Andersons Inc (ANDE) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Andersons Incorporated 2014 second-quarter earnings conference call. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

Now I would like to turn the call over to Mr. Nick Conrad, Vice President Finance and Treasurer. Please proceed, sir.

Good morning, everyone, and thank you for joining us for The Andersons Inc.'s 2014 second-quarter conference call. We have included a slide presentation that will enhance our talking points this morning. If you are listening and watching this presentation via our website, the slides and audio are in sync.

For those listening via telephone and watching the webcast, you should follow the directions sent to you in order to sync the slides and audio. This webcast is available through the investor section of our website at www.Andersonsinc.com. The webcast is being recorded and will be available on our website.

Certain information discussed today constitutes forward-looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of any factors including general economic conditions, weather, competitive conditions, conditions in the Company's industries, both in US and internationally, and additional factors that are described in the Company's publicly filed documents including its 1934 Act filings and the prospectuses prepared in connection with the Company's offerings.

Today's call includes financial information for which the Company's independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be.

On the call with me today are Mike Anderson, Chairman and Chief Executive Officer; Hal Reed, Chief Operating Officer; and John Granato, Chief Financial Officer. Mike, Hal, John and I will answer questions you have at the end of the prepared remarks.

Now I will turn the floor over to Mike for an opening comment.

Thank you, Nick. The ethanol group had its best quarter ever with operating income of $33.9 million. This has led to group's earnings in the first six months of this year to exceed any prior year full-year results. Margins in the ethanol market were strong and the group seized on that opportunity by producing a record amount of ethanol during the quarter.

The plant nutrient group's second-quarter performance was solid as volume increased due to the recapture of the majority of the volume lost during the first quarter. In addition, our grain group benefited from improved space income in our grain operations and the addition of income from the Thompsons Limited joint venture. All of this led the Company to a first-half earnings record. The Company also paid its 71st consecutive dividend in July.

I will now turn this over to John who will provide details of the total Company results.

Thanks, Mike, and good morning, everyone. The Company reported net income of $44.3 million in the second quarter or $1.56 per diluted share on revenues of $1.3 billion. In the same three months of 2013, net income of $29.5 million was reported or $1.05 per diluted share on revenues of $1.6 billion. The majority of the year-to-year decrease in revenue relates to our grain business whose revenues decreased primarily due to lower grain prices which declined almost 25% in comparison to the same period of the prior year.

Now to a non-GAAP measure, EBITDA, earnings before interest, taxes, depreciation and amortization. The Company's 2014 second-quarter EBITDA was $90.7 million, an increase of $25.5 million from the same three-month period of 2013. Year-to-date EBITDA totaled $147.2 million which is an increase of $39.1 million compared to the prior-year six-month total.

Equity and earnings of affiliates was up $22.2 million and totaled $32.2 million in the second quarter. The positive year-over-year change was driven by an increase in earnings from our ethanol LLC investments and the inclusion of income from Thompson's Limited, which was added to our portfolio in the third quarter last year.

For the first six months of 2014, equity and earnings of affiliates totaled $52.7 million compared to $17.8 million in 2013. Average short-term borrowings for the second quarter were $165.2 million, a decrease of $15.6 million from the prior year. Other income was $3.8 million compared to $1.3 million in the second quarter last year. For the first six months, other income increased $19.4 million year-over-year primarily due to the $17.1 million pretax gain recorded on the partial redemption of the equity investments in Lansing Trade Group.

For the second quarter of 2014, the Company's effective tax rate was 34.2%, down 2.1% from the second quarter 2013 rate of 36.3%. The lower 2014 effective tax rate is due primarily to increased deductions related to domestic production activity and to the benefit of income attributable to noncontrolling interest which does not increase the Company's tax expense. We are projecting our 2014 tax rate to be 33.9%.

The Company's 2013 effective tax rate was 36%.

The lower effective rate for 2014 is due to the items mentioned in relation to the quarter and the correction made in 2013 in respect to accounting for the OCI portion of the Company's retiree healthcare plan liability and the Medicare Part D subsidy.

The bridge in this next graph demonstrates which groups 2014 second-quarter income is up or down in comparison to the prior year. The specifics behind these differences will be detailed as each groups' operating performance is discussed.

Therefore to better understand the total Company results, Hal will walk you through each of the six businesses.

Thanks, John. Let's start with the ethanol group which achieved record operating income of $33.9 million this quarter. In comparison, the group reported operating income of $10.6 million during the same three-month period last year. The increased income is the result of significantly improved ethanol margins, record ethanol production, ongoing service fees and increased co-product income. Ethanol margins were supported primarily by ongoing increases in export demand, lower corn prices and excellent operating metrics.

Revenue was $226 million in the second quarter in comparison to $222 million in the prior year. Revenue only increased about 2% even though gallons of ethanol sold increased by 8% as the average price per gallon sold declined. Through June, the ethanol group has reported record operating income of $53.7 million on revenues of $415 million. In 2013, the group had operating income of $13.1 million during the same six-month period on revenues of $422 million.

As we have mentioned previously, the results for Denison are not included in the equity and earnings on affiliates line as this location is consolidated due to our significant ownership percentage. Therefore, the Denison income is included in the category consolidated operations and service fees in the slide presentation. This category has increased by $4.6 million this quarter in comparison to the prior year.

As you may remember in the first quarter there was a $4.2 million negative mark to market adjustment at the Denison location. This income was recognized this quarter when the inventory was shipped. However, as futures risk has also been hedged for the second half of the year, a similar negative mark to market inventory adjustment of $2.5 million was made this quarter. That income will return in the second half of this year.

At this time we have approximately 75% of the third quarter and 33% of the fourth quarter futures risk hedged for our production. The majority of those hedges were placed in the first quarter consistent with our strategy to lock in reasonable core returns when available in the market. Other hedges were added in the second quarter. We are currently managing margins in the spot market for the rest of our production.

The group has continuously made improvements to the plants. This can be seen from the fact that the group once again had record ethanol production this quarter. The capital investments that have been made to increase plant efficiency have been beneficial for both ethanol and co-product production.

The plant nutrient group had operating income of $25 million on revenues of $312 million this quarter. In the same three-month period of 2013, the group reported $23.2 million of operating profit on $330 million of revenue. Volume increased in the second quarter as we regained the first-quarter volume shortfall caused by the late start to field work. Margins were up slightly this quarter in comparison to the prior year.

Margins were up slightly this quarter in comparison to the prior year. This year the plant nutrient group had operating income of $23.6 million through the first six months on $420 million of revenue. Last year the group generated operating income of $22.7 million on $442 million of revenue. Through June volume is up approximately 6% and margins are up slightly. The group ended the first half with a strong month of June due to good weather and demand for side-dressed applications.

Storage capacity in the plant nutrient group increased to 902,000 tons from 867,000 tons in the same quarter of 2013. This was due to expansion of both dry and liquid storage in some facilities.

The grain group earned operating income of $10.4 million this quarter versus $2.1 million a year ago. The group had improve space income for the quarter allowing the grain operations business to return to profitability after a tough first quarter. In the prior year's second-quarter, market carry and ownership were negatively impacted by the 2012 drought. The grain group also benefited from higher income from this investment. The income from Lansing Trade Group was comparable to the prior year even though we owned approximately 20% less than we did in the prior year.

Thompson's also had good income in the second quarter and in the prior year only deal expenses were recorded for that same period.

Grain group revenues for the quarter were $656 million which is down from the $891 million recorded last year. This revenue decrease is primarily due to a lower average price per bushel which decreased by almost 25%. The grain group's operating income through the first six months of 2014 was $21.7 million on revenues of $1.2 billion. Comparatively the group's first-half operating income in 2013 was $10.4 million on revenues of $1.7 billion.

The year-to-date results for this year include a pretax gain of $17.1 million from the partial sale of the group's Lansing Trade Group Holdings.

As noted last quarter, storage capacity in the grain group has declined slightly since the prior year from 141 million bushels in the second quarter last year to 139 million bushels this quarter due to the loss of some storage space. The rebuilding of some of this space is already underway.

Last quarter we mentioned the corn planting progress in our region and in the country was behind the five-year average but that there was ample time to get the crop in. The corn crop got in and the weather has cooperated with a few minor exceptions and it now appears we are likely to have record yields in both corn and soybeans. Yield estimates are currently in the range of 167 to 173 bushels per acre for corn. As of Monday, crop condition reports showed a 73% of the corn crop was good or excellent. At the same time last year, the rating was 64%.

As it relates to soybeans, yield estimates are currently at least 45 bushels per acre and the crop condition reports show that 71% of the crop is good or excellent. At the same time last year, the comparable soybean rating was 64%.

The rail group reported operating income of $6.7 million this quarter on revenues of $33 million. Last year the group reported $9.7 million of income on revenues of $39 million. Gross profit from the leasing business was down slightly even that both the average lease and utilization rates were higher this quarter as the fleet has decreased in size.

This quarter the group recognized $2.5 million in pretax gains on sales of railcars in related leases and nonrecourse transactions whereas last year $4.4 million was recognized on similar transactions. Through the first six months, the rail group has operating income of $21.7 million and revenues of $86 million. In the same period of 2013, operating income amounted to $24.3 million and revenues were $85 million.

These results included gains on sales of railcars and related leases and nonrecourse transactions of $13.3 million in 2014 and $14.6 million in 2013.

The average utilization rate for the quarter was 89.3% which was up over 3 points from the 85.7% experienced a year ago. The utilization rate as of the end of June was 89.1%. As of the end of the quarter, the group has 22,162 railcars.

The turf and specialty group had operating income of $2 million this quarter on revenue of $43 million. Last year the group reported $2.2 million of income on comparable revenue. Turf products tonnage was essentially flat this quarter in comparison to the prior year. Margin per ton increased slightly due to product mix.

The cob business this quarter had higher expenses than usual as we continued to invest in operational improvements at our recently acquired facility. Through the first half of 2014, the group's operating income was $3.4 million on $87 million of revenue. This compares to operating income of $6.2 million and revenue of $90 million last year.

The retail group's operating income was $1.6 million in the second quarter compared to $1.5 million reported last year on consistent revenues of $41 million. The group's year-to-date operating loss is $700,000 on revenues of $69 million. Through the first six months of 2013, the operating loss was $1.6 million and revenues were $72 million. The 2013 year-to-date results include $800,000 in costs associated with the closing of the Woodville store.

Now I will turn the floor back to Nick for the Treasurer's report.

Thanks, Hal. Current assets totaled $865.2 million on June 30, a decrease of $42.1 million from the same period last year. Other assets added $95.6 million in property, plant and equipment along with rail assets leased to others increase $18.1 million compared to the second quarter last year. As a result, total assets at June 30 were $1.9 billion, an increase of $71.6 million year-over-year.

Current liabilities were $613.2 million at the end of the second quarter, an increase of $14.9 million from the prior year. At June 30, the Company had short-term borrowings of $27 million which is a decrease of $23 million compared to the same period last year. The average short-term borrowing rate for the second quarter was 1.64%, down from the previous year's rate of 1.92%.

Accounts payable for grain ended the second quarter at $164.2 million, a decrease of $13.8 million year-over-year and a decrease of $428 million as compared to the 2013 year end. As has been the case recently, the purchases of grain last fall under the delayed price of [hold] pay contracts had resulted in an increase in cash balances and related rate payables which we expect to occur again this fall.

Long-term debt entered the second quarter at $300.2 million, a decrease of $108.8 million from the prior-year second quarter. The average long-term interest rate for the second quarter was 4.49%. Year-to-date June 30, the average long-term interest rate was 4.56% compared to 4.66% on June 30 last year.

Long-term debt to equity ratio was 0.38 to 1 on June 30 compared to 0.63 to 1 for the same period last year. Total equity was $791.3 million at the end of the second quarter, an increase of $137.4 million year-over-year. At the end of the second quarter, net working capital was $252 million, a decrease of $56.9 million from the 2013 second quarter.

Mike will now cover a few more points before we take questions.

Thank you, Nick. As many of you know, we have been working on an SAP implementation for over two years now. We have planned a phase implementation strategy. In May, we rolled out the new financial system companywide and just recently completed the second quarter close in the system. We also implemented the new grain system at two locations in May. We have learned a lot from this limited grain system rollout and we are working to refine and improve the system. We will continue to roll the system out to grain locations through 2015.

In the future, the SAP implementation will be expanded to include other groups. We want to express our thanks to the team that has been dedicated to building this SAP solution. We are excited about the clear potential to connect employees, customers and information in order to support the Company's relationships, growth and performance for years to come.

As we are now utilizing the SAP system, additional expense will be seen at the corporate level as it was this quarter. Specifically, the system will begin to be amortized and there will be other ongoing costs associated with maintaining and hosting the system including an increased information technology workforce. Further, as the rollout plan continues to be refined and implemented, there will be additional costs associated with it including both higher external consulting and internal development costs.

In closing, I would like to provide an outlook for the remainder of 2014. Quite simply we expect to have record earnings this year. Based on the current margin environment and because we have hedged approximately 75% of the third-quarter and about one-third of the fourth-quarter's futures risk, we currently believe our ethanol group will have another excellent year. Clearly this is evidenced by the fact that their first-half results have already exceeded any prior-year full-year's earning record.

We continue to believe that our grain group will improve upon their 2013 results especially considering the anticipated strong corn and soybean crops this year and recent increase in space income. This will however be highly dependent on continued favorable weather during the growing season and on the market allowing normal space income to be earned.

Further, we expect both Lansing Trade Group and Thompson's to have good results in the second half. Based on how the plant nutrient group ended the first half of the year, we continue to believe they will improve on their 2013 results. We also anticipate our rail group having another strong year in 2014.

In the first quarter, we communicated that we expect earnings improvement in both our turf and specialty and retail groups this year. This is still the case for retail however our expectations for the turf and specialty group have decreased somewhat due to additional expenses and slower sales in the cob business. As we have said previously, a typical year for us is where the second and fourth quarters are stronger and the first and third quarters are softer. We expect that trend to continue in 2014.

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

(Operator Instructions). Ken Zaslow, Bank of Montreal.

Good morning, everyone. So just kind of thinking about a big picture question, the first half of the year you kind of hit around a $2.00 number. Can you talk about how you frame the earnings power around that in terms of when we are going to start to see it? Is it the fourth quarter, is it the first quarter next year? And what do you actually expect to see in terms of the overarching earnings power because it seems like you are still under earning. I know you said that you are at record, you expected record profitability for 2014 but you are already two-thirds of the way of last year's numbers and you are only halfway through the year. Can you frame that a little bit for us to see what you are thinking really about earnings power?

Yes, thanks, Ken. This is Hal. Just a couple of thoughts. First of all, I think as you know, the most important thing about our quarterly numbers is that there are almost always a seasonal pattern to them. And the second quarter is always a pretty good quarter for us as is the fourth. So we don't look for the seasonal pattern to change much and we talked about the grain harvest being good and obviously that is a fourth-quarter into a first-quarter next year opportunity.

I don't think we will see much change in how we see the results come across but I think with the filling of the pipeline on the grain side and cheaper grain prices for the ethanol business, both of those things are supportive going forward as we discussed and the rail business seems pretty stable as we see slight increases in rates and utilization continuing to roll forward.

So I don't think we see a lot of a change in the pattern but I think what you have seen is some good opportunity especially with the forthcoming grain harvest.

Would you expect ethanol -- ethanol seasonality should not exist, right, your ethanol margins should remain at these levels. Is there any reason that you would not expect these margins that you have generated this quarter to be more sustainable for the foreseeable future assuming that natural gas prices or anything like that doesn't come out of nowhere?

Sure. Obviously you have the potential pricing issues with natural gas, etc. and obviously there is a certain dependency on oil prices across the world depending on what they do in subsequent quarters. There is a seasonality to driving demand across the world so there is some seasonality. Plus as we mentioned, we have got three quarters of the third quarter already booked and one-third of the fourth quarter already booked. So the spot margins that we're adding to those have been good. It is hard to understand why they don't change dramatically in the coming quarters but these are margins that no one has seen in the ethanol business, it is hard to project forward long-term that margins will stay at record levels forever.

My final question. Can you talk about the opportunity associated with the [VSR] over the next 12 months? I know it is only starting to move up. What is your thinking of how high this can go and the stability at say a $0.15, $0.20 level or how do you think about it?

Based upon the facts of this recording period, we are ahead of the number to have one more tick of the VSR added; however as you know, the actual spreads haven't approach that full carry value. So we could potentially add another tick of VSR but not see the spreads increase much. Honestly I think there are a lot of folks waiting to see just how big the corn and bean harvest is and exactly what the competition is for space this fall before they will make a decision.

So there is still a chance we would add another tick. I don't see the spreads changing it dramatically now. The competition for space this fall will play a big force in what we see corn spreads as well as the wheat spreads do this fall in the marketplace.

Great. I appreciate it. Thank you.

Farha Aslam, Stephens Inc.

Good morning. Starting with just some housekeeping questions. The first one, Mike, you had highlighted your investments in SAP. It looked like your other corporate, it was about $7 million to $8 million higher year-over-year in the quarter. Is that something we should expect on an ongoing basis as you invest in the system?

It is John. Let me address that. In the quarter specifically, there are really four items that caused the year-over-year increase. One was the go live and the amortization of the capital for SAP that has started. In addition, there was increased equity compensation relative to last year. There was also a timing issue related to equity compensation last year. We were delayed in granting those and this year there is also increased incentive comp.

Now looking forward, I think the second quarter is a reasonable proxy for the second half of the year run rate although there probably will be some quarter-to-quarter variation.

Okay. That is helpful. And then I noticed that you are interest expense was significantly lower than we had been anticipating. Any color, John, that you could give on interest expense for the second half and kind of going into next year?

This is Nick. As I indicated in my comments regarding grain payables, we've continued to see a pattern of delayed price and other contracts causing increases in cash balances in a fall and appropriate increases in grain payables all of which suppress our borrowing activity and so I think the pattern of the last several falls will probably continue again this year.

Okay, that is helpful. And then on ethanol, you had highlighted that you are hedged for the third quarter and partially into the fourth quarter. Two questions. One, do you hedge DDGs as part of your hedge strategy when you hedge ethanol? What exactly is included in ethanol hedges for you?

Good question. This is Hal. We are 75% approximately hedged for the third quarter and realize we are slightly into the third quarter already and we are about 33% hedged for the fourth. So when we talk about hedging, we hedge the futures portion for the corn and the ethanol and the natural gas. So we do take into account the value of the DDG on the outbound side, it is a net corn hedge along with the ethanol and gas hedges so it is net in that regard but obviously there is basis across all the different commodities that is not hedgeable until we actually transact in the cash markets.

That is helpful. And then just some color on your forward ethanol hedges as you see them. Would you say they are as good as sort of the spot margins that you delivered or sort of the overall margin per gallon that you delivered in the second quarter better, worse? Just how we should think about modeling that segment because it is still much volatility there.

It is pretty simple to say that those hedges are not at the current spot margins and not at the same level as the average second-quarter margins. The deferred markets in ethanol are almost always at an inverse so we have the deferred margins that are lower than the current spot margin and the average second-quarter margins.

Okay, thank you. My final question, Mike, you haven't done a transaction in terms of M&A so far this year. So any color you can give us on what you are seeing in that M&A market and what is of interest to you?

We've got a pipeline out there and we have not been successful -- or success may not be the right word -- we have not been willing to necessarily come to terms on some things that we have looked at, our judgment, but we have additional things in the pipeline and we would expect M&A to be an important part of our growth over the next several years. It is just not going to be very predictable from quarter to quarter.

And any areas that are of particular interest for you?

Yes, I would say consistently we have had primary focus on M&A in the grain, rail, plant nutrient areas. Ethanol has some appeal for growth but again, value is pretty doggone important in the judgment on when you want to participate. We did a little bit in our turf and specialty and we would look to do some incremental additions there also.

Okay, that is helpful. Thank you.

Brent Rystrom, Feltl.

Congrats, guys. Just a couple of quick questions. Hal, you had mentioned a possibility of record production this year. When you look at the primary states you guys operate in, can you give us a sense of how the crops are looking state by state? I am guessing Indiana is probably flat, Illinois up a lot but I'm just kind of wondering from a color perspective your thoughts on that?

Yes, I mean if you are comparing year-to-year I would tell you that pretty much every state is up that we are in and some of them quite substantially as you might guess. If you look at the last series of -- last Monday's announcement from the USDA and the weekly crop reporting, virtually all of our states are higher on both corn and beans and the bean story is not yet told. The right temperatures, the right rains and people are talking about 45 bushel beans but they are looking at it with pretty wide eyes because the right weather here with the crop that had started already could offer some pretty good potential but they are all better.

Have you been watching some of the prediction agencies on the futures side? Some of the major players are kind of taking the top off the estimate and kind of coming back in line now with some of the (technical difficulty) in the estimate. We have gone three to four weeks without rain in probably two-thirds of the corn belt. Any thoughts on that?

Yes, there were I think a lot of people that again were looking at huge numbers. I think clearly the USDA at 167 is still the low end of the range. Most of the rest of the people are closer to 170. We don't see any people in the 174 to 180 range anymore but we did for a while but the last few weeks of dry weather have taken that off. We would agree.

There is some discussion about exactly what harvested acres will be given the progress of this crop and right now I think what the USDA shows is a fairly conservative harvested acre number relative to the total planting. So there is a variety of things going on but the dryness in the last three weeks in a lot of places has taken the huge top potential off of that crop, I would agree.

We really do need some moisture for beans in quite a few areas.

Thinking about that, I would imagine you have got some monstrous basis coming in the favorable play for you 4Q, 1Q. Any additional color you would like to give on that?

Not terribly. I mean export demand has been quite good. Basis values at the Gulf have remained strong so it is going to take a ship to get us once the new crop starts, it is going to take a shift to move us that way so people are a little bit cautious. Farmer prices, the prices are lower, the farmer is not selling so we haven't seen a lot of push on that side. And then the question from your perspective becomes is if we do see the basis improvement at some time, is it end of Q4 or is it more into Q1 next year? So there is the timing question as well but you are right the crop size should suggest a cheaper fall base.

I am just going to add some more color to that. One thing we know for sure -- we have significantly more carry out this year than last year, call it 1 billion bushels and so we don't have that front-end demand that we had last year that consumed the front end of last year's crop competing for -- taking away from bushels available going to space. We had reasonably good harvest weather. We don't know what the harvest weather is going to be this year, we just don't know. So if we have ideal harvesting weather where it comes fast, that will add to the pressure on basis to put it lower.

Let's say we get into a rainy pattern, the fact is -- besides the fact that we have lots of space out there, we also another interesting dynamic that has developed over the last several years and that is the monthly consumption continues to go up with primarily ethanol plants added to livestock. And you don't need -- if the harvest would stretch out because of bad weather, let's just say it stretches out a month -- I am speculating, then you need a month less space for that. The farmer will try to tuck stuff away because of the flat price. It is setting up to be a decent year for what we acquire corn at especially during the year based on what it looks like is coming at us. But there is always an element on that that is you have to wait until you see the whites of their eyes.

With that thought, Mike, out of curiosity you see the heart of the corn belt reasonably good basis relative to what you guys do and then you go to the fringe states like North Dakota, maybe down to the South and you are seeing some tremendous discounts to CME prices. Are there arbitrage opportunities that you guys have to play that given your capabilities?

Hal, why don't you take that?

I was just saying our arbitrage opportunities are obviously broader than they used to be especially with the addition of our Tennessee assets; that is a southern crop, it is a different timing generally than the rest of the crop and a different territory and a tributary to the market at the river system. So that is probably our biggest opportunity plus as you know, that is where Lansing really rests solid. That is a big part of what they do is in their merchandising arena is find those arbitrage opportunities and they've got facilities all the way out to Iowa and down to Louisiana. So they are in the marketplace physically and that is their expertise so we are looking for both of those things to help. It is a great question.

I'm glad you asked that because it is very interesting here we are getting into August and on paper, we have enough carryout, plenty of carryout but you look at the underneath (inaudible) -- what states is it in and then how tight is the farmer holding as opposed to the commercial holding? And real-time you have exactly what you said, you have some areas where ethanol plants have backed away, they have got enough bought, feeders has got enough bought. Large freights have backed off some -- drives -- and there has been reasonable selling commercials own (inaudible) is drive to real cheese basis. Yet there is a number of areas, pockets in the Midwest where basis is surprisingly strong and when you look at what supposedly the stocks are on paper and that does create opportunity.

I appreciate that. A couple other quick questions and then I am done. Any potential fallout from the Russian sanctions that are going back and forth?

Sure, I mean obviously that always is a wild card. It is primarily on the wheat perspective but because of their position in energy and other -- in nutrient markets as well, there could be a variety of fallout so we are watching it closely. I think the world is watching it closely, has taken a lot of that into account across some of the commodities so it is important.

Right now they are seeming to manage through that and produce the crops that they would normally produce. The question might be about the distribution so watching it closely and hopefully it defuses a bit and isn't an important factor.

Is my memory wrong or was there a time when you guys built -- Lansing had pretty significant I think it was chicken feed exports to Russia?

You are in the ballpark but we have kind of blocked that from our memory given the experience. But it had to do with chickens themselves, not the feed.

Are you exposed to that or is it just a normal part of business and you (multiple speakers) ?

No, we are not in that market anymore.

And then my final question, have you hedged any of your 2015 ethanol?

No, we have not.

Thanks, guys.

Brett Hundley, BB&T Capital Markets,

Good morning, guys. Just had a question on fertilizer on your plant nutrient business. As we think about the forward outlook there and I mean I know it is early but I am thinking more of 2015 at this point, can you talk a little bit about your forward outlook for that industry and for your business specifically? I am trying to think about how potentially continued softness in pricing would play out with any volume growth that you guys might have and how that might trickle down to the bottom line? So I hope that makes sense but just wanted more of an outlook on your business specifically?

Let me take a couple of different paths down that one for you. First of all, we do expect in a global sense, we do expect less corn acres planted next year in the US so we expect them to be down. Obviously what goes first though is the marginal acres so even if you expected acres to be down a few percent, most of those acres come out of the marginal not out of a normal rotation in the base corn belt although some of it will. That is one piece.

Second, I think is our strategy over the last few years to get more and more into the specialty products, low-salt products, a variety of things that we do well and that's -- one, because that market is a bit more stable in volume. And two, because it is a bit higher margin. So we have moved that direction over the past few years, continue to move that and hope that helps stabilize the income of that even if acres move up and down a bit.

I think you are right with the lower corn price, farmers may want to spend a bit less but this year will be another fairly sizable income year for farmers given the yields. Also given the yields this year, they see exactly the value of putting nutrients into the soil and you are going to have a lot of people having 200 plus bushel corn and realize that the nutrients are taken out of the soil to grow that and they are going to want to put it back in for that opportunity again.

So there is a lot of competing forces. I agree it looks a bit flat from an acres perspective and a ton perspective in the bulk side because of maybe the acres and the slightly lower flat price but we still like the place we have in that market. We like our move into the specialty side of the business and farmers love growing corn and so we are pretty hopeful that it is just a small delay here in the acreage number, a small decrease in the acreage numbers next year and that may be the negative piece.

Okay. That is really helpful, Hal. So I guess it sounds like from your commentary that even with that potential next year, you feel relatively supportive about the earnings level in your fertilizer business going forward?

Yes, that is the case.

Okay, okay, that is helpful. Then I just had two questions within rail. First, if we can just talk about utilization rates in rail and how we should think about the different moving parts within your business and how that can support or improve utilization rates into A, the back half of this year but then next year as well?

A couple of things. First of all, obviously the utilization rate has trended higher here. We are up about 3% from last year's numbers. I think we have shared historically the past numbers that are a few percent higher than that. The numbers are generally tied to something like GDP and the general economy in the US. It continues to chug along a bit and so we feel good that the utilization rates can continue to inch higher.

We also shared that lease rates generally for most of the past quarters with maybe one exception have also slowly increased. Some of that is by specific car type and specific some train cars have been in high demand but lease rates have generally gone up. So I think we feel good about the fact that we will see higher utilization and stable to increasing lease rates going forward as we believe the economy to be reasonably stable at this point.

Also what is in place is that some of the railroads have had a bit of a tough time getting their traffic flow on their rail and honestly from our perspective, that is good for us because if the efficiency of the rail lines isn't as good as it could be, they need more cars to move things. So we don't see that changing dramatically in the next year. They are working on improvements but it isn't changing dramatically so the general outlook there is good.

The other pieces of that business are deal income. We talk about sales of the cars and the income generated by that piece and then our shop income. So the deal income on a year-to-year basis can change. I think year-to-date we are about $1.5 million different from the previous year. We are below that previous year. That is a good chunk of what we are below in the year-to-year earnings and it is just the deal flow comes when it does. We have talked about that often.

Our repair business is down I think about $0.5 million as well year on year, $1.5 million, okay, $1.5 million. And so that is the second piece of the decline year-to-year. So we are working on some improvements in that business. We think there is opportunities going ahead because of a lot of the work that is going to be expected to be done on tank cars so we look for that pick back up a bit and we are working on that side of the business.

I think clearly the utilization rate and the average lease rates size of the fleet are all the biggest pieces of the business and then the deal flow is what it is and we will talk about that as it comes to the table.

Okay. Then just as a follow-up to that, within lease rates on the rail business, I mean what is the main determinant there right now going forward? Is it the type of car that is coming off of lease generally right now you have a better mix there and you feel more confident that you are going to have an improved rate or a steady rate going forward? Is there some other determinant to that?

Truly at this point in time, it is truly a function of the fact that tank car rates have gone up substantially. The rest of the car rates have gone up a bit but tank cars have gone up substantially and so on that portion of our fleet as those deals come due, we see substantially increased numbers and that is the biggest single factor in the rate.

As I said in total, the portfolio of our cars and the total US fleet is tied to GDP and we have seen GDP increase slowly and so we expect to see that continue. It really is mostly about the whole -- all of the oil and gas exploration and movement that occurs by rail right now that is driving the largest segment of the increase in the market.

Okay, understood. I percent you spending time on that, Hal. Thanks.

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

I want to thank you all for joining us this morning. I also want to mention for those that are interested, there are appendix slides to this presentation available on the AndersonsInc.com website at the investor tab under the second-quarter earnings call replay. Our next conference call is scheduled for Thursday, November 6 at 11 AM Eastern time to review our third-quarter 2014 results. We hope you are able to join us again at that time. Until then, have a wonderful day.

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