Andersons Inc (ANDE) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Andersons, Inc. 2015 first-quarter earnings conference call. My name is Katina and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation overture host for today's call, Mr. Jim Burmeister, Vice President Finance and Treasurer. Please proceed.

Thank you, Katina. Good morning, everyone, and thank you for joining us for The Andersons 2015 first-quarter conference call. For the purposes of today's discussion we have provided a slide presentation that will enhance our talking points. If you are listening and watching this presentation via our website, the slides and audio will be in sync. This webcast and supporting slides are being recorded and will be made available on the Investor Relations section of our website at www.Andersonsinc.com.

Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions in the Company's industries both in the United States and internationally, and additional factors that are described in the Company's publicly filed documents, including is 34 Ag filings and the prospectuses prepared in conjunction 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 the assumptions will prove to be true.

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 at the end of the prepared remarks. Now I will turn the call over to Mike for opening comments. Mike?

Thank you, Jim. Good morning, everyone. The year started off much as we had expected with a soft cash basis environment, relatively light movement of grain from the farm and low oil prices, which provide challenges for many of our businesses. Despite these factors we delivered a profitable quarter in Ethanol, saw improvements in both the Grain Group and rail leasing.

Our Ethanol Group was subject to the same factors experienced across the ethanol industry. Margins were driven lower due to seasonably low demand and high inventories as well as ongoing low fuel prices. Still we were able to generate $5.3 million in pretax income due in large part to our strong operational performance and the hedge positions that were in place as we entered the quarter.

Our Grain Group improved from a weak fourth-quarter performance posting a $6.5 million improvement year over year in pretax income when adjusted for last year's $17.1 million pretax gain from the partial sale of our stake in Lansing Trade Group.

Our Rail Group delivered strong results with an 18% increase in lease income versus the prior year driven by higher lease and utilization rates. The Group's overall results were lower year over year due entirely to gains on rail car sales being down $6.3 million this quarter versus the same quarter last year.

As previously announced, starting with the first quarter, we are reporting our former Turf & Specialty Group and Plant Nutrient Group results together. Recasted financial data and other metrics for this new group are provided in this presentation and in the soon to be filed Form 10-Q.

The Plant Nutrient Group produced a slight improvement in pretax income. Typically the winter months are seasonably slow and volumes for this year's planting season got off to a slow start due to unfavorable weather conditions in many of the regions where we operate. However, we expect the majority of this volume to be regained in the second quarter.

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

Good morning, everyone. Thanks, Mike. In the first quarter of 2015 the Company generated net income attributable to The Andersons, Inc. of $4.1 million or $0.14 per diluted share on revenues of $950 million. This compares to the first quarter of 2014 when adjusted net income of $12.1 million was reported or $0.42 per diluted share.

Revenues were down this year within our agricultural businesses due to lower commodity prices and in our Rail Group due to fewer railcar sales. First-quarter earnings before interest, taxes, depreciation and amortization, EBITDA, totaled $28.8 million compared to an adjusted EBITDA of $45.9 million for the same period in 2014.

The Company's first-quarter 2015 effective tax rate was 21.7% compared to 34.8% in the first quarter of 2014. This rate reduction is primarily driven by a $600,000 nonrecurring tax benefit attributable to the accounting for an investment in a foreign affiliate. The 2015 effective tax rate is projected to be about 35%.

The Company continued to repurchase shares in the first quarter, buying back a total of 631,000 shares for $27.8 million. As of quarter end we had fully repurchased the shares issued last year as part of the acquisition of Auburn Bean and Grain and have $21.3 million remaining under the existing share repurchase authorization.

For those viewing the slide presentation, this slide demonstrates how GAAP earnings per share reconcile to the adjusted earnings per share when the partial redemption of Lansing Trade Group is considered.

This bridge graph shows the increase or decrease in each group's pretax income for the first quarter in comparison to the adjusted pretax income in the first quarter of the prior year. The specifics behind these differences will be detailed by Hal as he walks through the results of each of our business groups. Hal?

Thanks, John, and good morning, everyone. When comparing our first-quarter results to 2014's adjusted $0.42 a share it is important to keep in mind that ethanol results represented more than $0.40 per share last year. That establishes a good base to understand our results for this quarter.

For our review of the business groups let's start with the Grain Group, which earned operating income of $700,000 this quarter, up from the adjusted $5.8 million loss a year ago for a total improvement of $6.5 million year over year. Approximately half of this improvement was driven by progress made in our Western assets, both Iowa and Nebraska.

Storage capacity for the Grain Group increased to 162 million bushels from 139 million bushels in the same quarter of the prior year primarily due to the acquisition of Auburn Bean and Grain during the fourth quarter of 2014. The integration of these assets is going well and they were accretive to earnings in both the fourth quarter of 2014 and the first quarter of this year.

Our outlook for grain remains cautious around the bottom of the range that we provided on the last conference call. This is further depicted in the lower left corner on the grain storage capacity impact graph. Although improvement has been seen, we still expect it will take some time to fully address our performance in the West.

Further, it will take time for the industry to build back from the slightly lower commercial storage utilization rates that we've seen the past few years. We continue to believe that our assets are well-positioned to provide critical services in the grain supply chain which supports the world's growing population and increasing demand for protein.

Corn planting advanced at a near record pace last week. US growers planted 36% of the nation's corn in the week leading up to the May 4 progress report. This pushed the nationwide planted figure up to 55%. This compares to 28% last year and a five-year average of 38%. We would add that farmers report that crops are being planted in excellent conditions. Given the current weather forecast for the next two weeks we expect emergence and early crop conditions to be quite good.

In a low margin environment the Ethanol Group earned $5.3 million in pretax income on revenues of $138 million in the first quarter. In comparison the Group reported operating income of $19.8 million on revenues of $189 million during the same period last year. The Group achieved records in the first quarter for both ethanol production volume and E85 sales.

Early in the quarter margins were flat to negative and improved as the quarter progressed. Our Group benefited from our hedging strategy by entering the quarter with 45% of January margins hedged with positions placed in September and October of 2014. Gallons sold in the quarter were up approximately 4% while the average price per gallon declined 28% year over year.

For the balance of the year we expect ethanol pretax income to improve as we anticipate continued margin recovery due to lower corn prices and increased driving demand during the summer months. As always, weather and oil price volatility could impact that.

For the second quarter we have roughly 45% of May and June hedged with positions that were put on late March through late April. A portion, less than 10%, of the third quarter has also been hedged with positions placed in late April as well.

Now let's turn to Plant Nutrient. As a reminder, this is the first period when we are reporting our former Turf & Specialty Group within our Plant Nutrient Group results. Recast historical results for the merged business units are provided in today's presentation and within the 10-Q which we will be filing shortly.

The Plant Nutrient Group had pretax income of $400,000 during the first quarter on revenues of $154 million. In comparison the Group reported an operating loss of $36,000 during the same period last year on revenues of $151 million. The Group was challenged by weather during the first quarter which was not conducive to nutrient application and resulted in lower volume for row crop nutrients.

Although the average price per nutrient ton increased slightly, margins remained relatively flat. The income was supported by better performance in the lawn products division.

Now let's discuss the Rail Group. Rail reported pretax income of $10.3 million versus $15 million a year ago. The Group reported revenues of $44 million as compared to revenues of $52 million last year. Lease income for the Group was up nearly 18% driven by higher lease and utilization rates while pretax gains on rail car sales during the period were down $6.3 million.

In order to provide you with more transparency to the steadily improving utilization rates and lease income for our Rail Group, we have provided new schedules for these details in the appendix of this presentation.

The average utilization rate for the first quarter was 91.8%, which is up from the 90.1% achieved in the fourth quarter of 2014, and also up from the 88.4% experienced in the first quarter of the prior year. As of the end of the quarter the Group had 22,814 cars, 45 locomotives and 20 barges under management.

Last Friday the US Department of Transportation announced its final rules for safe transportation of flammable liquids by rail, which affects a portion of tank cars in the industry. As we noted in our last call, we have approximately 1,700 tank cars in our fleet that will be subject to these new standards.

Since the regulations have just come out we will be evaluating the potential impact on our assets and our customers and communicating more details with you in the future.

Our outlook for the Rail Group is a very strong year as we continue to focus on sustaining high levels of asset utilization and providing value to our customers in lease offerings as well as repair and fabrication services.

The Retail Group incurred an operating loss of $2.2 million on revenues of $29 million, representing a year-over-year pretax improvement of about $150,000. Now I will turn it back to Jim for the Treasurer's report.

Thanks, Hal. The Company's net working capital as of March 31, was $233 million, a small decrease versus both December 31 and the prior first-quarter results.

Inventories increased $18.4 million at the end of the first quarter versus last year primarily due to higher plant nutrient inventories and the inclusion of Auburn Bean and Grain's inventories, which was partially offset by decreases in grain and ethanol inventories, both primarily due to lower commodity prices.

Borrowings under our short-term credit line as of March 31 were $312 million compared to $226 million at the same time last year, up seasonally from year end. Long-term debt totaled $323 million at the end of the first quarter, an increase of $17 million from the prior years.

In the quarter we paid off $60 million of long-term debt and partially replaced it with $30 million of private placements with maturities of 15 and 25 years.

As our short-term borrowings are very seasonal we believe that long-term debt to capital is the appropriate measure of leverage within our balance sheet. Our long-term debt to capital ratio was 0.3 to 1 at the end of this quarter versus 0.35 to 1 a year ago. The average long-term interest rate for the first quarter was 4.67%, which increased from last year's rate of 4.63%.

The Company continues to maintain ample access to liquidity with total committed lines of credit under the syndicated facility of $850 million. Mike will now cover a few more points before we take questions. Mike?

As we look toward the remaining eight months of the year we feel a good bit of optimism. The recent progress in planting has been heartening to see and supports a good performance from our plant nutrient business in the second quarter and our Grain Group later in the year at harvest time.

We also feel better seeing improvements coming from challenged locations in the West. Ethanol remained profitable in a challenging first quarter and provides future upside as margins continue to rise. I am proud of the lease income that our Rail Group delivered in the first quarter on higher lease and utilization rates and believe the Group will provide strong earnings this year.

Overall, we are optimistic about the balance of the year. Recently the range of full-year earnings per share estimates by our analysts varied widely with a span of more than $1.00 from $2.25 a share to $3.40 a share. We believe that a level closer to the center point of these estimates is a good place to start.

We will now hand it back to you, Katina, our operator, so that we can begin taking your questions.

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

I just have one big material question. It seems to me -- can you discuss is there a structural change in your margin for grains given the storage capacity? I know you took it down this year. Is there -- I know you have had some issues with storage capacity (inaudible) competing against you guys.

Is this a structural change to how you are thinking about it in the next three to five years? Is there something you could fix about it? Or is it just something that you guys just work through? Or can you give us some sort of context to how you are thinking about that?

Yes, thanks, Ken, this is Hal. A couple pieces to that. First of all, if you go back to the historical comparison, we started a few years back and discussed the as-good-as-it-gets few years, okay. So we got to make sure that we take those out of our thought process. I think we have done a good job of mentioning that.

Second, we do have, as you mentioned, some assets in the West, a portion of our space that is requiring us to work to get them improved to the level that we would expect.

The third issue is that there is overall capacity added in the last few years in the grain industry both on farm and commercially that now makes the space utilization across that business at a little bit lower percentage than we have seen in the past.

So there is a bit of a structural piece that is impacting across the industry from the farm storage all the way through commercial. And on top of that we have our issues that we are correcting in the West that will take a little bit of time.

Ken, this is Mike and I want to just piggyback on Hal's last comment. We have seen this happen over the last -- I mean I got involved in the 1970s -- several cycles where the space built, farm economics are good, grain elevator economics are good for carrying grain and that creates a surge to build capacity which lasts a long time. And all of a sudden you have capacity that grows faster than the growth of the crop.

What has happened in the prior year cycles and I think will happen this time is farm income drops a little, the income is not as good in the traditional grain elevator storage space. You don't -- the building slows down but yields continue to improve. So the crop size ends up pushing back and then getting back into what I will call maybe a more surplus situation. So it takes a few years but that is a structural thing that has helped push us to the low end of the range we are at.

I would agree -- I agree with your commentary. I think it is more of a -- maybe it is a longer part of a cyclical tail. But -- it is hard for me to believe that over time it doesn't cure itself.

Exactly.

Yes.

Yes, that's exactly how we see it.

Exactly right.

Are there other assets that would -- also that you would be looking at? And I know you are not going to tell us which ones and I'm not asking you for that. Are there other assets in other areas that you would be able to kind of margin up that kind of -- that range just through acquisitions as well?

Ken, this is John, I mean as we have talked in the past, across our four core segments we are always looking for opportunities where we can invest and exceed our cost of capital for that particular business. So I think the answer is, yes, but I don't think it is anything different than we have done and spoken about over the last several years.

Right. And as we have shown in the past, we have done a decent job integrating those that are fill-ins within our area. So knowing the territory well is a good reason for us to look at specific places to look at doing more of what we are doing today. That, as John says, we are always looking.

Okay, great. I appreciate it. Thank you, guys.

Brent Rystrom, Feltl.

Just a couple quick questions to follow-up on your comments on that first question. We have talked in the past that farmers are possibly using more temporary forms of storage like bagging grains. And in theory if they were I am curious if you sell -- as we cycled out of winter and into spring, did you see acceleration of deliveries at all March and April on grains relative to what you were seeing say January/February? (Multiple speakers) have to be pulled, you know what I mean, to work the fields.

Yes, our general read is that the amount of bag storage being used in the territories where we have our storage space is relatively minor. And so, there is only a very few places where we see them being used in our territories. And so, it is a relatively small amount of bushels and so it isn't enough for us to see a change in the flows because of people emptying those bags.

Okay. Just to play devil's advocate a little bit, not so much on you, but just on general consensus. So right now everybody is talking about ideal planting conditions, which basically means the vast majority of the Corn Belt is very dry. So it is easy to get out and it is easy to work the fields right now because moisture, other than kind of your area, the Eastern Corn Belt, moisture levels are maybe 25% to 50% below normal year to date.

If those ideal planting conditions of low moisture persist and we actually see a shift, so let's say two or three more weeks where we have corn pressured because of how easy it is to plant, if that weather persists and it stays dry and we have a dryer year and yields get hit. Can you give us kind of a segment-by-segment expectation if yields were hit a little bit how you might see that play out in your different businesses?

A couple -- I will make a couple -- there was a lot of different points you made in there. So let me make just a couple of quick comments.

First, I would tell you that, with the exception of the Far West, in the East not dry. And we talked about that as it related to us being late getting started and late getting in. So it is a little different in the East here. That being said, we would agree that in general conditions are very good as the crop goes into the ground.

Now where we are at, we've had a huge push on the corn side, so obviously if something happens going forward from here there is less of an impact I would tell you on our nutrient business potentially because we would be through this most of the spring season in the East. So that could help you I guess answer the second part of your question.

And as you know, a lot of our grain year depends upon the size and timing and quality of the fall harvest. So anything that impacts the size and timing and quality of the fall harvest will impact our grain business.

And I guess kind of what I am getting at, Hal, is the old axiom that rain makes grain. In the last two years we have had probably the worst planting conditions I have seen in most of the West in many years and we have had record crops because it has been moist.

Yes.

And right now everybody is talking about record fast planting, but it is because it is so dry. And I know it is wet Indiana, Ohio, a little bit of Illinois. But my belief is that your business has opportunities to benefit on lighter crops as well, it's not just big crops that help Andersons.

But you have opportunities in the Lansing Group as far as scarcity and finding supply, you have opportunities in Plant Nutrients if we were able to cycle into higher profitability for farmers for pricing power, which tends to create margin for you guys in that cycle. Those were the sort of things I was just kind of curious about.

Yes, and we agree with both. That whole portfolio mix that you just talked about, whether it is the geographic diversity -- you didn't mention the Canadian piece as well, but that is another piece of that geographic diversity that has another different growing condition even though it is only 100 or so miles away from where we are here.

So that diversity piece is exactly what we like. And there are opportunities across those pieces for us even when the conditions aren't ideal, exactly right.

And then I was a little -- off the call for a bit, but did you talk at all about -- one of your competitors made some comments recently about fourth-quarter basis starting to look much better for you guys, much more -- the industry much more traditional sort of basis coming back into the market on harvest than we have seen the last couple of years. Did you mention anything on that front or are you seeing something similar?

No, I didn't mention anything on that. And we haven't seen any dramatic change in our areas for new crop basis levels.

Great, thanks very much, guys.

Farha Aslam, Stephens Inc.

Can we talk about Plant Nutrients? You had highlighted the second quarter is going to be the big volume quarter kind of going from the volume that didn't get used in the fourth quarter or first quarter. So I am just trying to understand how is it large -- this Plant Nutrients is going to be in the second quarter. And how do you anticipate earnings for that Plant Nutrient business for the year given you have ample crops and corn prices are going down?

Well, again, on the volume side, as we suggested, we expect to make up the shortfall that we saw in the first quarter. We have seen prices and margins stay similar to what we have expected with this volume.

Usually a busy time frame is good for us. We have excellent distribution capabilities in a lot of areas. So when the activity comes at us in full force that is usually a benefit for us. I think we will see volume in the second quarter as good as we have seen in most of those kind of second quarters that follow a bit of a slow first quarter. And margins are holding in, so about as expected. I think we will see a reasonably good number there.

Remember that we are combining that with our former Turf & Specialty Group, we're probably a little bit lower in that quarter on a couple of the pieces of that, primarily in cob. But the bulk of what you will see there in the second quarter truly is a row crop plant nutrient and we expect it to be a pretty solid volume.

You asked about low corn prices. True, there have been low corn prices, but we have not seen any notable decline in nutrient amounts. Farmers are getting better and better about putting the specific nutrients on, we spent some time in the last few years growing in our specialty nutrient business, which generally is a lower volume, higher-margin business.

And we believe that that, as we said, is a great place to be, especially when you need the bang for your buck on the nutrients that you put into the soil with the crops.

I would add as you look at the last two years comparables, we had reasonably similar margin environment to a year ago -- in the ballpark, and I can't remember exactly two years ago on the volume side last year was delayed first quarter. First quarter was low last year and it pushed in the second quarter. The year before was a little more normal in that regard. I think you can look at those to get some guidance, Farha.

That is very helpful. And if we could just talk about Rail, that business did have a very nice strong quarter. And when we look at how the year progresses on Rail, is that since much of it is going to be leasing income this year, can we expect sort of first-quarter level for the remainder of the year in each of the next quarter's plus or minus a bit?

Well, that leasing levels will generally be reasonably similar throughout the year. There is a lot of other variables there, as you know. There is car sales and repair and services and fabrication and things. But from a leasing perspective you have seen that slow, steady increase in utilization rates and the slow, steady increase in lease rates and we have got those in the appendix. And in general there isn't anything that will change them dramatically quarter to quarter.

Okay. And do I need to think about maintenance?

Yes. I mean there is always -- maintenance is always a question and when the utilization rates are high you run that risk that you will find some extra maintenance at a point in time. But, yes, there is always that option, there is always that possibility.

And do you expect a lot of car sales? Or is this really going to be a year much more driven by leasing?

Yes. We look at the portfolio all the time. We like to make those business decisions based upon exactly what we see in the market and with the car types and it is purely a business decision.

I would just suggest that on an annual basis we go back and look at some history and say, on a quarterly basis maybe there is $3 million to $4 million worth of on an average quarter of across the course of a few years. And we just kind of look at that and you know that it is lumpy, you know that it isn't at all even. But we have had a fairly -- relatively reasonable range of those numbers in the past few years.

That's helpful. And my final question is on your other line. It is up from the year ago period. Is that the ERP system that is flowing through that line?

Yes, Farha, this is John, hi. Yes, it is the depreciation associated with the actual deployment of the ERP system. I would like to reiterate though there are other items that go through there, so some of that is timing. And at yearend we did say that we thought the full year other group for this year would be very similar to what we had last year, which was about $34.5 million.

That is helpful. Thank you very much.

Eric Larson, Janney Capital markets.

A couple questions. Kind of tailing onto Farha's rail discussion. Could you -- I don't have the exact number in my head and I don't remember all these details anymore, but I think in last year's rail earnings you had -- I think it was a $3 million number for incremental expense to put cars back in service. Is that the correct number?

I would have to go back. It sounds close, but I would have to go back and check. But I think that is fairly close, yes.

Okay. And you don't have any sort of similar type expenses that you would anticipate for 2015?

No, there isn't anything notable as that kind of a number. I think we put things back in ratably since then and they are all kind of included in the utilization rates and what we -- lease rates and what we would expect. So nothing outside of the norm this year.

Okay. And then you did lay mention to the recent new standards for your tank cars, etc. And I know it is really early days, but -- and they are talking about slowing speed rates and transportation rates, how fast you can go and all that sort of thing. But would retrofitting your 1,700 cars, would that be a major capital expense?

I mean what would be a -- how should we think about that over the next -- I think you'll have several years to implement it, but how else should we think about that?

Yes, well, it's a great question. And it would come over a few years, obviously, if that were to be done. Most of the leases have a recourse within them which allows us to pass back those charges through lease costs, so that -- as an offset. Although that would also be over some amount of time as well. And of course there is all kinds of pieces.

As you said, anything that slows down the cars on the line reduces the speed and the utilization that the users of the cars have and increases the demand for cars in general. So there is all kinds of little tentacles across the different pieces. We haven't analyzed the specifics nor have we looked at the other options for some other cars, or talked to our customers about some of their wishes for how that would work.

There is a lot of work to be done there. Some of those cars will certainly require some capital improvement. But as we said, it is over a period of time and it is capitalized and -- I mean it is returned as we increase lease rates. Plus we do have a number of repair shops that will be doing repair services, and so they should benefit by the fact that there is additional repair services being done.

Sure, no, that -- I mean that makes sense. Just a final question related to that. The rate of change of how you transport, does that come in -- that comes in more immediately as -- and the repairs could take, to comply with the repair or the improvements in the cars is a several year process. But are they going to reduce the rate of transportation soon or is that over time as well? How do you look at -- how is that -- again that does change the utilization of the system.

Yes. I would just tell you we will have to get back to you because it isn't clear to us exactly at what pace that will all happen today either. So we will have to get back to you as part of the whole discussion going forward on this prospect because there is just a lot of details that have to be ironed out.

Got it, okay. And then the final question is, operating expenses year over year were up just under $9 million. I am assuming that a big chunk of that was again ERP, and maybe this is a question for John.

Yes, hey. Yes, a portion of that was ERP, there is really three big pieces there. There is labor and benefits somewhat offset by lower stock comp and performance comp. There is the ERP piece as well as a maintenance and depreciation piece. And related somewhat to our Auburn acquisition.

Okay, should that -- the rate in the first quarter be something that we should be using kind of on a per quarter basis going forward?

I think for now that is probably a good estimate of where we are going to be, Eric.

Okay. Thank you, all, I will turn it over to someone else at this point. Thanks for the clarity.

Heather Jones, BB&T Capital Markets.

So I have a detailed question first. How much did you say of your Q2 ethanol you have locked in?

I think we said 45%, let me make sure what I told you. Yes.

45% of May and June, okay, is what we said. And then less than (multiple speakers).

I'm sorry, go ahead.

We locked that in between late March and late April and then less than 10% of Q3 locked in in late April.

Okay. Moving on to the grain business. Assuming normal weather, which I know is a big assumption, but assuming normal growing weather do you think we have troughed in this current cycle from a grain storage perspective as far as the margins to the elevator operators?

I mean, from a long-term perspective it appears we are near a low point, I would say that. Normal weather doesn't substantially change the carryout next year. So if we have a similar carryout and have the same amount of space it doesn't appear that will make any dramatic improvement and return to that space. So we are at a historically low point, but there isn't anything dramatically changing the space utilization with this year's crop.

Okay. And your lower view of the, quote/unquote, normalized range for your grain business, how are your legacy assets performing? Because it sounds as if a fairly significant piece of the reason why you are going to be at the lower and is due to these Western assets. So I wonder if you can help us to understand how your legacy assets are performing.

Yes, I mean obviously the total number that we gave you included a loss last year in our Western assets. So our Eastern legacy assets have been performing that much above the base of that range. So they have been performing relatively well.

Now again, we don't have anywhere near the kind of income in the East that we have seen in the good as it gets years on wheat because the wheat supplies and wheat stocks have been much lower. So they have been performing obviously notably better than what you see as an average there, but again not at anywhere near the high end of the range because of the lack of wheat carry that is in those large numbers.

And you all noted earlier that the Western assets have improved this year. Is that just Nebraska or have you seen some improvement in the Iowa assets?

It is both, both sets of assets improved quarter to quarter from last year.

Okay. And is there -- I mean because it sounds like there is just a couple of locations in Iowa that are really a problem. And this question may be premature. But do you have some kind of timeline where you bring in a new management or whatever to attack that problem? Do you have some kind of timeline where at some point would it make sense to potentially shutter some of those assets because maybe the structural issues are intractable?

Yes, good question and the answer is that we are working hard to fix it and we are looking at all the options and it is not something that we're going to take forever to figure out.

Okay. Okay, and my final question is just to beat a dead horse, the other expense line. I went back to 2013 and thought it was a good comparable year because you had a full year of the (inaudible) assets there. That year other expense was $21 million and now we are tracking at $35 million.

And as far as the ERP, I believe some of that expense is showing up in the grain pretax line as well. So just, one, trying to get a sense of exactly what has driven the increased from $21 million to the mid-$30 millions?

Secondly, is there any chance over the next few years that we would get back into the $20 millions or are we just at a permanently higher rate? Because that is a really big earnings number for you guys given your share base.

Heather, this is John. A good portion of the movement is related to the ERP system and the deployment of that. Some of it is related to stock comp and other forms of compensation as we have expanded our business. And the last answer is at least for 2015 we've said we are going to be comparable to 2014 in that particular area and we'll comment on 2016 later in the year.

I want to add, and Hal or John feel free to supplement, two points. The grain side of the ERP has been more challenging and expensive than we had initially planned, that is a true statement. And it is going to be expensive into the future.

But the main point I wanted to make is we are a growing Company and we needed a foundation and a platform to build our growth on. So -- and this stuff sometimes doesn't come in smooth increments and you get these step functions. But we are putting something in that is a foundation for future growth.

So, and that is understandable because you are much bigger than you were just a few years ago. But is the expectation that at some point these expenses normalize and there is like a return -- you generate a return on this ERP expense? Because I think we would all agree it is a pretty large number.

I mean I think as Mike said, Heather, this is really an investment for the future and we will get a return on this as we continue to grow and it allows us the ability to leverage our existing platforms as we add to them, as we add new products, new regions, new businesses potentially. So it is a regeneration of the old systems which give us a lot of room to grow going forward.

Okay, thank you so much.

With no further questions at this time I would now like to turn the call back to Mike Anderson for closing remarks.

I want to thank you all for joining us this morning. I also want to mentioned for those that are interested, there are appendix slides to this presentation available on the Andersonsinc.com at the Investor's tab under the first quarter earnings call replay.

Our next conference call is scheduled for Thursday, August 6 at 11 AM Eastern Time to review our second-quarter 2015 results. I hope you are able to join us again at that time. Until then, have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.