Andersons Inc (ANDE) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to The Andersons Inc. 2013 first-quarter earnings conference call. My name is Shevanly, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to hand the presentation over to your host for today, Mr. Nick Conrad, Vice President, Finance and Treasurer. Please proceed, sir.

Good morning, everyone, and thank you for joining us for the Anderson Inc.'s 2013 first-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 website, the slides and audio are in sync. For those listening via telephone or watching the webcast, you should follow directions sent to you in order to sync the slides and audio. This webcast is available through the Investors section of our website at www.AndersonInc.com. The webcast is being recorded and will be available on our website.

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 US and internationally, and additional factors that are described in the Company's publicly-filed documents, including its '34 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'll turn the floor over to Mike for an opening comment. Mike?

Thank you, Nick. The Rail Group had record first-quarter results, as did our investment in Lansing Trade Group. Margins in the ethanol market improved in the first quarter relative to last year. Margin improvement, along with coal product income, helped return the Ethanol Group to profitability.

The Plant Nutrient Group's first-quarter performance declined due to lower volume caused by weather-related field work delays. We believe this volume can be regained in the second quarter as long as weather conditions allow for anticipated nutrient applications.

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 $12.6 million in the first quarter, or $0.67 per diluted share, on revenues of $1.3 billion. In the same three months of 2012, net income of $18.4 million was reported, or $0.98 per diluted share, on revenues of $1.1 billion. The majority of the year-to-year increase in revenue relates to our grain business, whose revenues increased due to higher grain prices and greater sales volume.

The higher volume has resulted from growth, which includes the Anselmo train-loading facility that opened in August of 2012 and the Green Plains Grain acquisition completed late last year.

Now to a non-GAAP measure, EBITDA, earnings before interest, taxes, depreciation and amortization. The Company's 2013 first-quarter EBITDA was $42.9 million, a decrease of $1.6 million from the $44.5 million reported for the same three-month period of 2012.

Equity and earnings of affiliates, which excludes net income from non-controlling interests, was up $3.5 million and totaled $7.8 million in the first quarter compared to $4.3 million for the same period in 2012.

The positive year-over-year change was driven by a $2.1 million increase in investment income from Lansing Trade Group and a favorable change in earnings from our ethanol LLC investments.

The Company's interest expense totaled $6.4 million in the first quarter, an increase of $1.1 million from last year. Increased interest expense was a result of higher long-term debt. Short-term average borrowings for the first quarter decreased by $39.3 million to $263.5 million compared to the same period last year.

For the first quarter of 2013, the Company's effective tax rate was 42.4%, up 5.8% from the first-quarter 2012 tax rate of 36.6%. The increase in the effective tax rate was due primarily to decreased benefits related to domestic production activities and to a tax adjustment related to the Medicare Part D subsidy. The Company's provision for income taxes includes deferred tax expense of $1.4 million due to a correction of other comprehensive income related to a portion of the Company's retiree health care plan liability and Medicare Part D subsidy for the years 2009 through 2012. The first-quarter correction of $1.4 million increased deferred tax expense and reduced accumulated other comprehensive loss. The change was determined to be immaterial to the consolidated financial statements.

We are projecting our 2013 tax rate to be 39.9%; the Company's actual 2012 effective tax rate was 37.1%. The anticipated higher effective rate for 2013 is primarily due to the same reasons noted for the first quarter.

The bridge in this next graph demonstrating which groups' 2013 first-quarter income is up or down in comparison to the prior year. The specifics behind these differences will be detailed as each group's operating performance is discussed. Therefore, to better understand the total Company results, Hal will walk you through each of the six business groups. Hal.

Thanks, John. Let's start with the Rail Group, which reported record operating income of $14.6 million this quarter on revenues of $46 million. Last year, the group reported $8 million of income on revenues of $36 million. The group's revenue and income benefited from higher lease rates and increased income from car financings.

This quarter, the group recognized $9.3 million in pretax gains on sales of rail cars and related leases and nonrecourse transactions, whereas last year, $6.3 million was recognized. When the Rail Group participates in nonrecourse transactions, it continues to provide car management services to the purchaser and typically holds an option to purchase the rail cars at the end of the assigned lease.

Lease rates have now increased for eight consecutive quarters. It is important to note, however, that average lease rates are impacted by the type of car leased.

The average utilization rate for the quarter was 84.6%, which was down from the 85.7% rate experienced in the same quarter a year ago. As of the end of the quarter, the group has 23,396 cars and 112 locomotives, which is up more than 500 cars from its year-earlier total.

In 2013, a rail car repair facility was added in Gadsden, Alabama; and two more facilities are opening later this month in Romulus, New York and Henderson, Nevada. The rail car repair business, manufacturing business and short-line railroad investment were all profitable during the quarter, with the manufacturing business showing a marked improvement.

The Maumee, Ohio paint facility is now open and the rail team is excited to be hosting its grand opening celebration tomorrow. The new facility includes a state-of-the-art blast booth, paint booth, drying booth and cleaning area. This is expected to increase the put-through capabilities of the location by more than three times, which will allow the team to meet customer demand for existing and additional value-added services.

The Grain Group earned operating income of $8.3 million this quarter versus $19.4 million a year ago. The group had considerably lower space income this quarter as market carry was much lower as a result of the 2012 drought. The Grain Group, however, benefited from Lansing Trade Group's record earnings, led by a strong performance in its fuels division. Grain Group revenues for the quarter were $836 million, which is up from the $700 million reported in the prior year. Revenue increased due to higher grain prices and greater sales volume.

The next slide is included to answer a question we were asked in the previous call. The question was -- what would a normalized earnings base be for the Grain operations business, excluding earnings from affiliates, such as Lansing Trade Group? As the chart demonstrates, the 2011 results are an anomaly due to the unusual wheat basis gain recognized that year. A more normalized earnings base before tax would be $0.25 to $0.50 per bushel of capacity for 2014 and beyond.

In a continuing effort to further expand on the explanation of our space income and grain earnings, we've added a slide in the appendix with four spread charts. These charts are examples of future spreads for corn and wheat, and can give an indication of the opportunity for us to earn spread income, which is one component of our space income. While these slides cannot indicate where we've rolled our hedges or what other various components of space income will generate, such as basis appreciation, we are very happy to discuss this information more fully with you after this call.

Storage capacity of the Grain Group increased to 142 million bushels from 109 million bushels in the same quarter of the prior year, primarily due to the addition of the Anselmo, Nebraska train-loading facility in August of 2012 and the Green Plains Grain Company grain assets added at the end of 2012.

I want to mention that corn planting progress in our region and in the US is behind both the prior year and five-year average. As of Monday, the USDA crop progress report indicates that the US corn crop is 12% planted, which compares to 69% last year at the same time and a five-year average of 47%. There has been a considerable amount of cool, wet weather this spring, but there is still time to get the crop planted.

Now let's discuss the Ethanol Group, which reported an operating income of $2.5 million this quarter. In comparison, the group reported operating income just above a breakeven during the same period last year. The increased income is a result of improved ethanol margins and increased coproduct income. Ethanol margins improved due to declining imports and decreased production from plants that have slowed or ceased production.

The sale of coproducts, such as corn oil, E-85, distillers dried grains and CO2 remains a focus of the group. All four ethanol plants now sell corn oil, E-85 and DDGs. These coproducts have proven to be valuable to the ethanol business, as they provide income even when ethanol margins are down, revenue of $199 million in the first quarter in comparison to $151 million in the prior year. Revenues increased primarily due to the added volume from the Denison, Iowa plant, which was acquired in the second quarter of 2012.

The Plant Nutrient Group had an operating loss of $600,000 during the first quarter on revenues of $112 million. In the same three-month period of 2012, the group reported a $5.8 million operating profit and revenues were $175 million. This reduced performance was due mainly to a 33% decrease in volume, caused by weather that was not conducive to nutrient application. At this time, it is anticipated that this volume will shift into the second quarter as the weather improves and field work is able to be completed.

Margins were down slightly from the prior year due to a slow start to the season and lower price appreciation, but were still above historical norms.

The group has continued to effectively manage its nitrogen, phosphate and potassium ownership positions. Storage capacity of the Plant Nutrient Group increased to 867,000 tons from 833,000 tons in the same quarter of 2012 due to the acquisition and expansion of both dry and liquid storage facilities.

The Turf & Specialty Group earned a record operating income of $4 million this quarter on $47 million of revenue. Last year, the group reported $2.2 million of operating income on $45 million of revenue. Turf products tonnage was down slightly this year. Margin per ton, however, increased due to product mix. Process improvements made in this business last year also resulting in operational efficiencies.

As is typical for the first quarter, the Retail Group incurred an operating loss. The loss of $3.2 million included $800,000 in costs associated with the closing of the Woodville, Ohio store. In the first quarter of 2012, the group reported an operating loss of $2.7 million. Revenues for the quarter were $31 million and $30 million in 2013 and 2012, respectively. The group is recording higher sales in the grocery, specialty food and housewares areas.

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

Thanks, Hal. The Company's March 31 net working capital was unchanged from the same period last year at $283 million. Current assets at the end of 2013 first quarter totaled $1.2 billion, an increase of $84.9 million year-over-year. This increase was driven primarily by a $124.2 million increase in commodity derivative assets current. The change in commodity derivative assets current was a result of increased margin deposits required to support our grain hedging activity.

Inventories were down $34.3 million for the first quarter of 2012. The change was primarily the result of lower Grain Group owned inventories.

Total assets ended the first quarter of this year at $2.2 billion. Along with current assets, we added other assets totaling $35.8 million in the first quarter compared to the same period in 2012. Railcar assets leased to others and net property, plant and equipment increased $29.7 million and $176.7 million, respectively, in the first quarter of 2013 compared to 2012.

There were no new business acquisitions during the first quarter. A final payment of $3.3 million was made for Green Plains Grain Company assets. Comparatively, $15.3 million was spent on business acquisitions during the first quarter of 2012.

Other capital spending on property, plant and equipment during the first quarter of this year totaled $6.2 million.

Borrowings under the short-term line of credit as of March 31 were $292.1 million compared to $365 million at the same time last year. Long-term debt totaled $412.7 million at the end of the first quarter, an increase of $192.3 million from the prior year's first quarter. Our total long-term funded debt-to-equity ratio was 0.66-to-1 this quarter.

The average long-term interest rates for the 2013 first quarter was 4.56%, which is down from last year's rate of 5.23%.

Total equity on March 31 was $624.3 million, an increase of $67.5 million from the prior year. On April 22, the second-quarter 2013 dividend of $0.16 per share was paid.

The Company continues to receive good support from its banks. The total committed lines of credit under the Company's syndicated facility are $850 million, $735 million of which is short-term and $115 million of which is long-term. The current and future borrowing needs of the Company are monitored and at this time it is felt that the existing lines of credit are adequate.

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

Thanks, Nick. On the last few calls, I have provided a detailed outlook for the first half of 2013. I want to reiterate a few key points and expound a little further into the year, as well.

First, we anticipate our Rail Group having another strong year in 2013, which is clearly demonstrated by their first-quarter results. We continue to feel that due to the aftereffects of last year's drought, space income and bushels handled in the Grain Group will be down this year, especially in the second and third quarters. Conversely, the dislocation and disparity of supply and demand has and could continue to allow favorable arbitraging and merchandising opportunities for both us and Lansing Trade Group, especially Lansing Trade.

We are pleased with the improvement in the Ethanol Group and have already locked in some positive margins for more than half of second-quarter sales. The ethanol market remains volatile, however, making margins difficult to predict in the future.

We 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. A record crop would benefit our Grain and Ethanol groups in the last three, maybe four, months of the year. Of course this is dependent on numerous external factors, such as favorable weather during the growing season.

Lastly, we continue to expect improvement in both our Turf & Specialty and Retail Group's performance this year.

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

(Operator Instructions) Brent Rystrom.

A couple quick questions. Can you hear me okay?

Yes, Brent.

Great. First of all, from the fertilizer perspective, can you give us a little more color? I would assume you've got a lot of nitrogen applications, whatnot, that have shifted the delivery to who was going to use it; the suppliers shifted from March to April, maybe even May. Is that something that is going to change your business? Do you see a shift coming from say ammonia to UAN or urea because of that?

Brent, this is Hal. Thanks for the question. I think, as we suggested, we had about a 33% decline in the first quarter from last year, this year being quite poor weather, last year being about perfect.

It is still only the eighth of May. The eighth of May in our territory shouldn't substantially change any fertilizer application progress by the customers in this region. We don't expect that to happen. If in fact it continues, you're right, we could see a little bit of shift to UAN. That is a possibility. But at this date today, we don't see much of a change at all in our territories.

If it did shift, the implication would probably be higher revenue, lower gross margin rate, but gross margin dollars somewhat similar. Could that be --?

Again, today, I don't see a lot of change support coming, so I don't think it would be significant based on today's conditions (technical difficulty).

All right. Does it imply a shift also 2Q going into 3Q, because your side-dress might come later?

The side-dress always is a June/July timeframe, so it flops back and forth from the end of Q2 to beginning of Q3. So it really will be about the progress of the growing season and heat units between the planting and the end of Q2, beginning of Q3. And that is generally not a -- I wouldn't say that is a material difference between Q2 to Q3 any year. So right now, we are not looking for it to be much different this year. Could be a little bit later, but it's not a big difference.

Seasonally, do you see advantage this year? Because I would assume last year you had a lot of side dressing that did not happen because of how dry it was.

That late in the season, yes, I agree -- the later season stuff. But remember, we also got stuff planted pretty early last year and it was quite far along. So we could see a little increase from that, yes.

All right. I had just visited lot of the Western cornbelt the last couple of days, and there is nothing planted out there, and we're getting rain pretty heavy in most of the region here today. Do you see this as a year where maybe the pendulum swings and the Eastern cornbelt is the benefactor of a little bit better weather conditions, and that plays more into your hands? Do you think is -- is that part of your expectations at this point, or is it too early to say?

I would say it is too early to say. You've spent enough time out in western Illinois and Iowa to know they can plant a crop in great shape in pretty short order. So I'd say at May 8 it is just a little too early for us to for us to say that. Kind of hoping that it is a big crop everywhere.

I would add -- and really, I'm repeating something Hal says -- has said a lot. And I think it is relevant to your question of the plate making, Brent -- is farmers in a lot of the areas we are in love to plant corn. And if the weather is conducive and the planters are out and the price signals favor it -- and a price signal could be if there are delays in the west -- if a price signal favors that, it would tend to likely that they would keep planting. But today, I think it is just too early to suggest that will happen.

Two thoughts for you, and then I'll turn it over to somebody else. I was on the border of Iowa and Missouri on Monday, and there was still snow in the ditches there, for whatever it's worth. And they are forecast to have lows Saturday and Sunday this weekend of about 30 to 35 degrees. So it is tough out here yet (multiple speakers).

Yes, it is serious.

All right. Thanks, guys. Good job in a tough environment outside of your control. Good quarter. Thanks.

Brett Wong, Piper Jaffray.

Thanks for taking my questions. Wondering how you think about railcar sales in the second quarter and the back half in relation to the first-quarter levels.

Obviously, we had a great first quarter, and that's an opportunistic field that we are in at all times. So it's hard for us to forecast moving ahead. We have seen an increase in the size of the fleet a little bit. We've seen an increase for the eighth straight quarter in our lease rates. So there's a number of good things working in our favor. But it's hard for us to predict going forward exactly how the opportunities will come in the car financing.

Any thoughts on railcar sales in this quarter and back half -- what can we expect compared to last year?

Again, that is a bit of the same kind of a pie. We don't have any expectations right now of anything significantly different than what we've done here recently or last year. So there's nothing really I could give you there that would provide you a lot of information.

Okay, and switching over to ethanol, clearly ethanol margins have improved. You said that you locked in more than 50% for your second quarter. Are you expecting to do a similar thing in the third quarter as those curves --?

Great question. The third quarter is extremely difficult because of the inverse from old crop to new crop in the corn prices. It is very hard to accumulate any corn or to sell any ethanol in that period today, and the buyers are very much hand to mouth across both universes.

So we will probably have to get a little bit closer to third quarter before the picture clarifies at all. It has been a nice run here recently with the margins we've seen in ethanol and the opportunity. But third quarter is a different animal because of the volatility.

Add just a little more -- and Hal hit on it. In the third quarter, let's not worry about when new crop starts, but assume the old crop portion of it. If you are a producer, there is no reason you would sell corn lower for July or August than you would for May or June. So to buy corn at that time, you have to literally pay the same or more. It's pretty obvious.

If you look at the forward curves on ethanol and what you could sell ethanol for out there and you relate it to the September derivatives pricing -- and the practice -- Hal said it -- tend to be hand to mouth -- the general practice of those who would buy ethanol oil. There is not a lot of reason today for somebody there to want to pay what they would be willing to pay for spot ethanol. And it's a huge disparity.

So there is literally zero ability to lock in not only not positive margin, you'd have to lock in a heck of a loss out there. So it's going to be kind of a wait until you see the whites of their eyes on that, about a two-month window in there. And until we get there, we don't know. We suspect that the buyers of ethanol will want to buy ethanol and they will want to keep plants running. But we also know that that is the tail end of the drought impact; there could be regional dislocations. We are blessed by the fact -- blessed may not be the right word -- this turnout in supply and demand, we have a little more corn left in the balance table, which is up net plus, but that is -- that particular quarter is we've got to wait until we get there, see the whites of their eyes.

Okay. Can you comment on the winter wheat crop conditions and the implications for storage and spacing come the next couple quarters?

Plantings were up, at least in the soft red wheat region, last year in the 10% to 15% range. Conditions in the soft red wheat in particular are pretty good shape. We are expecting at this point in time -- it has been a wet spring, but as we've dried out here, the conditions look quite good in our area. So we are expecting to roll forward with a pretty good crop here in the July timeframe in this historic west Ohio, Indiana, Michigan region. So we are looking forward to a good wheat crop.

Okay, and just a clarification and follow-up. You expect first half this year for your nutrients to be on par with the first half of last year, given the late spring?

We expect volume to be very similar, yes.

Great. Thank you very much.

Eric Larson.

Hi, everyone. Thanks for taking the question. A lot of my questions have been answered, but quick question on the Green Plains acquisition. I think, Mike, when you first acquired it, you said that it was probably -- it was probably going to be contributory to earnings for the full year, but it might be dilutive in the first half. How did it perform relative -- did it dilute your EPS at all in Q1?

Yes.

Can you quantify that for us?

No, it had an impact, and it should in the first half for sure, maybe a bit in the third quarter. It had the same impact as we've had heavily in Iowa, is we are just -- we are dealing with transition, we're dealing with the fact that -- well let's just maybe make it simple -- the answer is yes. And our view today is still consistent with the initial view about contributory the year. We will have to wait and see how things flow.

Right. In other words, you still believe that it could contribute to earnings, assuming we're not planting -- we're trying to plant corn in September for harvest in October?

Correct. I was in Iowa last week in the middle of a snowstorm, and that -- in May, and that doesn't really get you all excited. But, yes, based on that assumption.

Yes, we still have a few snow piles -- we have a snow pile or two here yet in Minneapolis. Not many, though. It is pretty much gone now. Thank goodness.

That was my main question. I will follow up with Nick a little bit later. Thanks.

Ken Zaslow, Bank of Montreal.

Good morning, everyone. I have a bigger-picture question in terms of the ethanol markets. How do you see -- when we go into 2014, it seems like there is a setup that we can see a very drastic positive momentum going into 2014 on the ethanol side.

Can you talk about how the ethanol mandate will be met? Will it be through E85, E15? And just the timing or the progression of that. And what is the timing of which -- if you are not fulfilling the mandate, when they will actually incur the penalties. So just give us -- it seems like there is a big potential curve going upward on that. So can you just help us out with that?

Thanks. There is a number of people in that school of thought that have a fairly positive perspective of that because of the mandate, because of the requirements for the rens across the fuel industry. There is all kinds of things that can be tweaked within the RFS that may soften that a bit.

But in general, we believe that you will have to sell more E85 to get there. The E15 thing, I think over time we believe that could happen, but it is not a 2014 or 2015 issue. So we kind of set that piece aside as part of the growth; it may be a later growth or deferred.

But we do agree that, especially with the corn crop and especially with a few tweaks in the RFS, rather than anything as a major change, we do see the prospects being able to improve if that all works out as you suggest it could.

If it does work out that way, you will see building of capacity or we're done and it's just -- we actually get down supply by call it mid-2014?

The capacity that is in place today can easily take care of the mandate given the demand for fuel gasoline today. There is no reason to build any new plants anytime soon to meet that requirement.

And again, that mandate on -- were talking corn-based -- is 15 billion gallons. We in essence have that amount of capacity, especially with tweaks to existing capacity.

It's a whole other issue on the cellulosic and advanced, which, based on the fact there is hardly any produced and we believe it is not very economical, they will probably keep waiving the requirement year after year.

My second question is, again, kind of thinking a little bit beyond this year, is if I kind of play with the numbers a little bit, it seems like what your normal grain ex-Lansing would be would be like $35 million to $70 million, which is obviously higher skew than the 2010.

What puts you at the lower end and what puts you at the high end? And is there things that we can look at? Obviously, it is about positioning, but can you kind of give us the indicators that we would look for to kind of think, look, you guys are going to be at $70 million, not $35 million?

I would suggest that maybe your range is higher. I don't think we've got above a number of like $65 million. So it would seem to be your number is a little high to me. I would have to take a look at it. It is the first I've heard of it.

But given that caveat, obviously, as we've described it, there is a primary swing factor, and that's space income. That's primary. There's a lot of other things that we can do. There is all of our ancillary services and a number of other things we are doing in that regard. But carry in the marketplace and putting together our ongoing growth plans are exactly what it will take for us to get to the higher end of those ranges. And that is hard to make happen first year after a drought.

Great. I appreciate it. And I wasn't trying to pigeonhole you into a range. It was just quick math that we just were doing. Sorry.

No, that's fine. I understand.

And I would add -- we were very clear in 2011 that there was some one-time benefit -- okay, so you have better spacing coming, you're full. Then maybe that crowds out some volume we would have had; it hurts margin a little. But there is a substantial number in that one year that was the best we ever had that, although it is the top of your range -- and I think it was 65 if you do the math -- you would say that is not a benchmark to look at for your analysis.

Okay, thank you very much.

Heather Jones, BB&T Capital Markets.

Good morning. Going to Ken's question, just page 11 in your slide deck, so your capacity is now 142 million, and you said ex-2011, your average EBT per bushel would be $0.25 to roughly $0.50.

Right. That's what the slides show, yes.

So on your current capacity, after the GPRE acquisition, if things went well, you could feasibly get into that $70 million range.

Yes, it is a good point, Heather. My comments were pre-growth, and Hal mentioned growth. So --

I understand.

Going to Q2, Q3 for Grain, you mentioned that the tightness issue could be actually potentially worse than it was in Q1. So do you think it is likely -- as much as you can predict anything in this business, do you think it is likely that you actually could lose money in Grain ex-Lansing in Q2 and Q3?

It's possible, Heather, as you say. It is hard to predict exactly what happens in the business and it's hard to predict exactly how the wheat crop ends up. As you know, in Q3, wheat is a big deal in Q3. There is little or no carry across the board in any grains in Q2 or Q3 except for wheat. So Q2 is certainly going to be pretty tough.

So Q3 could be -- because of the wheat coming in, you mentioned that the crop looks good and there is carry -- Q3, barring some surprise, you should be able to generate a profit.

There is certainly a better opportunity in Q3 with the wheat.

I would add -- one of the interesting things in wheat, though, relative to that point, Heather -- sometimes you don't -- sometimes you see the carry actually appear in that quarter by the end of September, because the harvest is over in mid-August and basis appreciates. Some years, though, if there is a reason to want to push wheat out to make room for corn and beans, you actually don't get the appreciation. It's a net good thing, because you're pushing it out because you've got a good corn and bean harvest coming. So you can't know at this point in time that timing of that September situation.

In a situation where you've pushed it out and moved wheat into the market, you could actually dampen basis in September. Most of the time it appreciates some, but if we have a really good corn and bean crop coming in, I don't know how much appreciation we actually get, even though we are expecting really, really good volume. But that doesn't bother me. That's a timing issue.

Okay.

And it looks like corn and beans is going to be late, for sure, so we probably won't get tail end of September benefit from that -- from the corn/bean side.

And I'm obviously not in Ohio with you all. But the things we've been reading, it looks like the weather outlook for the next two to three weeks looks pretty good. First of all, is that what you're understanding? And secondly, how quickly can you guys -- or the Eastern cornbelt make up this delay?

I would agree that -- the weather picture that you describe is what we are seeing and hearing, the same. And we have seen a notable increase in activity here just since the weekend, and everybody is ready to go. We are just at the edge of people in the fields across the territory, and if we get that kind of a weather window, we will be fine here in this area.

Awesome. Two quick detailish questions. You talk about rail lease rates. You said, note that those are impacted by the kind of car leased. Was that just an FYI, or are you trying to intimate that there is going to be a change in mix coming in coming quarters?

No. It is a good question. Don't read any more into it, other than to say it just depends on what car is hot at this point in time versus what is not. It is an average that we give you. So it is nothing more than that. Just qualifying the average.

Okay, and then for 2014 should we expect an elevated tax rate for then as well?

I think we should return back to a more normalized level, Heather.

Okay. Thank you very much.

Farha Aslam, Stephens Inc.

Good morning. First question is on Rail and regarding the lease rates. Have you now lapped kind of the contracts that you put on when the market was really soft? Or do you think we can anticipate further appreciation in those lease rates?

What I'll tell you is we have gotten through quite a few of the cars that were on when it was soft. But our portfolio has quite a wide variety of lives in it as we try to keep them set up in that regard. So there is still opportunity, clearly. And so I can't tell you that there is none of that lap, because there are some, surely.

Okay. So we still have -- in looking at your second quarter as it is trending right now, would you say that your lease rates and your car sale benefits are similar to the first quarter, or should we just moderate expectations?

Again, I will tell you that the car sales pace is very opportunistic and it's not something we can predict or that we will try to forecast for anybody. The lease rates have crept higher for eight quarters, and that is directionally what we are looking at right now. So I don't think that there is any dramatic change in those at all. But the trend still is up.

Awesome. Your Turf & Specialty had a really nice pickup in income. Could you just break down kind of the increase in income on mix versus the restructuring that you've done? And do you anticipate that restructuring benefit to be sustained each quarter going forward?

I would tell you that it is clearly -- it is clearly, as we said, volume down a little bit, margins clearly up. It is a product mix, and the improvement is about half of that due to the improved margin value and about half due to our restructuring and our efficiency measures. So it is about a 50-50 proposition there, and we are pretty pleased with how the first quarter worked for our Turf folks.

Absolutely. So do you think the mix is something that is sustainable, or do you think that mix improvement will return to more normal going forward? Was there anything unusual about the mix?

We believe that the mix is sustainable. It is a bit of a slight structural change in how and what we are doing, and we believe it is sustainable.

Okay, so the profits in that segment should be up -- kind of this is a more permanent level that we could model into our numbers?

I think so, but I think you do have to look at the seasonality in that business before you draw too many conclusions. Because the first quarter generally is our best quarter. Second quarter is generally okay. And third quarter is variations between breakeven, modest loss. And fourth quarter has always been a loss. So please don't apply a multiplier effect.

Understood.

Because even with a good mix, if you don't sell anything in a quarter, you are not going to make anything (multiple speakers).

And then in Plant Nutrients, you highlighted that first-half volumes should be comparable to last year. Do you expect earnings for that division to be comparable to last year for the year 2013?

Well, I think what we suggested are that margins are slightly lower than last year, and that we will -- but better than the norm. From a year-to-year basis, we don't -- we have an entire crop to get through, so we don't see a lot of change going on from that perspective. But it is -- today, it is still pretty hard to predict exactly where we're going to end up on the margin side of it.

Great. And my final question is going back to ethanol. Do you anticipate more ethanol plants starting up? And -- because of the better margin environment? And going into that third quarter, where there is currently lack of visibility, do you expect because you have probably greater access to grain versus the destination plants that you might be able to enjoy kind of unusually large profits in that third quarter?

Interesting question. The first part of it, yes, the better margins in the last few weeks or so clearly have brought some plants back online. The ethanol industry has gotten pretty good at being very nimble at moving back in when margins improve, so we have seen some of that occur. Although we haven't seen stocks build lately in it either, even though we've brought new plants on. So that's been an interesting dynamic.

Relative to your second question, Q3 is going to be highly volatile. And there clearly will be people who make a decision not to run in Q3 just because of the volatility. And so there are potentially opportunities when those kind of situations exist, and if they do, we will do our best to take advantage of them. As Mike indicated earlier, we are so far away from that period of time and it is such a highly volatile period of time that I don't really want to comment any further on that. But I understand your question quite well.

Great. Thank you so much.

At this time, we have exhausted all the time we have for questions today. I would like to hand the presentation over to Mr. Mike Anderson for closing remarks.

Thank you. I want to thank you all for joining us this morning. I also want to mention, for those that are interested, there are five appendix slides to this presentation available on the AndersonInc.com website at the Investors tab under the first-quarter earnings call replay.

Our next conference call is scheduled for Wednesday, August 7 at 11 a.m. Eastern time to review our second-quarter 2013 results. We hope you are able to join us again at that time. Until then, have a wonderful day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now all disconnect, and have a great day.