Andersons Inc (ANDE) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Andersons Inc 2011 fourth-quarter and year-end conference call. My name is Ian. I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I'd like to hand the call over to Mr. Nick Conrad. He is Vice President for Finance and Treasurer.

Good morning everyone and thank you for joining us on the Anderson Inc's 2011 fourth-quarter and year-end conference call. As you know, certain information that will be discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, and competitive conditions, conditions in the Company's industries, both in the US and internationally, and additional factors that are described in the Company's publicly filed documents, including its 34F filings and the prospectuses prepared in connection with the Company's offerings.

It also includes financial information of which, as of the date of this call, the Company's independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and it's forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be. This conference call is being recorded and can be accessed on our website. Hal Reed, Chief Operating Officer will be on the call with me today. Mike Anderson, Chairman and Chief Executive Officer, will provide closing remarks and will join Hal and me for questions at the end of the call. Hal?

Thanks Nick and good morning everyone. As we announced yesterday in the press release, our fourth-quarter net income was $21.7 million or $1.17 per diluted share on revenues of $1.3 billion. This compares to the same three-month period last year in which the Company reported net income of $25.8 million or $1.39 per diluted share on revenues of $1.2 billion. Our 2011 net income was a record $95.1 million or $5.09 per diluted share on revenues of $4.6 billion. In 2010, the company reported net income of $64.7 million, or $3.48 per diluted share on revenues of $3.4 billion. The vast majority of the full-year revenue increase relates to rising prices in our agricultural business.

As we have mentioned before, revenues and commodity based businesses may not serve as good indicators of income or economic performance. To fully understand the total Company results, let's take a look at each of our six business groups. Let's start with the Grain Group, which had an outstanding quarter and year. The Group achieved operating income of $27.3 million in the fourth quarter on revenues of $876 million. For the same period of the prior year, $35.6 million were earned on $785 million in revenue. The grain business benefited from considerable space income during the quarter, as well as an increase in put-through income related to the wet harvest, which was seen in the Company's production areas.

There was $3.2 million in income received from a reversal of a bad debt reserve. It should we noted, however, that similar income of $5.5 million was recorded in the same period of the prior year. Lansing Trade Group had a solid performance again this quarter. The Grain Group's full year was exceptional. It's operating income was a record $87.3 million in 2011 on revenues of $2.8 billion. This compares to $64.4 million in the prior year on revenues of $11.9 billion. The group achieved this performance in large part to significant space income which was impacted by substantial wheat-basis appreciation.

Lansing Trade Group finished the year very strong with record full-year income. This investment has continued to perform well the last few years with the grain facilities and point-to-point merchandises of grain and feed ingredients doing exceptionally well. Revenues for the Grain Group increased primarily due to an increase in grain prices. At the end of 2010, the Grain Group acquired B4 Grain, which included two owned and one leased grain storage facility in Nebraska. The acquisition has proven to be very successful so far, as income in 2011 was more than three times the pro former expectations. The Group is also in the process of building a shuttle loader facility in Nebraska that is scheduled to open before the 2012 harvest. During 2011, the Group also expanded existing grain elevator storage capacity 1.7 million bushels. This all demonstrates the Group's purposeful growth and geographic expansion.

Now, let us discuss the Ethanol Group, which is being discussed as a separate group for the first time in the press release and conference call, due to the Company's recent structural changes. The Group earned an operating income of $6.5 million this quarter. In comparison, the Group had $3 million in operating income during the same period last year. The higher income is a result of an increase in the earnings of the three ethanol limited liability companies. The LLC's were positively impacted by higher ethanol margins as profitable margins were locked in for much of the production at acceptable levels.

Total fourth-quarter revenues for the Group were $165 million. In the prior year, revenues were $128 million. For the full year, the Ethanol Group achieved operating income of $23.3 million on revenues of $642 million. This is the second best year in the Group's history.

In 2010, the Group's operating income for the same period was $17 million on revenues of $469 million. As noted, in regard to the quarterly results, the Group's financial performance this year was heavily influenced by an increase in margins and earnings of the three ethanol limited liability companies. Additionally, the plants have invested further in corn oil, E-85, and CO2, and these have proven to be profitable business additions. The Ethanol plants also continue to maximize production efficiencies with another record production year. The increase in revenues is due primarily to the increase in the price of ethanol.

The Plant Nutrient Group earned operating income of $2.5 million during the fourth quarter, in comparison to an operating income of $8.9 million in the prior year. Fourth-quarter revenues for the group were $170 million, which is up from the $159 million reported last year. The income decline in the fourth quarter was due in part to a decrease in volume which was primarily caused by the wet weather in the areas we serve. This volume shortfall, however, is expected to be recouped in the first half of 2012. Income was also impacted by a $3.1 million lower of cost or market adjustment. Lastly, the decision was made to suspend operations at our Fairmont, Indiana location, and this resulted in charges of $1.4 million for various expenses related to the closure and the recording of an asset impairment.

The Plant Nutrient Group ended the year with record operating income of $38.3 million. In 2010, the group reported operating income of $30.1 million. Revenues for 2011 and 2010 were $691 million and $619 million, respectively. The Group's income improvement this year was due primarily to a significant increase in margin, resulting mainly from price appreciation and to a lesser degree from product mix. The higher revenue this year was due to higher nutrient prices which were partially offset by a decrease in volume. Total volume was down year-over-year, due in part to volume shifting into the fourth quarter of 2010, due to an excellent fall weather season at that point, and also due to very wet weather that was experienced in both the spring and fall of 2011. That led to decreased application of nutrients.

During the fourth quarter, the Rail Group had revenues of $25 million and earned $2.3 million. In the same period in 2010, total revenues were $22 million and the operating loss was $1.1 million. The average utilization rate for the quarter was 86.2%, which is up from the 80.5% experienced last year at the same time. Higher lease rates continued to be booked in the fourth quarter. As a matter of fact, the average lease rates booked in all four quarters of 2011 were higher than the average lease rates booked in the prior year. And the differences were typically significant. The benefits of this will continue to become more noticeable over time as the shorter term and lower lease rate deals booked during the industry downturn begin to expire.

The Rail Group had an operating income of $9.8 million this year on revenues of $107 million. Last year, the Group reported an income of $100,000 on revenues of $95 million. The full-year results include gains on sales of railcars and related leases of $8.4 million and $5.5 million in 2011 and 2010, respectively. $5.4 million of the 2011 gains related to railcar sales to financial institutions, whereas $4.3 million of the 2010 gains related to scrapping of railcars.

Gross profit from leasing was up for the year due primarily to higher utilization rates and the lower cost of storage associated with that. The average utilization rate for the year was 84.6%, which compares to 73.6% in 2010. The Group ended the year with a utilization rate of 86.1%. The Rail fleet ended the year with approximately 22,700 cars and locomotives, which is above the 22,500 units at the end of 2010 due to the recent purchase of some newer cars. The rail car repair business made nearly twice what it did last year, as revenue increased by almost 40%. The Iowa Northern Railroad showed solid performance during the year as well and provided a consistent return each quarter. Lastly, the manufacturing business returned to profitability in 2011.

During the fourth quarter, the Turf & Specialty Group had an operating loss of $1.8 million, which is comparable to a $1.4 million loss reported the prior year. This is typical for the Group to incur a loss in the fourth quarter due to the seasonality of its lawn business. Total revenues were $18 million for the quarter in both 2010 and 2011. There were some tons of lawn contract manufacturing sales that were planned for late in the fourth quarter that were shifted into early 2012. The Cob business margin per ton increased considerably in the fourth quarter of 2011.

For the full year, The Turf & Specialty Group's operating income was $2 million on $130 million of revenue. Last year, the Group had operating income of $3.4 million on revenues of $124 million. Both Turf products tonnage and gross profit per ton decreased in 2011 in comparison to the prior year. The Cob business, however, had a record year for the third year in a row, as they continue to grow their proprietary products business.

The Retail Group had an operating income of $500,000 in the fourth quarter. In the comparable period last year, the Group's operating loss was $100,000. Total revenues of $45 million for the quarter were up approximately 5% from the $43 million reported for the same period in 2010. The Group's full-year operating loss was $1.5 million, in comparison to a loss of $2.5 million in 2010. The Retail Group's total revenues of $158 million for the year were 5% above the 2010 total of $151 million. Revenues for the group increased due primarily to an improvement in the grocery and specialty food sales. Both the Group's gross margin percent and average sale per customer have increased modestly this year. Conversely, the customer accounts have decreased slightly.

Now I will turn the call over to Nick for his treasurer's comments.

Thanks, Hal. Turning to taxes. For the fourth quarter 2011, the Company's effective tax rate was 32.7%, down 3.6% for the fourth quarter 2010 rate of 36.3%. The decrease in the effective tax rate was due primarily to four tax credits, increased tax deductions related to domestic production activities, and lower state and local income taxes.

The Company's 2011 effective tax rate was 34.5%, down 3.2% from the 2010 rate of 37.7%. The higher effective rate for 2010 was due primarily to an increase in tax expense as a result of the Patient Protection and Affordable Care Act which was signed into law in the first quarter of 2010. The 2011 effective tax rate also benefited from increased deductions related to domestic production activities. We are projecting our 2012 tax rate to be 36.1%.

Next, as to interest, interest expense for the fourth quarter 2011 totaled $4.6 million, down $1.3 million from the same period in 2010. As of December 31, year-to-date interest expense was $25.3 million, up $5.4 million, compared to 2010. This increase in interest expense for 2011 is due to higher short-term debt levels, driven primarily by higher first half 2011 grain prices and an increase for the full year in wheat bushels owned. Our average short-term borrowings for fourth quarter 2011 were $55.8 million versus $215.2 million for the fourth quarter 2010. For 2011, short-term average borrowings were $306.6 million, up $242.7 million compared to 2010. Company's average short-term borrowing rates for the fourth quarter were 2.7%, a decrease of approximately 1% for the same period 2010. For the full year 2011, average short-term borrowing rates were also down 1% from 2010. During the fourth quarter, the Company also was an investor of excess funds with short-term investments averaging $25.6 million, a $3.5 million increase from fourth quarter of 2010.

Our full-year 2011 average short-term investments were $29.6 million compared to $50.8 million in 2010. Earnings before interest, taxes, depreciation and amortization, EBITDA, for the fourth quarter 2011, were $47.9 million versus $57.6 million for the same period of 2010. For the fiscal year ending December 31, EBITDA totalled $212.3 million, an increase of $49.6 million from the same period last year and a record EBITDA for the Company. The fourth quarter's pre-tax earnings include $12 million in equity and earnings of affiliates, up $1.5 million for the same period last year. For 2011, equity and earnings of affiliates was a profit of $41.5 million, up $15.4 million from the 2010 year end. EBITDA has been adjusted for the non controlling interest.

Turning to the balance sheet, at the end of 2011, current assets totalled $1.1 billion, a decrease of $31.3 million from the 2010 year end balance. This decrease was driven primarily by commodity derivative assets current being down $162.5 million from the 2010 year-end balance of $246.5 million. This decrease was offset by year-over-year increase of inventories of $113.3 million, end of year at $160.4 million and accounts receivable up $15.4 million ending 2011 at $167.6 million.

The increases in the inventories in 2011 versus 2010, was attributed to all groups but primarily driven by grain and plant nutrient. Grain inventories increased $76.4 million from 2010 and plant nutrient inventories were up $28.5 million from last year's ending balance. Accounts receivable changes as compared to year end 2010 were -- Grain, up $5.8 million; Plant Nutrient, up $3.7 million; Turf & Speciality up $3.4 million; and Rail up $3.2 million.

Since the 2010 year end, the Company's cash and cash equivalents along with restricted cash decreased $2.3 million. Restricted cash was up $6.5 million year-over-year due to receiving an industrial revenue bond for our Ensemble location. The $9 million industrial revenue bond received in 2010 for Indiana locations, previously held as restricted cash, has been fully drawn down. Net working capital at December 31, 2011, was $313 million, an increase of $11.2 million from 2010. Total assets at December 31, 2011 were $1.7 billion, an increase of $34.7 million from last year's ending balance. Other changes, in addition to the change in current assets, include investments and other assets ending the year at $252.4 million, up $29.2 million from 2010.

This increase was a result of equity method investments being up $23.7 million over last year's ending balance of $175.3 million. Also, property, plant and equipment along with rail car assets leased to others, increased a total of $52.7 million for the year, due to business acquisitions, increasing capacity of existing locations and railcar investments. In addition, commodity derivative of assets not current, ended the year at $2.3 million, a decrease of $15.8 million compared to 2010. Depreciation and amortization totaled $40.8 million for 2011. Purchases of property, plant and equipment during 2011 totaled $44.2 million versus $30.9 million for 2010.

Rail car purchases and sales were $64.2 million and $30.4 million, respectively, through December 31. Rail car purchases and sales for 2010 were $18.4 million and $20.1 million, respectively. Regards to liabilities reported on the balance sheet, borrowing some the short-term line of credit at December 31, 2011, were $71.5 million. Commodity derivative of liabilities current ended 2011 at $15.9 million, a decrease of $41.7 million from year end 2010. Our long-term debt totaled $238 million, a decrease of $37.9 million from 2010's year-end level.

Our total long-term funded debt to equity was 0.42 to 1.0 The Company's fourth quarter 2011 average interest rate for all long-term funded debt was 5.46%, versus 5.36% for fourth quarter 2010. Our commodity derivative of liabilities not current were $1.5 million compared to a 2010 ending balance of $3.3 million. The Company's December 31, 2011 total equity was $538.8 million, an increase of $74.3 million from 2010. On January 24, we paid our first quarter 2012 dividend of $0.15 per share, which was an increase of $0.04 per share from the quarterly dividend paid in 2011.

Finally, we continue to enjoy good support from our bankers. As of the end of 2011, we had short-term lines of credit under our syndicated facility that totalled $735 million. The Company also had long-term lines of credit under the same syndicated facility in the amount of $115 million. The total lines of credit available under the Company's syndicated facility are $850 million.

I now hand the call over to Mike Anderson who will provide the concluding remarks.

Thank you, Nick. Let me just start by saying how proud I am to see record earnings this year from both our Grain and Plant Nutrient Groups, and second best ever results from our Ethanol Group. Clearly our full-year earning demonstrates that the investments we made in agricultural businesses over the last several years, along with our expertise and reputation in the industry, allowed us to benefit from the current agricultural cycle. After record year in 2011, you all may be wondering, what does 2012 hold for the company?

First, I expect our Grain Group to continue to do well, although we expect operating income to be lower in 2012 due to anticipated drops in space income. I am optimistic about our Ethanol Group, however it is somewhat hard to predict exactly what full-year margins will do, but our outlook is positive. I also see our Plant Nutrient Group having a good year, as the demand for nutrients is high and acres planted are expected to increase further based on current commodity prices and the need for more corn. The volume increase we are expecting in P&G, however, will likely be more than offset by lower margins, gross profit per ton, as we are not anticipating the same inventory appreciation as seen in 2011.

I see our Rail Group continuing to benefit from the gradual climb they've seen in their utilization and lease rates and the car value improvement seen. This, along with other factors, are expected to lead to a considerable income improvement for this group in 2012. Further, I believe our Turf & Specialty Group's proprietary product and expanded product line strategy, [both in the] lawn and cob business will likely lead to improved earnings in this group.

I'd like to highlight some of the things we accomplished during 2011 and early 2012 that demonstrate our continued commitment to grow and develop this company and add value for our shareholders. Within the Grain Group, we increased storage capacity and broke ground on a grain shuttle loading facility. The recent growth of the Grain Group has had the added benefit of allowing us to expand our customer base for both our Farm2Market program and risk management tools.

Plant Nutrient Group acquired two businesses recently. Immokalee Farmers Supply in Florida, in October of last year, and New Easy Gro, an Ohio-based company, last week. As always, we are already reviewing possible expansion opportunities at our existing facilities as well as acquisition opportunities in 2012. I would like to end, again, by simply saying how pleased I am with our Company's performance. Our purposeful growth has demonstrated our ability to make good investments, appropriately integrate them into our Company and grow our income as a result. It's our intention to continue to grow. I believe our new organizational structure, headed by our recently appointed Chief Operating Officer, Hal Reed, will aid us in achieving this objective.

That concludes my prepared remarks. Hal, Nick, and I will now be happy answer any questions you may have. Ian, we will turn it back to you.

Thank you ladies and gentlemen. (Operator Instructions) First question is from the line of Farha Aslam from Stephens, Inc. Please go ahead.

Hi. Good morning. Congratulations on a great quarter. Three quarters in a row, you announced results that exceed expectations and three quarters in a row your stock is down that day. I think it is because people just keep thinking you hit peak earnings, and you will just fall off a cliff on the other side and you keep proving us wrong where you are producing very solid earnings. Maybe we should get a better read on what mid-cycle, normalized, everyday run rate is, for your business is, with all the puts and takes. So if you look at the Grain Group, you had a great fourth quarter and clearly next year you won't the same amount of wheat income as you did this year. But, can you try to tell us what mid-cycle, normal business pre-tax earnings we can get?

Well, Farha, I'm the designated hitter on this one. I will take your term, mid-cycle, and put it, translate it into my speak. I hear that and I think you're asking for what is the base run rate for these different businesses. I want to put that in the context, both of the variability of the general agribusiness space in terms of weather and outside events and all the things that can happen in the space of any given year or over any multi year cycle. So, we've got these outside contingencies that can happen at any time. I want to frame that against the concept of, what is the normal or base run expectation. I also want to frame up that we have not been in the habit of late of giving guidance. Your question is really leaning in that direction.

I will, if you don't mind indulging me a little bit, frame this up in the context of how Mike and I and Hal have been talking about this the last six or seven months, and that is if you look at our results over the last five or six years, clearly, there is an upward slope to the channel of our earnings. You plot the last five or six years, a couple of years are maybe below the mean, a couple of years are clearly above the mean, but the slope of the line in general is upward in direction. We feel that is driven both by the expansion of the operating capacity of the company and our hitting the ball well and being in a good space. All those are things you have heard from me before.

I guess, if I were to look out and talk a little bit about 2012 and going forward, we would continue to think the channel is going to be sloped upward, which you heard us say before. Higher highs, and higher lows. Maybe for this year, we'd say that, compared to last year, looking across a number of different comments from a number of different analysts, maybe people, if you think about '11 versus '12, '12 may not be as robust in Grain and in Plant Nutrient, but Rail will be stronger. So, on balance, we feel pretty good about the company, directionally, based on our past and our commitment to the future. Long winded answer. I apologize.

Okay. That's helpful, but when we think about your Grain business, do you think year end, year out, is there a range we can expect what that business can earn?

Farha, A for Effort for asking the question. You are always, and I appreciate the candor, and the message you are delivering us with the question, but we have not provided that in the past and probably don't feel comfortable doing that on today's call. We certainly log that as a question that many folks would like us to answer. That does not mean we are going to answer it, but we continue to mull those kind of things over.

Okay. So then when you look at the current Grain basis that existed in the fourth quarter, does that give you -- it has been exceptionally tight as the farmers have been very well capitalized. How is that positioning your grain elevators going into the first half of the year?

Farha, This is Hal. Thanks for the question. Yes, we have seen relatively high basis levels in both wheat and corn, as the year ended. With farmers being tight holders of stocks, it may tend to slow down the amount of grain that comes to the market, right at the beginning of the year. But, these are the same farmers that are going to look to plant 94 million acres of corn this fall -- or this spring. The marketing programs may just be held off a bit. I don't think we really see a whole lot of difference over the course of the first half of the year from a normal year's progression. So, just maybe a little bit slower in time.

Okay. And then, Plant Nutrients. Do you anticipate having to take any more write-downs based on your current inventory, current market prices, and the volume you expect to sell?

This is Mike. Hal is coming into this job. He will field the Grain/Ethanol questions this time, and I will field the other operating groups. At this time, no. And, the short answer is no. Obviously, when you got an inventory situation, where it is not a hedge situation, something you monitor all the time. If there were any change to that prior to the filing of our 10-K, of course we would deal with that. Fertilizer prices have appeared to have stabilized reasonably well. We are in a good position. If something changes, we'll let you know, but answer right now is no.

That is great. My final question, is, in terms of Rail, that peak earnings number was like $20 million pretax. If you had to look out on the calendar, do you think that is achievable in 2013? 2014?

Yes.

Okay. Great. That is what we needed. Thank you very much.

Another question for you. Heather Jones of BB&T Capital Markets. Please go ahead.

Good morning. As a follow on Farha's, do you think that Rail number is achievable in 2012?

It is possible.

Wow. Okay. So, I am going to give this another shot. It is very understandable why you foresee Grain and fertilizer down, but, given the fact that you are saying it is possible that Rail could double year on year, is it in the realm of possibilities, that has a whole company, you may not be down on 2012?

I'll answer that. Again, we're not giving guidance, but I'd say the outlook -- you'll have to do the -- you have, you've all done a good job in calculating your estimates of the impact on wheat basis appreciation on our space income in the last couple years as you've gotten a lot more crisp on that. And that's a significant item. I would say you add the high likelihood of a significant drop there, likelihood a drop in PNG. That would probably or likely offset the potential in Rail. This is just -- 2011 has just been a fantastic year, and I appreciate Fahra's direction, in trying to get a normalized situation. But, in the PNG and the Grain side, I would say, pre-acquisition, that is a top end channel stuff.

Okay. And, thinking about 2011. You benefited from higher storage rates on wheat, wheat basis, corn basis. If we had a look at -- for the year, for 2011, it looks like you did, just for your space income, $60-plus million versus, basically up $15 million or so year-on-year. That strong of an improvement, could you give us a sense of how much of that was driven by the basis appreciation we saw on corn versus wheat?

Heather, I think the actual space income increase from the previous year was more than what you represented. And it is almost entirely, the increase was due to the one-time event in wheat that we mentioned back in the second quarter, that plus higher than, what we call, normal space income in wheat. So, the overage from 2010 to 2011, again, greater than what you commented on there and almost entirely due to wheat.

Okay. So, how many bushels did you all have in storage at the end of Q4?

Total bushels in storage? Nick?

Nick is looking for it right now

Total in-store at the end of '11?

Right

You are talking about total inventories, not bushels stored?

No. Bushels in storage. You know the number you all give us in the Qs, and then you tell us how much is held for others versus for yourselves?

Yes, the bushels held for others was a very low number in storage. It was only -- it was less than 0.5 million bushels. The majority of the inventories were owned by us.

Okay. Do you know what the -- last year, the end of Q4 last year, it was $76 million. Was it down?

Okay, now that is total inventory. This year was about $77.5 million total, as opposed to the $76 million number last year. So we had a bit more inventory and as we noted we added some space and at existing facilities and in Nebraska, too. That increase was about 1.5 million bushels.

I know you are adding that train loading facility, I want to say down in Nebraska and all. What is a good estimate of how much bushel capacity growth we should see this year in your elevators?

The difficulty with the bushel growth is, the expectations for fall harvest versus this fall harvest will be dramatically different. So, it is hard for me to give you a good number, and it is hard for me to give you a range because it really depends on whether we plant 85 million, 90 million, 95 million bushels of corn this year this spring and harvest it this fall. Obviously, if we can plant 94 million to 95 million that are expected, volumes will be up substantially this fall.

No, I meant the capacity.

Oh, our capacity?

Right.

Well, the elevators -- the elevator will be a little bit less than 3 million bushels out there. So, that will be in addition to our space.

Okay. Two final questions. Ethanol, Mike, you said you are optimistic. Clearly had some overhang from Q4 going into Q1. What causes you to be -- let's just ignore Q1 for right now. What causes you to be optimistic about Q2 through Q4?

I'm going to let Hal answer and the -- most when I answer I don't give directional things, but it more a statement, I feel good about the position that we have. Hal, why don't you add some color commentary.

Yes, I think you are right. I think the first quarter, maybe the first half of the year could be a little bit tough, but we saw -- we went into last year where some similar questions and saw some similar challenges. It is likely that we will see exports a little lower in 2012. That is to be expected. However, once again, we are starting to see a few plants begin to shut down. The industry rationalizes itself pretty quickly. That has already begun. And, we expect to see a big corn crop in the fall. The year should have a good close to it if that is the case.

Okay. My final question is, I'm thinking about the course of the year. I would assume Rail should ramp as we go through the year. To your point about ethanol, that should improve as you go through the year. Your comps in fertilizer and Grain are easier in the back half than the first half. Plus, like you said, if you get the 94 million, 95 million acres. So, if what I'm thinking about your earnings, it sounds like, the first half could be pretty challenging on a year-over-year basis, but you should start having some wind at your backs going into the back half. Am I thinking correctly?

Just -- and Nick, Hal, add color commentary. Second quarter last year, we talked about that a lot. And you saw the numbers. The Grain number was so unbelievably good from a huge basis appreciation late in the quarter. That comp is one we will look at and say, boy, hard to do anything about. And, in Plant Nutrient, that was second quarter, and frankly, things were pretty good in the first quarter, too, but I think focused more in second. And Plant Nutrient, we were seeing the benefits. We had poor volume in the first half last year with the weather. Frankly, we had poor volume in the second half of last year.

So, if things play out with the acreage and the planning we expect to do, with reasonable weather, we should have a nice volume numbers. What happens exactly in inventory appreciation and gross profit per ton is yet to be seen, but, again, second quarter last year was a comp that will be hard to beat because of significant appreciation. So, I'm not going to focus too much beyond that because, we will kill the crop as usual 2 to 3 times and get worried and feel good. That will play out as it plays out.

Okay. All right. Thank you very much.

Thank you.

Thank you for your question. We have another question. This is from the line of Christine Healy at Scotiabank. Please go ahead.

I have a couple of questions here. First, apologies if you mentioned this, but on ethanol just for Q1, can you talk about -- have you locked in volumes for Q1 like you did Q4?

Our volume is not any different in Q1 than it is in Q4. Our volume has not changed.

No, sorry, I mean, have you locked in your margins? You protected yourself well in Q4 but now margins have really fallen since then so wanted to know how you have protected yourself.

Yes, margins in Q1 are definitely less than in Q4 and there isn't a lot of opportunity to book margins very far forward in Q1. So it is a little bit tighter than we experienced in Q4.

Okay. And then just a question on the CFTC, and they are proposing all these changes, the swaps and hedges, part of Dodd-Frank. Can you give us just some color on this? What your thoughts are and what impact it could have on your business.

Yes.

Sounds like it is pretty onerous for the grain handling companies if it happens.

Yes. There is some good work going on in Washington, DC to alleviate some of that work from pure grain companies. When it comes to derivatives and swaps with larger counterparties, there will be extra paperwork. We do have some of that as you know in some of our business but, it is not voluminous, and I think what we'll see is that the onerous piece of the grain companies will be eliminated or lessened, and I think we will be able to manage the other piece. Again, we will be able to handle it. It won't be too detrimental to the business. It will just take more time.

Okay, that is helpful. So the way that you are looking at it is it could increase documentation, maybe a little bit of extra cost, but it won't change how you go about your business and what transactions you take part in?

That is correct.

Okay. That is really helpful. Thanks. And then, on Canada, here. So, Viterra, Richardson, they have already started buying Western Canadian wheat directly from farmers. Canadian Wheat Board is expected to introduce contracts in the next couple of weeks. Just curious what your plans are to maybe grab a piece of the market?

We continue to look at the market in Canada. We have one initiative that we are currently working on in that regard. Nothing else I can be at all specific about. But we do believe that movement of grain across the border in various different commodities will certainly pick up with Canada. We like our positioning here on the Great Lakes and adjacent to the market in Windsor and the Ontario market. So, we are hopeful that it helps us out on the volume side.

So we expect you to take part in this fairly soon, it sounds like?

Yes, I would say we would be a small player in that market, but, we continue to look at it.

Okay. Just one last question, probably for Nick. Taking off of the other analysts' questions here. Maybe you can talk about what plans you guys have going forward to improve your disclosure? My opinion is Andersons provides less disclosure in the financials than some of its peers, so maybe you can talk about what initiatives you are looking at putting in place?

I don't want to over commit, especially in such a public setting. But, as each of you know, individually, I have been trying to gather your concerns. We have met internally several times, and we will continue to review and try to move forward in a way that is keeping with who we are, and at the same time, meet your needs as well. So, I don't want to over promise something or get real specific, but I do want you to know, that Mike personally hears what you're saying, Hal personally hears what you are saying. I personally hear what you are saying. We are absorbing it, and we will respond as we can, going forward.

I would add one thing on that. When we transition from disclosure of what has occurred to what might happen in the future, those are two different things. So the conversations that are forward-looking, we all know, that no matter what our disclosures are historically, we also have had significant volatility. We would expect to have continue to have volatility which doesn't make your job easier in trying to predict the next quarter or the next year. So, I just wanted to distinguish what Nick is saying on disclosure of data versus forward -.

Forward. Yes.

Absolutely. I think what I'm talking about, sorry, I should have been a bit specific, is actual results. One of the things that would be very helpful, is tons, for some of the difference segments. How many tons have you sold, processed, handled, whatever. Because, in agriculture, you really need to look at the data on a per ton basis, margins per ton, cost per ton. So from my point of view, that is something that I personally would find very helpful.

That is helpful. And you put that input in as others and that's part of what we are processing, as Nick talked about it.

Great. Well thanks so much guys. I appreciate your help.

Thank you. Brent Rystrom from Feltl and Company. Please go ahead.

Thank you. Quick question on the -- really a three-part question, looking at corn crop for 2012. You guys mentioned the heavy acres and the possibility that we could have a big yield. So, I'm wondering, from the perspective of your Grain and Ethanol groups, I would assume, and frankly the fertilizers, I would assume on the Grain side, when you look at the possibility of a big grain crop, statistically, when you look back at previous years, where we've had robust grain crops, we tend to have relatively good margins in the back half of the year in the grain-trading business. Any particular thoughts if we do have 13.5, 14 billion bushel corn crop? How that might impact second half margins?

Right. Well, typically, what happens with a large crop, obviously is, we do make -- we are the beneficiaries of the volume, so to speak. It also tends to help us out in the margin perspective and an overall margin perspective. And carry in the marketplace which, are both good for us. So that kind of a crop, as you mentioned, would be beneficial to all three of those businesses.

Would there be a reason, that if it was a robust crop like that which --

Hey Brent, could you speak up? We are barely hearing you.

Would there be a reason, if there's a robust crop of that size, which would be similar to what we had back in '09. Would there be a reason that margins now are permanently different than the margins you saw in '09 in a similar situation where you had a surprisingly good crop come through?

Yes. Well, let me separate the margin and the gross profit into two pieces. The typical margin piece and then our space piece, which we discussed. Again, I don't think that the normal margins are much different on a put through basis for a bushel of grain than they have been in the past. Prices are up a little bit. Volatility is up a little bit. If anything, they may lean a little higher than years ago. But they are not dramatically different.

The impact of a big crop is that it adds carry to the market and typically adds space. Again, the difference being that we did have a big wheat space income number and obviously, we've talked about that being a one-time event. And, that wouldn't have a lot -- be impacted a lot by this large corn crop that you are discussing. On a corn basis, the margins should be as good or slightly better and hopefully more carry in the corn market.

For Plant Nutrient group, seen a lot of discussion about corn and grain shifting to your states because of the lack of corn that got planted in the Eastern corn belt last year. I would assume that has favorable application implications for PNG. You are going to see more fertilizer going into the region just because some of it didn't get fertilized last year and then more of it is going to be planted this year.

This past fall, our tonnage was down. It wasn't down because of lack of desire to put nutrients down. It was down because of a late wet harvest and wet conditions. So, we have some just base pent up demand, even without increased acres. You add the increased acres to it, assuming that we have weather conditions that are better than last year's weather conditions. Even with last year, last year's May was an ugly May in our region. So, we would expect to have nice volume increases in the end of this quarter and second quarter based on what you just described.

Any particular thoughts? Did Lansing Trade Group have any exposure to the volatility in orange juice trading here the last couple weeks?

No. Orange juice is not anything that we trade. We are pretty much oriented toward ag, as you know.

The base ag.

Just quickly, Hal, just given your experience, any gut feel on what we're seeing as far as winter wheat freeze out in Eastern Europe and parts of Europe? France, yesterday, or two days ago, coming out with their downgrade? Any particular feel on how that might play out for wheat?

Yes, They've clearly had some extreme weather over there as we've seen. The good thing about wheat is that it is pretty hardy. We probably won't know until spring break. The other good thing about wheat is, we grow a wheat crop about every three to six months around the world, and we can react to problems around the world more quickly than any other crop. We are watching it. It would be nice to have it come out of the spring in good shape, but it is hard to tell today.

Thanks guys.

We have another question. This one is from the line of Eric Larson at HA Larson Research Group. Please go ahead.

Just a quick question. Maybe it is for Hal or Mike or whomever wants to answer it. Obviously, last fall, your basis was tight. You didn't get a chance to buy a lot of cheap grain. A lot of markets we're seeing -- in the Western corn belt, your cash prices are still above board. Are you seeing that in your areas as well?

Yes. Basis is at a premium, to a few years. Yes.

And, Hal, normally we do see -- we do get, I think every year that I have been in the grain business, we always have a time when you get a chance to get a positive basis. Are you expecting that sometime this spring yet? How would you look at when you might get a break on that?

The timing of that's hard to say. I agree with you comment that in general, the market works in such a way that you do gain that. You do get that in the basis at a point in time. So, it is a combination of how the futures work and the local cash markets. But I would agree with you, that is normally how it works.

Well, it is good to be a farmer right now, but if we plant 94, 95 million acres, it isn't going to be so great. There will be a lot of corn out there. It will change the basis structure for you.

That is true. And for you.

Yes. Absolutely. Thanks. That is all I had.

Thank you. Another question. Line of Ian Horowitz at Topeka Capital. Please go ahead, Ian.

Good morning, guys. Nick, can you give us any discussion on CapEx plans?

Well, we tend to be fairly circumspect about that. We are, as Mike said in his concluding remarks, always looking for and reviewing opportunities. That is no different in '12 than it is in '11, than it is in 10. I think that is about as much as I would say.

I'll add one color comment. We are on the front end after a couple years study of launching a company-wide SAP implementation. That will not mean all the commitments for the full blown thing, but that is somewhat of a unique outlay of capital that would be part of our spending in the next couple of years. The rest of it is, we want to grow. M&A is part of our growth objective. Yes. We have allocations that we go through as to where we want to focus to put the capital. But, we are not going to go close on something for the sake of closing on it.

Sometimes, you get close to the altar, they fall apart. Sometimes, something pops up that shows up and as long as it is within what we feel we are able to handle, we'll move forward on it, especially if the Board is approving it.

Mike, can you give us any color on, maybe assets that you might be looking at?

Our primary focus on assets are in our Grain business and our Plant Nutrient business and our Rail business, primarily railcars, although we have some shop expansion. And in Ethanol, we've said for sometime, if it looks like there won't be new conventional corn ethanol plants built for a while, you have the RFS in place. Depending on if we could find something that fits our profile, that is something that would have some interest to us. In all cases, we are also looking at all those areas. Not just M&A, but also investment in existing facility to a be able to leverage capabilities and either enhance the existing earnings or diversify the earnings. An example in ethanol would be corn oil in all of all plants which we're now in that position at this point in time.

The last corn oil facility is up and running, is that correct?

Yes it is. All three are running.

While we are on ethanol, can you talk a little bit about -- you mentioned your thoughts about the industry. Closing in some capacity here for a while and rationalizing supplies. Any thoughts or comments on what you guys might possibly be doing internally?

I assume you're talking about relative to the rationalization. If you study the ethanol world, you'll notice that there are destination plants that pay a lot more for corn than places in the corn belt. You'll also notice that there is a vast variability in technology. It is pretty easy to see that when the industry rationalizes, the destination plants without the best technology shut down first. And, it's a pretty typical scene. We are not in those categories.

Fair enough. We just saw an announcement of a larger ethanol producer shutting in. Maybe not right in the grain belt per se but --

I think the answer to your question. It was a old, very old plant. Not efficient. It was the furthest north plant in the United States. Relatively far away. Part of the year, a destination plant. So, it fits the model.

Okay. And then the question on Rail. I think you responded to Heather saying that there is certainly is a potential you could see a peak earnings from this division again in the near future. I guess I would assume that we would see some pretty strong acquisitions going forward or is there going to be a better combination of assets as well as --?

Ian, when you say acquisitions, are you speaking specifically to Rail?

Yes, We have finally started to make this turn from the low 22's.

The ups and downs, there are always portfolios out there that companies are willing to sell. We were surprised that in the down part of the market, we didn't get the opportunity or we didn't execute on buys. They just seemed to be too high priced. But several continue to go to the market, and we will use our model. And if we see something that makes sense to acquire, we will. The primary driver what we see going on now, is a combination of utilization increase and the fact that we are now able to both renew leases and bring back cars out of service and put them into leases, at substantially higher lease rates, running on the average of probably in the rate of 35% higher, plus or minus than a year ago.

And, I will tell you, between what we brought out of storage and renewal of leases, in 2011, we turned over or put back out on lease close to 30% of our fleet at really significantly increased rates. We finally made the turn where our average lease rate at the end of the year is higher than the average rate of the prior year. We get the lag effect on the average. So, the big springboard is getting back into much higher utilization than historically, what I will call the upper third of the range ranges as opposed to the bottom third of the range. That is the big driver for getting back on track.

True. But, Mike, according to my math, you're somewhere around 22,000 cars -- roughly 22,000 cars at work, in that $20 million time frame. Do we need to get word now of something below 20,000 at work? Do we need to get back to that 22 -- fully back to that 22,000 to see that $20 million? Or is there going to be a number --

Not, well one, we always had 4%, 5%, or 6% that was not in service. Maybe over a period of time, 7% not in service, in that range. So, no, we don't have to get back to that range. In addition, as the asset book values depreciate on a number of these except we were able to get them back into service. We have higher spreads that flow through the bottom line than we had historically. There's a net impact of, not just what we're getting in our lease income for a month, but the cost that goes against that. It is somewhat offset by higher maintenance costs. No, we wouldn't have to get back all the way to that.

Last question and I'll get back in queue. You build the portfolio --

Ian, I do want to make one correction. On the average lease rate, if I look at 2011 versus 2010. For the full year, we were still slightly lower in 2011. However, at the end of the year, it was quite a bit higher. So the end of year view was 8% percent higher average lease rate than the year before.

Okay. Then one last question. And again, on the Rail segment, as you build the portfolio back, do you see yourself changing the product mix at all? Or are you staying in that typical Anderson's profile?

We have been -- we really got a pretty diversified fleet portfolio. Nick's very active in that. I'll let him answer that question around what I'll call car types and diversification.

I think, because we have been at this for such a long time, Rasesh and his team have been very active and constantly reexamining the mix and adjusting to what is appropriate at the current moment. So I think, that is far want to take it. I don't want to over commit him in any one direction. He is an active manager. He and his team are active managers. Like any portfolio managers, they tweak where they need to.

Okay. Great. Thanks guys.

There are no further questions in the queue. This moment in time, I'd like now like to turn the call over to Mike Anderson.

Thanks. I want to thank you for joining us this morning. Our next conference call is scheduled for Tuesday, May 8 at 11 AM Eastern time to review our first-quarter 2012 results. We hope you're able to join us again at the time. Until then, have a great day.

Thank you ladies and gentlemen. That concludes your call. You may now disconnect. Thank you for joining us, do enjoy the rest of your day.