you're earning a higher income on wheat because of the CME's new wheat system. How much of that will continue going into the first part of next year in terms of higher rates?

Question: Farha Aslam - Stephens Inc. - Analyst : For the first part of the year that should be sustainable.

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. Then when you look at your --

Question: Farha Aslam - Stephens Inc. - Analyst : Of course. Then when you look at your grain storage, this year, Hal, versus last year, what's your total grain storage this year versus last year, and how much of a turn can you get on that grain storage this year maybe versus last year?

Question: Farha Aslam - Stephens Inc. - Analyst : So when you look at your income opportunities in 2011 versus what you've achieved in 2010, excluding that reversal for the collection issue, do you think you'll be able to deliver comparable results in grain. And then some commentary on ethanol would be great.

Question: Farha Aslam - Stephens Inc. - Analyst : One last question, Mike, and I'll pass it on. On your Plant Nutrients Group, clearly you had a terrific quarter, and can you talk about what you think volumes will do going into the first half of next year and what margin opportunities you see there?

Question: Farha Aslam - Stephens Inc. - Analyst : Thank you for your commentary. 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: Mike Ritzenthaler - Piper Jaffray - Analyst : Hello guys, congratulations on a great quarter.

Question: Mike Ritzenthaler - Piper Jaffray - Analyst : You're welcome. On the heel of the [Wazbe] cusp this morning to the ending stocks, do you think that leaner stocks will continue to support grain prices, and what your thoughts are on what that translates into for basis, not just for corn, but wheat and everything else?

Question: Mike Ritzenthaler - Piper Jaffray - Analyst : You think that could translate into more than 90 million acres? That's what people are budgeting for, across the ag sector. There may be some opportunity for low 90 millions.

Question: Mike Ritzenthaler - Piper Jaffray - Analyst : Great. And then you guys mentioned that second and third quarter ethanol margins, probably on EBITDA per gallon basis, looked like they might be coming under a little pressure. Do you think that, that would free up some acquisitions opportunities in ethanol plants -- or maybe not acquisitions, but other equity ownership stakes in that and ethanol plants, as you also look at other grain opportunities?

Question: Mike Ritzenthaler - Piper Jaffray - Analyst : Excellent. Thanks.

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

Question: Heather Jones - BB&T Capital Markets - Analyst : Well, you seemed to be able to beat any bar anybody sets for you, so I thought I'd set it higher.

Question: Heather Jones - BB&T Capital Markets - Analyst : I had problems getting in the queue, so I think I missed some commentary. So I apologize for any repeated questions. Wheat basis significant contraction in Q4 as well as in Q3, but it looks like going into Q1, that there is still a meaningful gap that's begun to narrow. And the VSR looks like it's set to go up again. So I'm just wondering, I know you said that it can't continue indefinitely, but would you expect strong basis trends to continue for--over the intermediate term, I should say?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. What is your bias right now? I know it had previously been to hold as much wheat as possible given cheap basis, but has that bias changed at all?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. And as far as -- have you seen any pickup in demand for the sulfured winter wheat given just for feed use and all, given high corn feed costs, or is demand for that quality wheat still relatively lackluster?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. Two more questions. Mike, back to you. In Q4, the volumes were up strong, and so I'm just wanting to clarify your earlier comment that it seems like part of it was just a very easy comparison with Q4 '09. Would you expect, given farmers' desire to maximize yields, would you expect volumes in Q2--or in Q1 and Q2 to be strong as well year on year?

Question: Heather Jones - BB&T Capital Markets - Analyst : Do you have an estimate of what application rates were and can relative to a "normal year"?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. We've heard that where the corn is higher quality this year, that you are getting -- that the ethanol yield per bushel has moved up some. Are you all seeing that?

Question: Heather Jones - BB&T Capital Markets - Analyst : Finally, on expansion plans, you're buying these elevators, you expand at fertilizer but given the increased globalization of the grain trade, do you have any ambitions over the near to intermediate term to go out more globally?

Question: Heather Jones - BB&T Capital Markets - Analyst : Okay. All right. Thank you. Congratulations again.

Question: Eric Larson - Soleil Securities - Analyst : Yes, good morning, everyone. Congratulations. I wasn't sure I could get in the queue here. I was having trouble. I don't know if it's my phone or what's not working here, but anyway --

Question: Eric Larson - Soleil Securities - Analyst : Mike, I've got ways around this. You're never going to keep me off of it.

Question: Eric Larson - Soleil Securities - Analyst : You're welcome. I don't know where the question goes to here, but it goes back to the basis. We've obviously seen phenomenal cash prices; and in some of the markets, we're actually seeing negative convergence on the newer contracts. Can you comment how you work your way around through that?

Question: Eric Larson - Soleil Securities - Analyst : Maybe I can come and sit on your desk for a few days, Hal, if you guys would invite an analyst to do so. I'm teasing, of course.

Question: Eric Larson - Soleil Securities - Analyst : Yes, I know. It is a real trick in today's market, and you get these disequilibrium's. I think we had some of this in 2008, as well. I remember it in '95 and '96 and I certainly remember in '87 and '88. This is something you expect; it's just not a situation you deal with that often, so it's not easy. The next questions that I have is looking -- Mike, we haven't focused on the rail business; and I go back a couple years ago, and you had demonstrably higher income in rail. I guess at some point you're going to start getting some leverage on this. What I'm trying to figure out is where that inflection point is. Now you're, I think, you're at 81% utilization. I think that's where you closed the year, 81% and some change; I think that's correct.

Question: Eric Larson - Soleil Securities - Analyst : And you bottomed around 70%. Again, I'm just using a round number.

Question: Eric Larson - Soleil Securities - Analyst : I would suspect that at some point here, you're going to get that snap up the yield curve here, or however you want to talk about it.

Question: Eric Larson - Soleil Securities - Analyst : Right. Yes , I get that same sort of feel. Let me then drill just one step further into that. Even if utilization rates or -- even if lease rates didn't improve, let's say, demonstrably from here. You've got to be getting to the point where your extra expenses, that's getting these cars back into service, you are having these things stored on some idle lines, whatever the -- you've got -- if you could just get rid of the bulk of that additional expense, even with today's utilization rates, there's got to be a point where that starts slowing down and ending; and you can even make more money even if rates don't tick up that much from this

Question: Eric Larson - Soleil Securities - Analyst : Okay. That sounds great. Thanks for the answers, and good luck.

Question: Eric Larson - Soleil Securities - Analyst : I'll pass it on.

Question: Brent Rystrom - Feltl & Company - Analyst : Thank you. Congratulations as well.

Question: Brent Rystrom - Feltl & Company - Analyst : A couple of quick questions for you guys, maybe more on the grain side, as held. Where do you think the price ration and demand destruction is going to hit first? Is it going to be the exports? Is it going to be ethanol, livestock, what's your gut tell you?

Question: Brent Rystrom - Feltl & Company - Analyst : Hal, an immediate follow-up question on that. Any thoughts on this -- yesterday's coming out saying 12.5 million of the 35 million acres of winter wheat in China look to be under severe stress. Does that feel like a repeat of Russia and Kazakhstan and Ukraine last year, or is it less dramatic than that?

Question: Brent Rystrom - Feltl & Company - Analyst : Looking at corn, I see -- as a farmer, I see the trade off between corn and soybeans looking pretty decently now. Soybeans looked incredibly profitable, but corn even more so. When you look at what's going on with what's come out of the National Cotton Council over the weekend, probably 2 million acres in the South coming out of savings in corn, where do you think that couple million to 4 million acres of corn is going to come from?

Question: Brent Rystrom - Feltl & Company - Analyst : I'm saying the estimates out there are someplace in the low 90,000's.

Question: Brent Rystrom - Feltl & Company - Analyst : I know you're not saying it, but the world's talking about it.

Question: Brent Rystrom - Feltl & Company - Analyst : My final question is more in the Plant Nutrient Group side. I think you said earlier that in response to some of these questions that you expect volumes to be up for that Group in 2011. When I look at where -- particularly ammonia or [dath and math] is pricing out now through spring, you're looking at prices on average month-over-month that are going to probably run 38% to 45% higher year-over-year. So if you've got a volume increase and you've got price increase in the market like that, you know this should be another substantially higher year for the Plant Nutrient Group. I would guess you've got to be gunning plus 25% plus 35% type revenue growth; is that out of the ballpark?

Question: Brent Rystrom - Feltl & Company - Analyst : Yes.

Question: Brent Rystrom - Feltl & Company - Analyst : Probably a stronger first through third and maybe a chance for a weaker fourth.

Question: Brent Rystrom - Feltl & Company - Analyst : I guess the final option to that, Mike, would be, adding curiosity, any answer -- why is potash lagging so much in price compared to phosphorous and nitrogen?

Question: Brent Rystrom - Feltl & Company - Analyst : All right, thanks, 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: Steven Share - Morgan Joseph - Analyst : Good morning.

Question: Steven Share - Morgan Joseph - Analyst : Congratulations. Just a housekeeping item, the equity from affiliates earnings line, I was really surprised of how high that was. I was under the impression that, that was mainly an ethanol operations. And just a little bit of Lansing, did Lansing have a blowout quarter, what made that number much higher than maybe some had thought given, you said, ethanol would be at a nominal margin this quarter.

Question: Steven Share - Morgan Joseph - Analyst : Okay, got it. And then on just one more housekeeping, the $6.7 million gain you had, I assume that's all pre-tax dollars, right? So if we kind of wanted to look at earnings without that, we have to tax effect that?

Question: Steven Share - Morgan Joseph - Analyst : Yes, so I got that impact on GPS about $0.23.

Question: Steven Share - Morgan Joseph - Analyst : Okay. And then the last one, when I look at the Plant Nutrient quarter, it looks a lot like the quarter you had in December of '07. I was hoping you could maybe compare looking at that environment, looking at this year. In the second quarter of '08, it was a really great quarter. Are these similar? Do you think you can draw that line, that given where we are, we could be looking at a quarter like we had in June of '08 in Plant Nutrient?

Question: Steven Share - Morgan Joseph - Analyst : Okay. So you're going to play it a little bit closer to the vest than you did in '08?

Question: Steven Share - Morgan Joseph - Analyst : Okay. Then one last one and I'll pass it along. CapEx in 2011, any idea what that number should look like?

Question: Steven Share - Morgan Joseph - Analyst : Okay. Sounds good. Thanks for --

Question: Steven Share - Morgan Joseph - Analyst : Sounds good.

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

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Congratulations on a great quarter.

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Couple quick questions -- it seems a lot of them have been answered already. We're back in an environment where we're seeing a very fast-moving feedstock price with corn, and upward sloping, but not nowhere near as steep a movement in either crude oil or gasoline or ethanol. Can you talk about how this time it's going to be different than what we saw in the last cycle or do you think we are headed back into a period of significant bankruptcies and liquidations? 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 : That being said, are there still opportunities out there for quality assets or at least assets with potential that you can see over the near term?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Hal, with your assets now out in Nebraska, is that any indication of a geographic directional play on your part? Will you be moving out further west or looking further west in terms of assets?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Great. One last question. We saw a reduction of about 100,000 rail cars or rail locomotives this quarter. It gets us back to about third quarter '07 in terms of asset levels. We've seen utilization pick up and actual cars have picked up dramatically, cars being used pick up dramatically quarter over quarter. Is this the bottom as well, Mike, in terms of the actual amount of cars? We start seeing less scrapping, more acquisitions or at least stabilization around this 22.5 number?

Question: Ian Horowitz - Rafferty Capital Markets - Analyst : Okay. Great. Thanks a lot, guys.