Andersons Inc (ANDE) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1, 2012 Andersons Inc. earnings conference call. My name is Catherine and I will be your operator for today. At this time, all participants are in a 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. And now I would now like to turn the call over to Mr. Nick Conrad, Vice President of Finance and Treasury. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for The Anderson Inc.'s 2012 first-quarter conference call. As previously announced, we have changed the format of our conference call beginning today. We have included a slide presentation that will enhance our talking points. If you are listening or watching this presentation via our website, the slides and audio are in sync.

For those listening via telephone, watching the webcast, you need to follow the directions we sent to you yesterday to sync the slides and the audio. This webcast is available through the investor section of our website, www.andersonsinc.com. The webcast is being recorded and can be accessed on our website.

As you know, certain information will be discussed today that 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 it's 34-F 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. Hal Reed, Chief Operating Officer, and John Granato, Chief Financial Officer, will be on the call today with me. Mike Anderson, Chairman and Chief Executive Officer, will provide opening remarks and will join Hal, John and me for questions at the end of the call. Mike?

Thank you, Nick. Before I get started, I want to mention the recent appointment of John Granato as our Chief Financial Officer. John joined us with a varied background in many diverse industries that has given him both broad and extensive global finance and business leadership experiences.

As John has just joined our Company last week, Nick Conrad, Vice President of Finance and Treasurer, is handling the financial part of the call today. In the future, however, John will be taking the lead role in these calls. Before we get started, John will make a few quick comments.

Thank you, Mike. First I want to say I am very excited about joining Andersons. In my limited time working with the team here, I have found everyone to be very engaged, open and committed to the success of the Company. I know that each of you works closely with Nick, and I also look forward to personally getting to know each of you. I will turn it back over to you now, Mike.

Okay. Let me start by saying how proud I am to see record quarterly earnings. Both our Grain and Rail Groups had record earnings and the Plant Nutrient Group had a very strong quarter as well. I would like to highlight some things we have accomplished so far in 2012 that demonstrate our continued commitment to growth.

In the Grain Group, we are again increasing storage capacity as we continue to build a grain shuttle loading facility in Nebraska that is expected to open by harvest. Just last week our new ethanol investment affiliate, The Andersons Denison Ethanol, LLC, acquired an existing 55 million gallon ethanol plant in Denison, Iowa, which brings the number of ethanol plant investments that we operate to four.

In January, the Plant Nutrient Group acquired New Eezy Gro, an Ohio-based specialty agricultural and industrial company. This group also recently completed a major capital build at its Maumee, Ohio, location that improved both its formulation capability and efficiency. And as always, we are reviewing further expansion opportunities at our existing facilities and additional acquisition opportunities for 2012. Hal? You can handle the performance review.

Thanks, Mike, and good morning. As we announced yesterday in our press release, we generated record net income of $18.4 million, or $0.98 per diluted share, on revenues of $1.1 billion. In 2011, we reported net income of $17.3 million, or $0.93 per diluted share, on revenues of $1 billion.

In response to feedback from our analysts, we prepared this next slide to share an income bridge graph. This graph specifically represents which group's income is up or down this quarter in comparison to the prior year. The specifics behind these differences will be detailed as we discuss each group's operating performance. Therefore, 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 a record quarter with operating income of $19.4 million versus $15.1 million a year ago. The group benefited from continued strong space income. Additionally, Lansing Trade Group had a solid performance again this quarter. Grain Group revenues for the quarter were $700 million, which is up from the $638 million reported in the prior year. This revenue increase is due to slight gains in both volume and average grain prices.

I want to mention that corn planting progress in our region and in the US is will ahead of both the prior year and the five-year average. As of Monday, the USDA Crop Progress Report indicates that the US corn crop is 71% planted, which compares to 32% last year at the same time, and a five-year average of 47%.

We are obviously very pleased with these planting results and the potential impact it can have, and has already had, in the agriculture businesses. We are hopeful the weather will continue to cooperate through the growing season.

Now let's discuss the Ethanol Group, which reported operating income of $100,000 this quarter. In comparison, the group had $3.6 million in income during the same period last year. The lower income is a result of decreased earnings in the three ethanol limited-liability companies. The LLC's were negatively impacted by lower ethanol margins, resulting from increased industry production and lower demand, led by declining exports.

The plants' investments in corn oil, E-85 and CO2, however, have produced profitable co-products that provide income even when the ethanol margins are not positive. Revenue this quarter is $151 million, which has increased due to a higher average price-per-gallon. In the prior year, revenues were $133 million for the same period.

The Plant Nutrient Group achieved operating income of $5.8 million for the quarter. In the same three-month period of 2011, the group reported a $5.1 million operating profit. This improved performance was due entirely to an increase in volume. The margin was down slightly from the prior year, due to lower price appreciation in the period.

The volume increase is primarily the result of good application weather in March and pent-up demand from the fourth quarter of 2011, when weather was not conducive to nutrient applications. An increase in volume, combined with a higher average nutrient price, led first quarter revenues for the group to increase to $175 million, which is up from the $124 million reported last year.

The Rail Group reported a record operating income of $8 million this quarter on revenue of $36 million. Last year, the group reported $3.5 million of income on revenues of $29 million. The group's revenue and income benefited from higher utilization and lease rates. This quarter, the group recognized $6.3 million in gains on sales of railcars and related leases. Whereas last year, $4.8 million were recognized. The average utilization rate for the quarter was 85.7%, which was up from the 82.4% experienced last year.

The group now has almost 23,000 cars and locomotives, which is up from its year-earlier total due to the acquisition of initial cars. The railcar repair business, manufacturing business, and our short line investment were all profitable during the quarter, with the railcar repair business showing a marked improvement.

Turf & Specialty Group earned an operating income of $2.2 million this quarter on $45 million of revenue. Last year, the group reported $3.3 million of income on $47 million of revenue. Turf products tonnage was essentially flat this year. Margin-per-ton, however, was down due to changing product mix. The group continues to see higher results in its cob business as a result of increased sales of patented products.

As is typical for the first quarter, the Retail Group incurred an operating loss. The loss of $2.7 million was the same as the prior year. Total revenues decreased $1 million, to $30 million in 2012. The sales decrease was caused by a lack of winter sales due to the moderate winter weather. The group, however, continues to see higher sales in the grocery and specialty food areas. Now I will turn the floor back to Nick for the treasurer's report.

Thanks, Hal. Turning to taxes, for the first quarter of 2012, the Company's effective tax rate was 36.6%, up 0.5% from the first quarter 2011 rate of 36.1%. We are projecting our 2012 tax rate to be 36%. The Company's actual 2011 effective tax rate was 34.5%. The lower effective rate for 2011 was due primarily to benefits related to domestic production activities. And the income attributable to the noncontrolling interest that did not increase taxes.

Next, as to interest, interest expense for the first quarter 2012 totaled $5.3 million, down $2 million from the same period of 2011. This decrease in interest expense for 2012 is due to lower short-term debt levels, driven primarily by lower 2012 grain prices in the first quarter 2012, versus the first quarter 2011.

Our average short-term borrowings for the first quarter 2012 were $302.8 million, versus $466.7 million for the first quarter 2011. The Company's average short-term borrowing rates for the first quarter were 1.97%, a decrease of approximately 1% from the same 2011 period.

During the first quarter, the Company was also an investor of excess funds, with short-term investments averaging $13.1 million, a $5 million decrease from first-quarter 2011.

Now for a non-GAAP measure, earnings before interest, taxes, depreciation and amortization. EBITDA for the first quarter 2012 was $44.5 million after adjustment for noncontrolling interest, which was approximately unchanged from same period of 2011. The first quarter's pretax earnings include $4.3 million in equity in earnings of affiliates, a decrease of $3 million from the same period last year. Income from the Company's investment in three ethanol LLC's decreased $2.7 million as compared to 2011.

Turning to the balance sheet, at March 31, current assets totaled $1.2 billion, a decrease of $112.2 million from a year-earlier balance of $1.3 billion. This decrease was driven by a decline in commodity derivative assets current and accounts receivable. Commodity derivative assets current ended the first quarter at $33.8 million, a decrease of $144.9 million year-over-year.

Accounts receivable net of reserves ended the 2012 first quarter at $204.4 million compared to the first quarter 2011. Changes in accounts receivable were the Grain Group and Ethanol Group decreased $40.4 and $5.2 million, respectively. Plant Nutrient Group receivables increased $24.8 million. Rail Group increased $4.9 million. And Turf & Specialty Group was about unchanged.

At the end of the first quarter, the Company's cash and cash equivalents, along with restricted cash, increased approximately $16 million as compared to the March 31, 2011 ending balances. The increase was due primarily to the previously announced industrial revenue bond the Company received for its Anselmo, Nebraska location.

The Company's inventories ended the quarter at $787.6 million, an increase of $12. 6 million from last year's first quarter. The changes in inventory from the same period last year were increases in our Grain Group of $30.6 million, Turf & Specialty Group of $2.6 million, and the Retail Group of $3.9 million, which were offset by a decrease in our Plant Nutrient Group inventories of $24.4 million. Real inventories for the first quarter 2012 were about unchanged as compared to last year's first quarter.

Net working capital at March 31, 2012 was $283.1 million, a decrease of $26.5 million from 2011. Total assets at March 31 were $1.8 billion, about unchanged from the 2011 first-quarter ending balance. Other asset changes, in addition to the changes in current assets, included investments and other assets ending the quarter at $358.8 million, up $37 million from March 31, 2011.

This increase was a result of equity method investments and other assets increasing $16.5 million and $20.5 million, respectively, over last year's ending balances. Also, property, plant and equipment, along with railcar assets leased to others, increased a total of $83.2 million for the quarter, due to business acquisitions, increasing capacity of existing locations in railcar investments.

Commodity derivative assets non current ended the first quarter at $1.2 million, a decrease of $11.8 million compared to the same period last year. Depreciation and amortization totaled $10.5 million at the end of the first quarter. Purchases of property, plant and equipment through the first quarter 2012 totaled $15 million versus $4.2 million for the 2011 first quarter. We had a business acquisition in the first quarter in the amount of $15.8 million.

Railcar purchases and sales were $33.4 million and $10.2, respectively, through March 31. Railcar purchases and sales for the same period 2011 were $10.8 and $9.2 million, respectively.

In regard to liability's report on the balance sheet, borrowings under the short-term line of credit at March 31, 2012 were $365 million, compared to $460 million at March 31, 2011. Commodity derivative liabilities current ended the first quarter 2012 at $34.1 million, versus $67.9 million at the end of the first quarter 2011.

Our long-term debt totaled $320.4 million, a decrease of $42.8 million from 2011's first quarter ending level. Our total long-term funded debt to equity was 0.38 to 1. The Company's first-quarter 2012 average interest rate for all long-term debt was 5.23% versus 5.41% for 2011. At March 31, our commodity derivative liabilities not current were $2.4 million, compared to a 2011 first-quarter ending balance of $110,000.

At March 31, 2012 the Company's total equity was $556.9 million, an increase of $75.8 million from the first quarter 2011. On April 23 we paid our second quarter dividend of $0.15 per share for 2012.

Finally, we continue to enjoy good support from our banks. As of March 31, 2012 we had short-term lines of credit under our syndicated facility that totaled $735 million. The Company also had long-term lines of credit under the same syndicate facility in the amount of $115 million. The total lines of credit available under the Company's syndicated facilities were $850 million. I will now hand the call back to Mike Anderson, who will provide the concluding remarks.

Thank you, Nick. We noted in the press release that we are expecting 2012 to be our second best year ever. I just want to expand on our expectations for the year. First, we expect our Grain Group to continue to do well. However, despite record first-quarter income, we still expect the group's 2012 operating income to be lower, due to anticipated drops in space income, especially in the second quarter.

You may remember that in last year's second-quarter conference call, we informed you that our large second quarter 2011 space income results were due in a large part to weak cash and future prices converging near the end of the quarter. And that something like that would likely not happen again in the foreseeable future. Also, due to the low margins currently being experienced in the ethanol market, we expect the Ethanol Group's full-year results to be considerably lower than the prior year.

That being said, we are pleased the group has remained profitable in the current ethanol margin environment as they continue to provide services for a fee and to sell co-products such as DDG's, corn oil, E-85 and CO2. We cannot predict exactly what ethanol margins will do in the future. However, our outlook later in the year is positive.

I expect our Plant Nutrient Group to have a very good year, as the demand for nutrients remains high and we are anticipating a record corn crop. I see our Rail Group more than doubling their prior-year income as a benefit from increases in both their utilization and lease rates, as well as from the management of their fleet portfolio. For the year, I believe our Turf & Specialty and Retail Groups' performance will improve over the prior year, but this will of course be highly dependent on a number of factors.

I want to again reiterate how pleased I am with our Company's performance. The last conference call, I noted the appointment of Hal Reed as our Chief Operating Officer. And as I noted earlier today, we recently added John Granato as our Chief Financial Officer. I feel the depth and breadth of the experience these two individuals have will allow our Company to continue and expand upon our purposeful growth strategy.

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

Thank you, gentlemen. (Operator Instructions) Heather Jones, BB& Capital Markets.

Good morning. Your presentation was so thorough I don't know if I have any questions.

(laughter) (multiple speakers) Okay, next person. Great. Thank you. Yes, Heather, I will believe that when I see it, but thank you.

I want to say welcome, John. I have a few questions, actually. I'm looking at the likelihood of a very large corn harvest later this year. I was wondering, I know it's very early to be thinking about 2013. But just thinking about what could actually be possible with a potentially very large crop. Do you think that the large volumes there could be enough to offset the basis appreciation we saw in 2011, that your grain business could possibly do a repeat of 2011 in 2013?

Well, if you just -- Heather, this is Hal, sorry. There are a lot of things that are going on, but just to suggest that the corn space income in 2013 could offset the wheat in 2011, that's probably not likely. The wheat income, as we suggested, was something that had accumulated over quite a bit of time before the convergence occurred. There are a lot of other good things that come with a 96 million-acre corn crop. Like a lot more volume than we have seen in a while and maybe cheaper corn prices for ethanol and more nutrients required for Plant Nutrient Group. But just to suggest the space income would be offset, it is probably not quite going to happen.

Okay. And looking at Plant Nutrient, do you expect that to have -- you specifically said you don't expect ethanol and grain to match last year. But I did not hear you say that on Plant Nutrient. So it sounds like you expect Q2 to be down year-on-year, but do you believe that Plant Nutrient could actually match year-ago results on a full-year basis?

Right now we expect Plant Nutrient to be down just a bit from last year. Again, it's very hard to determine what the fall quarter will be just because of the timing of the fall. We did recognize last fourth quarter was awful wet. It is hard to predict this fourth quarter this year and to make a comparison. But right now we see it being a bit below last year.

Okay. And then on corn oil. We've heard from a number of protein producers that taking out the corn oil has made it so that they are forced to use it at a -- use the DDG's at a lower level than they have previously. I'm wondering what your thoughts are on that, and does the economics of corn oil more than offset potentially lower prices on DDG's as livestock producers use it less?

Yes, thanks. There are a number of different uses of DDG's, some of which are not impacted at all by the change in the corn oil extraction. Second, there are certain availability of fats that are more able to be controlled by the ingredient -- in the ingredients of the feed. So there are some manufacturers or some processors that actually like it extracted. They can control it a little bit better with some other fat content. To answer the rest your question, we have not seen a decrease in DDG prices this year after we began extracting the corn oil. So, we've gone through all these different scenarios, tested this with all these different end-users. And as of now, this year our DDG prices are actually slightly higher than last year in a relative sense to corn. So we are hopeful that continues.

Okay. My final question is, looking at your bushels in storage, they were up year-on-year. And I realize, I think you have more bushel capacity than you did a year ago, but still we have heard many in the industry talk about how tight the eastern Corn Belt is. But yet, it doesn't look like you're really that much tighter than last year. So do you think you have taken share, or how else should we interpret this?

The bushels are not dramatically different. It is tight. I think it's maybe somewhat a question of timing. The difference between the first quarter shipments and the second quarter shipments has a lot to do with the timing of planting, because that depends -- that matters to when the farmers deliver the last of their bushels. The differences are not significant enough for us to make a general statement. We are fairly tight. That is best seen by looking at the estimates of the corn carry-out in the USDA numbers, as opposed to any one specific inventory numbers. Some of those could just be timing of shipments as well, too. I don't see those inventory numbers being dramatically different or having much of a relevance to the total carry-out in the eastern Corn Belt.

Okay, alright. Thank you.

Farha Aslam, Stephens Inc.

Hi, good morning. Congratulations on a really good quarter. And John, we look forward to meeting you at the Analyst Day. My questions really focus first of all on grain. Wheat space income was clearly a really big positive last year, and you have highlighted that it is going to be not the case this year. But in terms of sequentially, can you just point out to us how much lower is wheat space income? We are hearing it is maybe 20% currently of what it was in the first quarter?

Well, Farha, the ratio piece doesn't make a lot of sense to anybody who is going to analyze the numbers, so let me try and help give you an answer that will maybe make a little more sense. It is down substantially because of the lower spreads in the wheat spreads in the futures market, and also because of the basis level. Our basis level last year at the end of the first quarter was about 30-under. It's closer to option price this year. And the forward spreads from the May to the September last year were close to $0.75 last year, and they are closer to $0.30 this year. So those two things together indicate the lack of potential in Q2. Relative to Q1, the decrease in wheat spreads was pretty substantial from last year. I don't know if your percentage is accurate, it could be a little bit more than that or a little bit less than that. But in essence, in our case, it was offset by higher than expected corn space income, which we somewhat expected this year, as well. Hopefully that helps.

And so, in the second quarter, will corn space income help you out again? As it did in the first quarter?

We are not likely to see much corn space income in the second quarter. As we indicated before, the stocks are starting to flow out and that we will be fairly low getting into and through the second quarter, so not much help.

Okay, that's helpful. And then when we look to ethanol. How much corn oil extraction have you implemented? Is it in your new facility yet and, if not, when do you anticipate putting that in?

Yes. Corn oil is in place and operating at all three facilities. And working fairly well. So we are very pleased with that. It has been a great addition.

And then --

Oh, you are talking about, okay, all four. I'm sorry, yes. Denison has a corn oil, a system, as well. That was already in place at the time of purchase. So, all four, yes.

And do you generally, are you selling that corn on a spot market, are you hedging it forward?

The corn oil?

Yes.

We've done some of both. We have a variety of different interested parties and off-take some of it to help us hedge it, some of it to sell it forward. There is a variety of methods we use to do the best we can to lock in our margins.

Okay. How do you anticipate the P&L of the new facility to flow through your income statement? Do you anticipate it to be simply part of your ethanol business rather than in the JV's or are you planning to have a management fee component? How are you thinking about that?

Well, the structure is similar to the other three managed facilities. Because of the level of our investment, this will be consolidated into our reporting.

Okay. And then, my final two questions and I'll pass it on. In terms of plant nutrients, the volume in the second quarter, do you anticipate that it shifted, some of it shifted to the first quarter or do you think your volume is still going to be very up year-over-year in the second quarter? Because last year, your second quarter volumes were not that great.

Right. We do know that some was moved into the first quarter, clearly because of the weather conditions. We also know that there is higher acres of corn being planted, so the second quarter will have a plus and a minus. Some moved into first quarter, and just some higher volumes. But generally, last year was very wet conditions, last year in May, and that's why the number in total was down. They are not going to be dramatically different, but there is a plus and a minus here. It's going to depend on the weather, finally.

Okay, great. And then my final question is on rail lease rates. How much are they up year-over-year, and at the end of the quarter what was your capacity utilization?

I think we gave the utilization in the talk, at about -- I think utilization was 85.7 versus --

But that was during the quarter.

-- 82.4.

At the end of the quarter. Was it at the end of the quarter versus at the start?

Oh, did you say end of quarter?

Yes, the end of quarter utilization.

Yes, it was almost exactly that, 85.6. And then on the lease rates, actually the lease rates quarter-to-quarter were up more than 10% year-to-year.

Okay, great. Thank you very much.

Ken Zaslow, BMO Capital.

Good morning, everyone. Hey, John, you and I have something in common. We are both pretty new to the Company. So my first question to you as actually, what brings you to the Company and what do you think you are going to contribute? How do you think about it?

Well, I think I'm really excited to be here. I think there's great prospects for the Company. It's got strong values and has consistently shown a great trajectory in terms of growth and results. I hope to bring some of my outside experiences to help the Company grow, expand and improve their processes as they move forward.

Okay. Going to the actual businesses, let me ask you a question. The bacquidation on ethanol, can you talk to what you think is contributing to that, and is there a point in time that you think that that bacquidation is going to flip around?

The bacquidation in the ethanol market has been there almost since the beginning of our investment into the industry. And it seems a little strange to us grain folks, but I think it would take substantially more space being built to carry inventories to create a change in that. I don't see that occurring. So as much as we may have thought that some of that would go way over time, the infrastructure isn't there to suggest that will occur. Or the buying patterns of the users seem like they are going to change at all.

Okay. Because it was inverted the other way a couple months ago. It looked like it was getting tighter and the ethanol prospects seem much more bullish a couple months ago. And it seemed to just turn bacquidated again. That's why I was just curious if there is a reason to think that it might actually flip the other way.

We don't see much movement.

Okay. In terms of the early planting for wheat. Can you talk about if that is potentially going to be able to create a benefit to your basis, just because the early planting should actually help you on the buying side? Is that a fair way of thinking about it?

The early plantings are actually for the corn crop. And that's a good thing. The weather has been very conducive to getting it in the ground early and getting it going. That could in essence produce a slightly earlier crop in the fall. With a small carry out in corn and beans, a slightly earlier crop would be good for everybody's benefit. But again, the early planting is relative to the corn crop, primarily.

I'm going to add a little color commentary, and it is not just this question, but wheat has gotten lots of attention, as it should, over a number of years. We are relative to wheat in the ability to earn income from basis appreciation, and from the combination of the basis of the spreads, we still feel really good about, really good about. For years, we had said that we had gone through a period where, for all kinds of reasons we won't go into today, the wheat basis, soft red wheat basis, moved to triple digits under the nearby option. So, lower than $1 under. It never happened in the history of any of us here. I doubt my grandfather saw it that low in his time here. We knew eventually that we would get back to convergence being defined as, in the delivery market here in Toledo, that we would see cash and futures aligned and get close to each other with the basis being approximately the same as the futures. We had a high certainty. We didn't realize it would take as many years as it did.

So what we saw coming at us was at some point in time, as we were accumulating wheat to put it in our empty space at $1, $1.20 under, $1.30, that eventually we would earn that $1, $1.20, $1.30 on what I would describe as somewhat a one-time move. We did not anticipate that we wouldn't move to this new delivery storage rate system that occurred a couple years ago, which provided another wonderful boon as spreads went significantly wider and allowed us to roll our hedges forward at much wider carry. And to be specific, if historically you could earn $0.05 storage a month through the spreads, at times we were in a position where it was almost $0.20 a month. That did not last very long, quickly got down to $0.15 a month and has now gotten down to where I call it a little better than it had been historically, $0.05, $0.06, $0.07, $0.08 a month after interest. But recently here, as everyone who owned wheat said, I can earn so much storing it, everyone that owned it basically took it off the market and refused to sell it. The wider spreads contributed to that.

So what occurred again last June -- I may be hitting this too hard -- was a very, very -- and a little bit in the third quarter, too -- one-time-like event. I'm not going to say it was extraordinary. That is an accounting term. It was phenomenal, it was wonderful. Hal gave you the basis numbers from last year. It likely won't happen again in our lifetimes, it was just fantastic. Now we are back to just really good times, instead of stupendous times. So, I hope that helps. Put another way, we are not going to get that space income back and there's nothing wrong with that. It was a bonus, I will call it. But we are in volatile markets, we have various in spreads, we will have good times and bad times through that thing. And we are just ecstatic that we were able to realize what we did in the past. And we are ecstatic that we are on a course to our second best year ever.

Let me follow up with one final question on that. With your second best year coming, would you say that is a base year for which you expect to be growing off? I know it's a conceptual question, but is that -- this year, is that the start of your base year without one time, without -- is that how you guys think about it?

I think that is a great question. I'm going to let Nick handle that one. And I'm not ducking it, because we are all on the same wavelength on it.

Speaking of wavelengths, to Ken and to everybody on the call, we have talked over the last 18 months or so about this idea of a channel for our results with an upward bias. So I think it is a little dangerous to say 81 year is a base year or it is that much of an outlier, plus or minus an average mean. I think in general, we feel good about -- I like John's phrase, the forward trajectory of a bounded range with an upward bias. I think that is as far as we want to go, Ken.

Okay, great. I appreciate it.

Brent Rystrom, Feltl.

I've just got a couple quick questions. The cash right now for corn in the western Corn Belt is tending to run higher.

Brent, could you speak louder?

Sure. I see the cash is tending to -- or corn is tending to trade in the cash market in the western Corn Belt higher than where it is priced on the trading. So I'm curious, if this big corn crop does come in this year, which I think is a big if yet, but if it does come in, do you see in your western expansion area, do you see an opportunity to pick up a lot of basis there? Second half of the year on corn?

Yes. The basis opportunity is now. We have seen that inverse grow and grow to a point where it is quite sizable now. Because at some point in time the inverse will close. It is that last bushel at the end that is worth new crop values that will close, slam that inverse together. So the opportunity we see out in the West is what we have been able to bring into this year from last, and earn this appreciation in basis out there. But you are right, it has been substantial out there.

How about soybeans Hal? Any thoughts on soybeans, particularly July and August, as we look at maybe historically tight carry out?

Yes. Again, a very historically tight carry out. As you know, we don't carry as many beans as we do wheat and corn, so it's not quite as big a deal to us. But this inverse is such a large inverse that it is risky to take it out too much further past this early summer point here. I think that the entire balance sheet in the soybeans worldwide is going to be very tight, so it will be a risky summer play.

Alright. And then, final question. I'm just curious from the Plant Nutrient side, any thoughts on what you are seeing for fertilizer pricing for fall applications, which would be primarily nitrogen?

Right now we are not seeing very much forward. It's quite hand-to-mouth. We are not interested in carrying too much more product than we figure we are going to use here in this busy spring. We are going to try to regroup in the summer and see what prices do. Given the early crop, we could see a pretty good-sized fourth quarter, as far as applications. It will be an interesting equation between probably lower corn prices and probably larger demand to put fall nutrients down. So it will be a balance for the fall, but it is hard to tell about prices right now.

One final question I was thinking of when you mentioned that help. Do you see in your markets any evidence of a shift from corn to beans here in the planting field?

We haven't seen much at all. It's very interesting. Farmers love to plant corn, you know that. They love to plant corn and with this kind of weather, they've got the corn in and ready to go and they are planting all they can. Which is good for us, but we haven't seen much switch around here.

I would add although it won't be huge amount of bushels, with the warm spring we are having and wheat progressing rapidly, not just here but south, there's lots of reasons to think that anybody who can double-crop will double-crop with beans behind the wheat if the weather holds up and they are able to get the harvest done earlier than normal.

And Mike, when would that earlier-than-normal be? Would that be a June harvest?

No. Well, late June in central Ohio, central Indiana and south. But if it is around the Fourth of July here you will even see some people taking risks. That will be with yield reduction. But we might see our first really good day, historically, typically the 8th, 10th of July up here, first of July in central Indiana. And it should move into June in central Indiana this year. So keep going south from there, with these bean prices and the need, lots of incentive to put them in if weather cooperates.

Alright, thank you guys.

Christine Healy, Scotiabank.

Thanks. Hi, guys. Couple of questions for you on the Rail segment. Some good results this past quarter. I'm just wondering, do you expect these utilization and lease rates to continue through 2012 or are you seeing continued improvement in this segment? Maybe some color on what's going well-what's not, in that segment would be helpful.

Right now we have continued throughout the course of the whole year to see lease rates and utilization rates creep higher. Right now we see no reason for that to change.

Is there any particular areas, any certain types of railcars are doing well, others that aren't, maybe some color on that?

There are a handful of car types that are doing extremely well, much of that due to the whole frack sand issue. So tank cars have traded at exorbitant rates in some cases. And a few other car types that are used to haul some of the materials and the sand that are also being traded at higher than normal rates. So those two are probably on the high end of normal rates. Of course with the warm winter, the coal car rates have probably declined, so that would be on the other side of the equation. And with the big grain harvest coming up, we expect to see grain rates starting to increase over the year, as well.

That is helpful. And then also on Rail. You guys had higher gains on sales of railcars this quarter. You had disclosed in your 10-K that you were selling a portfolio of 1,400 railcars that could result in gains of up to $9 million. Just want to know, is a portion of that still to be recorded in the second quarter then?

That's a very interesting question. We routinely sell various parts of the rail fleet through various methods, some of which are direct sales, some of which are through financings. We don't really forecast forward in a disclosure basis what activity occurs from quarter to quarter. So I think I will just leave it to say that what we reported the first quarter is accurate.

Okay, great. Thanks, guys.

Ian Horowitz, Topeka Capital Markets.

Good morning, everyone. Welcome aboard, John. I look forward to meeting you in June. Just to go off Christine's questions, how you said in the prepared statement that the fleet total was about 23,000. Last quarter, I think we were at 22,700. Which to me is almost like 23,000. Can we just get a little bit more detail? Did it stay relatively flat or was there a slight increase in cars?

There was a slight increase in car numbers. So even net of sales where we have increased the size of the fleet.

Okay. If we look back at the utilization rate and the slight increase in cars, on a first derivative comment it looks like the rate of change is slowing. Can we read into that at all? Is there some seasonality here, in terms of putting the cars to work?

There were some new cars purchased that were not in service at the time. That impacts that equation a little bit. There is some seasonality. We are at the end of a small grain crop waiting for a bigger one. But I don't think it is dramatic. Yes, it is headed higher but maybe slowing at this point.

Okay. I look back over the recent history, I look at 24,000, a little over 24,000 is kind of your peak railcar levels. Is that kind of the opportunity that we are still looking at today? Do you think that 23,000 is a much more comfortable level now? Just how should we look at the growth, or not the growth, of the overall fleet size from here?

We move in and out of railcars at different times in their life and the life of the industry and our fleet. So it's hard for me to say exactly where those numbers are. But we have been increasing the numbers, and the trajectory is still for us to grow that business. So I would certainly expect that that be the case. We are looking at an awfully good year in rail and right now things, that trajectory of what we would like to do is moving higher as well.

Okay. So there is no internal bogey you guys are going back to 24,000 or staying at 23,000?

No. There is no kind of constraint like that.

Okay. In the comments, we talked about a decline in ethanol for the second quarter. We saw significantly thin margins, understandably so, in the first quarter. Could you guys expect to see an operating loss for this segment in the second quarter?

That is difficult to say. We have not seen margins change much throughout the course of the first four months or so. What is nice, we've got all the added co-products to add to our bottom line. Hopefully, we see the driving season begin a little bit here with the better weather and little bit lower gasoline prices, and we get some of that full utilization back. The total gasoline demand in the United States has been down, but an uptick in that would sure help. It's just hard to tell where we will be in total for the second quarter.

Okay. Can you comment at all, Hal, about how utilization or the throughputs on your plants right now, how they are running?

Oh, the ethanol plants?

Yes.

Actually, right now it's running extremely well. We've done our normal semi-annual shutdowns here recently at a couple of them. So we are running at about as good a capacity with as good a conversion rate as we have had. We are pretty pleased. And the new plant in Denison, we are making some tweaks to what was a pretty well-run plant, and we are pretty happy with what is going on out there, as well.

Okay. Hal, do you expect to see typical ethanol seasonality occur this year? I know the futures market is not necessarily showing that. But do you expect strength? You said it would be a back-half weighted 2012. I would assume you are meaning that for ethanol, as well. Do you see the typical price improvement and margin improvement we have seen in previous years?

It's hard for me to really define what I think typical is in the ethanol business, so I'm a little reluctant to answer you. The second quarter I would say seems fairly typical of what we have seen recently. The big inverses in corn in the third quarter make that just a little bit dicey, and corn and ethanol have had a tendency to travel together in price. So it's going to be very difficult to see. If plants shut down, it will move in one direction, and so the whole economics of the third quarter may be a little bit different. So it's really hard for me to tell you what exactly normal would be.

Right, okay. And one last question and I will get back in the queue. Mike, can you just talk a little bit about this recent ethanol acquisition and why you did it, what your thoughts are on ethanol itself? Can we continue to see these things coming from you guys?

Yes. Broadly, corporately, integrating growth along with improving what we do is part of our strategy as we look at the balance sheet and where we want to allocate our funds. We've got our internal approach on doing that. And ethanol is one of the areas where we have interest. At the same time, it has got to fit our model around the type of plant, the technology, the location. And in fact, we've got some internal percentages that we would be willing to go to in each of our businesses, of which I am not going to disclose. That, along with the opportunity. I'm not going to sit here and say you should or should not expect another ethanol plant. It is going to be -- what do we see in the opportunity relative to our own internal allocation approach. I would tell you that we would expect to see continued growth in our base Grain business, and our Plant Nutrient business, and our Rail business, along with that. And the Turf & Specialty. A lot of it has to do with the ability for some of the products we develop to really hit and hold. If that happens, we would develop there, too. And it also likely won't be the same percent increase at the same time for all of the groups, because the opportunity doesn't show up that way.

Right. I don't recall, I don't have the press release in front of me, were there financial terms disclosed in the press release on this acquisition?

We did not disclose a great deal of financial terms.

Okay. So then we could assume that it was not material or significant?

I did not say that.

(laugh) Okay, thanks a lot, guys.

Thank you. Ladies and gentlemen, I would now like to turn the call over to Mr. Mike Anderson for closing remarks. Thank you.

Thanks. I want to thank you all for joining us. And Heather, I appreciate your initial comments there. We have worked to try to improve this presentation. I also want to mention for those that are interested that there are six appendix slides in the presentation available on the andersonsinc.com website at the investor's tab, under the first quarter earnings call replay. Our next conference call is scheduled for Friday, August 3 at 11 a.m. Eastern time to review our second quarter 2012 results. We hope you are able to join us again at that time. Until then, have a great day. We will see you later.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a very good day.