Andersons Inc (ANDE) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The Andersons, Inc. 2014 first quarter earnings conference call. My name is Leanne, and I will be your Operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Nick Conrad, Vice President Finance, and Treasurer. Please, go ahead.

Good morning, everyone, and thank you for joining us for The Andersons, Inc.'s 2014 first quarter conference call. We have included a slide presentation that will enhance our talking points this morning. If you are listening or watching this presentation via our website, the slides and audio are in sync. For those listening via telephone or watching the web cast you should follow directions sent to you in order to sync the slides and audio. This web cast is available through the Investor section of our website at www.AndersonsInc.com. The web cast 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 many factors including general economic conditions, weather, competitive conditions, conditions in the Company's industries both in the US and internationally, and additional factors 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 turn the floor over to Mike for an opening comment.

Thank you, Nick. Both the ethanol and Rail Groups had record first quarter results. Margins in the ethanol market were strong. The Ethanol Group benefited from the margins as they increased production during the quarter versus the first quarter of 2013 at a time when some competing plants were forced to reduce production due to the issues caused by weather or logistics.

The Rail Group continued to optimize their fleet while simultaneously increasing both their lease and utilization rates. The Company completed a three for two stock split during the quarter and paid its 70th consecutive dividend in April. I will now turn this over to John, who will provide details of the total Company results.

Thanks, Mike. Good morning, everyone. The Company reported net income of $22.7 million in the first quarter, or $0.80 per diluted share on revenues of $1 billion. In the same three months of 2013, net income of $12.6 million was reported, or $0.45 per diluted share on revenues of $1.3 billion.

This quarter's results include a $0.38 per diluted share gain related to the partial redemption of our Lansing Trade Group investment. If this gain is not considered in the first quarter results, then the earnings per share year to year are similar. The majority of the year to year decrease in revenue relates to our grain business whose revenues decreased primarily due to lower grain prices.

Now to a non-GAAP measure, EBITDA , earnings before interest, taxes, depreciation and amortization. The Company's 2014 first quarter EBITDA was $56.4 million, an increase of $13.5 million from the same three month period of 2013.

Equity and earnings of affiliates, which excludes net income from non-controlling interest, was up $12.7 million, and totaled $20.5 million in the first quarter. The positive year-over-year change was driven by an increase in earnings from our Ethanol LLC investments.

Average short-term borrowings for the first quarter were $79.2 million, a decrease of $184.3 million from the prior year which was driven in part by cash received early in the first quarter.

Other income increased $16.9 million year-over-year and totaled $19.6 million in the first quarter. This change is primarily impacted by the gain recorded on the partial redemption of the equity investment in Lansing Trade Group.

For the first quarter of 2014 the Company's effective tax rate was 34.8%, down 7.6% from the first quarter 2013 rate of 42.4%. The higher 2013 effective tax rate was mainly due to a correction made with respect to the accounting for the other comprehensive income portion of the Company's retiree health care plan liability, and the Medicare Part D subsidy. The 2014 effective tax rate also reflects a benefit associated with the income attributable to non-controlling interests that does not increase tax expense.

We are projecting our 2014 tax rate to be 34.4%. The Company's 2013 effective tax rate was 36%. The lower effective rate for 2014 is due to increased benefits related to domestic production activities and the aforementioned correction made in 2013.

The bridge in this next graph demonstrates which Groups 2014 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.

Thanks, John. Let's start with the ethanol Group which achieved record operating income of $19.8 million this quarter. In comparison, the Group reported operating income of $2.5 million during the same three-month period last year. The higher income is the result of significantly increased earnings from its investments in the Ethanol Limited Liability Companies. The increased income is the result of significantly improved ethanol margins, increased ethanol production rates, and ongoing service fees and increased co product income. Ethanol margins were impacted by low US ethanol stocks, which were accompanied by increased demand for ethanol in both the domestic and export markets.

Revenue was $189 million in the first quarter in comparison to $199 million in the prior year. The slight revenue decline was actually due to a lower average price per gallon of ethanol as gallons sold actually increased.

As we mentioned previously, the results for Denison are not included in the equity and earnings of 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 within the slide presentation. This category has declined by $1.4 million this quarter in comparison to the prior year. This is in part due to the recording of a $4.2 million mark-to-market inventory adjustment at the Denison location. This income will return when the inventory is shipped which is expected to occur during the second quarter.

As Denison is consolidated, this type of accounting will be required whenever we pre-crunch sales in future quarters. This is the first time since we've invested in Denison that the market has provided incentive for us to pre-crunch sales.

The Group has made improvements to the plants to increase their efficiency. It can be seen from the increasing gallons produced that these capital investments have been beneficial. Some of the plant improvements have also led to increases in corn oil produced which is one of the co- products the Group sells.

The Rail Group also reported record operating income of $15 million this quarter on revenues of $52 million. Last year, the Group reported $14.6 million of income on revenues of $46 million. The Group's revenue and income benefited from higher lease and utilization rates, and increased income from car financings. This quarter the Group recognized $10.8 million in pre-tax gains on sales of railcars and related leases and non-recourse transactions which is approximately $1 million more than the prior year. When the Rail Group participates in non-recourse transactions it continues to provide car management services to the purchaser and typically holds an option to purchase the railcars at the end of the assigned lease.

The average utilization rate for the quarter was 88.4% which was up from the 84.6% rate experienced a year ago. As of the end of the quarter, the Group has 22,192 cars, including 46 locomotives, which is down from its year earlier total.

The car total is down as the Group has both scraped some cars, and sold some cars out right as part of their ongoing fleet optimization. During the first quarter a rail car repair facility was added in Albany, Oregon bringing the total repair shops to 21.

The Grain Group had operating income of $11.3 million this quarter versus $8.3 million a year ago. Included in this quarter's income is a pre-tax gain of $17.1 million from the partial sale of the Group's Lansing Trade Group holdings. Before the sale, the Group owned approximately 47.5% of Lansing, and as of the sale it owned approximately 39.2% on a fully diluted basis. The Grain Group's earnings from operations were a loss this quarter, whereas last year earnings were slightly positive. This was due in part to significantly lower space income, which was a result of less carry in the corn market and significantly reduced wheat inventories.

The wheat inventory this year is about half of what we held during the same period the prior year. At one point during the quarter, the corn basis income was actually negative which is not a common occurrence. The Group's earnings from its equity investments are also significantly reduced. The majority of this reduction relates to lower results for Lansing Trade Group, as the Thompsons investment had not yet been made in the first quarter of last year.

Grain Group revenues for the quarter were $583 million which is down from the $836 million reported in the prior year. This revenue decline is due primarily to lower grain prices which decreased almost 30%. Storage capacity of the Grain Group decreased slightly from 142 million bushels in the first quarter last year to 139 million bushels this quarter, due to the loss of some storage space due to structural issues, and the closing of one small location. The rebuilding of some of this space is planned for the future.

I wanted to mention that corn planning progress in our region, and the US, is behind the five-year average but ahead of the prior year. As of last Monday, this past Monday, the USDA crop progress report indicated that the US corn crop is 29% planted which compares to 11% last year at the same time, and a five-year average of 42%. There has been a considerable amount of cool, wet weather this spring, but there is ample time to get the crop in.

The Plant Nutrient Group had an operating loss of $1.4 million during the first quarter on revenues $108 million. In the same three-month period for 2013 the Group reported an operating loss of $600,000 on revenues of $112 million. The first quarter results were lower than anticipated as cold, wet weather was not conducive to nutrient application. At this time it is anticipated that much of the volume will shift into the second quarter as weather improves and field work is able to be completed.

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

Storage capacity at the Plant Nutrient Group increased to 899,000 tons, from 867,000 tons in the same quarter of 2013. This was due to the expansion of both dry and liquid storage facilities.

The Turf & Specialty Group had operating income of $1.4 million this quarter, on $44 million of revenue. Last year the Group reported $4 million of operating income, on $47 million of revenue.

Turf products tons was down this quarter due to poor weather conditions that lead to both production downtime and product delivery issues. Margin per ton was down slightly due to product mix.

As is typical for the first quarter, the Retail Group incurred an operating loss. The loss of $2.3 million compares to a prior year loss of $3.2 million. The 2013 loss included $800,000 in costs associated with the closing of the Woodville, Ohio store. Revenues for the quarter were $28 million and $31 million in 2014 and 2013, respectively.

Now, I will turn the floor back to Nick for the Treasurers report.

Thanks, Hal. Current assets totaled $1.1 billion at March 31st, a decrease of $108.5 million in the same period last year. This change was driven by a $27.8 million decrease in inventories, and a $38.7 million decrease in current commodity derivative assets.

Cash and cash equivalents ended the first quarter at $43.7 million, a decrease of $14.6 million year-over-year, and a $265.4 million decrease from the 2013 year-end.

As is typically the case, the Company had ended 2013 with a large cash balance. The build up of cash at the end of most years is a result of grain purchased under delayed price of full paid contracts which results in large year-end grain payables. These payables are generally paid out in January and February of the following year. As the first quarter balance sheet indicates, cash along with draws on the line of credit were used in part to pay down the December 31, 2013 grain payables.

Total assets on March 31st were $2.1 billion, a decrease of $26.2 million year-over-year. Current liabilities at the end of the first quarter were $891.9 million, a decrease of $72.1 million from the prior year.

At the end of the first quarter the Company had short-term borrowings of $226.1 million, a decrease of $66 million from the same period last year. The average short-term borrowing rate for the first quarter was 1.9% which is down slightly from the previous year's rate.

Long-term debt ended the first quarter at $306.2 million, a decrease of $106.5 million from the prior year. The average long-term interest rate for the 2014 first quarter was 4.6%, which is comparable to the prior year rate.

The long-term funded debt to equity ratio was 0.4:1 on March 31st compared to 0.66:1 for the same period last a year. Total equity was $743.3 million at the end of the first quarter, an increase of $119 million from last year's first quarter.

At the end of the first quarter net working capital was $246.6 million, a decrease of $36.4 million from the 2013 first quarter.

During the quarter the Company completed the successful renewal of its $850 million syndicated revolver facility. The Company again received strong support from its banks and as a result, was able to obtain lower rates and fees as well as having fewer financial covenants.

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

As many of you know we have been working on an SAP implementation plan for approximately two years now. We plan a phased implementation strategy. This week we rolled out the new financial system Company wide, and implemented the new grain system at a few locations. We will continue to roll the system out to grain locations during the remainder of 2014, and throughout most of 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 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. I would also like to provide an outlook for our Groups for the remainder of 2014.

Even though the Grain Group did not start the year as we had initially predicted, we still believe they will improve upon their 2013 results based on the anticipated strong corn crop in 2014. This will be highly dependent on favorable weather during the growing season and the market allowing normal space income to be earned. We believe that much of the volume lost by the Plant Nutrient Group in the first quarter will be regained in the second quarter, and that they too will improve on their prior year results.

Based on the current margin environment, and because we have locked in approximately 75% of the second and third quarter margins, we currently believe our Ethanol Group will have another excellent year. We anticipate our Rail Group having another strong year in 2014 which is clearly demonstrated by their first quarter results. Lastly, we continue to expect improvements in both our Turf & Specialty, and Retail Group performance this year.

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

Thank you. (Operator Instructions). Our first question is from Farha Aslam, from Stephens Investment. Please, go ahead.

Hi, good morning.

Good morning.

First question is housekeeping. On Other and Corporate there was sort of a $3 million swing. Any particular reason for that change?

Hey, Farha, it's John. In the first quarter it is really primarily the timing of distribution of expenses out to our businesses. An example would be interest and comp. And then, if you remember last year, we weren't anticipating such a good year in the first quarter and so we have a little bit higher costs with respect to accrued benefits and compensation.

That's helpful. And then on Ethanol, Mike, you highlighted that you've locked in 75% of your margins. In terms of margin levels they varied a lot over the last few months. Are they similar to levels in the first quarter? Any color you could provide around that?

Hi, Farha, it's Hal. The 75% was Q2 and Q3, just to be clear. The margins, as you say, they have been highly variable. The one thing about the current margin structure is the variability of the natural gas price has been excluded. We had huge variability in natural gas prices in the first quarter that we don't expect in the second and third quarter. But the margins are in the reasonable range of what we have experienced here lately. Spot margins. as you know, spot margins were fairly extreme at times in the first quarter, and so I can tell you not to look at the extreme spot margins, but on a more of an average sense of the margins that we've experienced.

So, we could think about the second quarter and third quarter to be pretty similar to the trends you have recorded in the fourth quarter and first quarter which were pretty similar to each other. Is that how we should think about it?

What I would say is that the margin structure that we have seen forward has always been a slight discount to what the spot market has been. I would say that the margins in the second and third quarter have always been slightly less than what we saw in the fourth quarter and in the first quarter, if we were booking them ahead. So, the margin structure is slightly lower than what we have seen, but reasonably good enough that we went ahead and forward crunched 75% of those two quarters.

Okay. That's helpful.

Farha, the other piece, remember, is as we mentioned there was a $4.2 million mark-to-market number in Denison at the end of the first quarter for our forward crunch for just the Denison facility that we expect to come back in the second quarter as we ship those gallons.

That's helpful. And then, going into your outlook for storage income. Corn and wheat, when do you expect the wheat basis to return for you guys, and when should we expect the corn basis to (inaudible)?

Let me separate them because the wheat basis has been, I would say, relatively decent. If you look at the difference in the wheat space numbers it is because we had about half of the inventory. Substantially less inventory. It is not because the basis wasn't reasonable. On the corn side, actually in a lot of places across the country, corn basis on March 31st was the same, or even less in some places, as it was on December 31st. The corn basis has really been the culprit from the largest volume and dollar perspective. So spreads have been fairly narrow in corn and basis has really done nothing. I think the whole grain industry is kind of suffering through that same situation.

And when do you think it will correct itself in terms of when do you think your inventory in wheat can get back to full levels. And corn basis, when do you expect that to turn around?

Okay. I will tell you that the beginning of the second quarter corn space opportunities are slightly better than they were in the first quarter. Obviously with a good crop we really would expect more improvement as we go through the balance of the year and get the crop off. On the wheat perspective, the wheat harvest begins in July, maybe late June in our Tennessee facilities, so we will start to accumulate a little bit more wheat inventories, but we won't see it get back to the same levels we saw a year or two ago. There just isn't that much wheat out there to store. So the quantities will go up. Basis in wheat has been good. On the corn side, space opportunities are a little bit better and should improve as this coming crop gets made and the conditions for fall look good.

That's helpful. Thank you.

Thank you. Your next question comes from Brett Hundley, from [BB&T] Capital Markets. Please, go ahead.

Hi, good morning, guys.

Good morning.

I wanted to stay on grain because the segment came in well below our expectations. I think that says more about probably my modeling skills than your relative performance there, but I'm trying to understand near term, and as we look out over the course of the year. I have gone back and re-looked at basis trends during the quarter, carry, made some assumptions on weather, and just trying to formulate more of an opinion on Q2 and thereafter as far as basis, like you said, looks like it is getting better, the carry still looks difficult. Volumes are supposedly getting better off the farm. Are we at any point near potential that there could be another negative number in Q2? Or can you just talk to that a little bit about how things are transitioning and the expectations thereafter?

I think your data is pretty accurate. Basis levels have been slightly better as we have gotten into Q2. You mentioned farm movement. As we get the crop planted and the condition of the crop is good in the ground, we will see a little bit more farmer movement of grain as they empty out some of their bins. But on the other side we have had really good demand from exports and from ethanol facilities so that won't be a huge impact, but I do think we will have more space income opportunities. The other side of it is we do a variety of other merchandising and fee income opportunities in our grain business. With the relatively flat basis, and the relatively stable markets, the opportunities for merchandising and fees and some of those businesses we do within our Grain Group are also slightly reduced. That's part of the first quarter numbers. I really don't see that changing a lot, that piece of it changing a lot for the second. The grain industry in and of itself is in a fairly stagnant place. The carry out numbers are reduced slightly from what people had thought last year when we saw this crop come off. Second quarter looks a little better. I don't see a wind fall in any way.

So, if I can try and pin you down, Hal, when you look at possible ranges for Q2, is there a potential to be negative in grain again?

I think -- hang on one second, Brett.

When I talk to grain, obviously I am talking to core grain, the elevator business, pulling Lansing out.

Right. Yes. At this point in time we would expect to be able to be on the plus side of the ledger for Q2. That's clearly our expectations as things have started to improve.

Okay. That's fair. And Hal, were there any SAP issues to speak of during the quarter or everything went relatively smoothly?

Brett, this is John. We literally just turned the system on in May and everything seems to be going smoothly so far. That's all I can tell you. We are literally a week into this.

Okay. Fertilizer pricing showing a sequential improvement, but mostly still down slightly year on year, at least as far as some of the data that we watch. Is that consistent with what you are seeing, and can you just talk to maybe the margin side as far as a fertilizer outlook?

Your commentary is right on. It�s exactly what we are seeing, and I would agree. What we are seeing is the total margin is slightly reduced. It is still better than the kind of the historical averages and trends but slightly reduced from what we have seen in the recent years. You are right on target with your estimate there.

Okay. And then just one more from me, kind of higher level. I wanted to go towards M&A. As you guys continually evaluate targets, can you talk to some of the values you are seeing out there in each of the categories you are targeting? How you would describe the current opportunity set at present maybe versus six or 12 months ago? Any commentary broadly that you can give on the M&A front? Thank you.

Maybe I will have more than one comment here, but I think in some regard it reflects where we are in each of the business units. Clearly, ethanol plants across the country have been very successful financially lately, so there is very few people interested in selling ethanol plants. If they would be, it would be at a high price. On the rail side it is a by car segment type. We are looking to optimize the fleet so we would look to buy cars that we think are not as high in the range as others, and we continue to look to optimize that portfolio and hopefully grow the fleet a bit. The nutrient side of the business has been pretty stagnant and there is not a lot of activity going around in there. A lot of the seasonal weather issues, and things like that, have taken place. And as I said, if you look at the grain business across the country and you listen to the people who have reported on the grain businesses, it has been a depressing first quarter for the grain business across the board. I think everybody is reconstituting their thoughts about M&A work and valuations in the grain business. It is a little bit tough right now on the grain side.

Does that offer opportunity on the grain side?

Brett, I will let Hal answer in a second. I was going to add and put some color on it. I don't know that it's found this way in reduced valuations, at this point in time, or the offer price anyways. So, Hal can add some color to that in a second. I also want to add a little more color to the plant nutrient and I think Hal is right, it's stagnant, but don't interpret that as low or high. I call it more steady as she goes. And we would hope we would find some opportunities there. Hal, do you want to add?

You are right on the grain side, Mike. Like you said, the offer side hasn't changed. I'm sure somebody is willing to bid a little bit less because of the recent performance. But, I don't see any opportunities coming because of the recent downturn.

This is John. The only thing I would add on the plant nutrient side is some of the specialty providers, their multiples, the things we've been seeing appear to be pretty rich these days. That's a shift from where we have been.

Okay. I really appreciate the comments, guys.

Thank you. And your next question comes from Ken Zaslow, from Bank of Montreal. Please, go ahead.

Good morning, everyone.

Hi, Ken.

Can you give us a break down of the loss. How much was the magnitude between the basis and the wheat side? Which one was the bigger cost?

Okay, are you talking about the difference between the size of the wheat versus the corn?

Yes. Which one was a bigger impact? Because my sense is that the corn report � (multiple speakers)

Actually, as we go through the details here, Ken, they are fairly similar. They are fairly similar in size relative to the decline in total from the numbers. So it�s about I will just say relatively equal parts in the decline. As I mentioned, in addition to that we had other fee-based and merchandising services that are also part of the overall reduced numbers. It was not entirely those two space numbers, but those three pieces together combined to equal the downturn.

If the wheat crop doesn't -- There is a lot of conjecture one way or the other way on the size of the wheat crop right now. I'm sure it is pretty typical. My question is, what type of wheat crop do you need to restore the back half of the year to more recent, acceptable levels, I guess.

I think as I indicated in my earlier answer, there is no way to get back to the same levels we had a year ago. The crop just isn't big enough in our territory to fill us with that much wheat. Now, keep that in mind that whatever space we do not fill with wheat makes it available for the corn harvest. As we see 92 million acres of corn planted with a 160 some bushel yield, we will need it for corn space since we are not coming in completely empty with corn. It is a tradeoff. We will increase our wheat storage as best we can in the harvest. Whatever space we don't fill from last year's wheat we will fill with this year's corn crop, assuming it is as we expect it to be right now.

I am going to add to that. Hal is right on the money, but I am going to go back nine months or so. Coming out of the summer of last year we were looking at a really good corn crop. We had an expectation filling up at what we thought would be a lower basis than it actually was. The basis by the end of the year, had escalated to some extent from those levels. So we never filled up as good as we wanted. We were at a high basis come January 1 in corn, I'm talking corn only. I think two things were really important there but one, of which, for sure, isn't existing this year. If you recall in the summer of 2013, we came out with one of the lowest carry out as a percent of use in any of our memories. And the front end of the harvest, I'm going to say a billion bushels, and I am not trying to be perfectly accurate, but directionally, got consumed as part of the prior year's demand. That fact meant that the crop relative to going into the storage there just wasn't as big by roughly a billion bushels.

The other thing I would say, and we talked about this before, we have had a sizable increase over the last five years on on-farm and off-farm storage, which we believe has really slowed down now. Now that carries are low. We come into this year and assuming, right where Hal is talking, we would expect to have a crop that is bigger than consumption. We would expect, well, we know, we are not going to be going into the fall with as low a carry over. All of that crop, and the bigger carry over, are going to impact space. To some extent we underestimated how quickly we could recharge the pipeline and put back what I'll call more traditional corn space income. It comes down to two things. Will, in fact, we have a decent fall where we are able to refill the space we will have, part of which we won't have the wheat, at basis levels that are below what they were this past year and, in fact, will the carry be put in the market as we go from the fall to the spring. Our view is that we will. We will see.

Do you care if you fill with corn or wheat, or you just need to fill them up?

Given the conditions today carrying corn and wheat that we would expect for the fall aren't much different. It is always nice to have the wheat early because it comes in first. We will do our best to fill it with as much wheat as we reasonably can at the right price levels. But at the end of the year, whether the last few million is one versus the other, it doesn't matter a lot.

So your grain, sorry I am taking so much time, this will be the last one, but grain will re-set in the fourth quarter then, assuming we get a good corn crop? Is that how you are thinking about it?

Yes. That's the expectation today. Right.

Great. I appreciate it.

There has been lots of talk on wheat. Wheat is historically important to us. It's a much smaller volume crop for us but we historically have earned more per bushel because we tend to store it longer. We mentioned multiple times, and I think all of you have gotten there, that get out of your heads those unbelievably good income years we had a couple years, the space income from wheat. That happened. It was wonderful. We are getting back to what I call much more normal from what I have experienced in my 35 years in the business, which is still good, it is just not going to be other worldly.

Great. I appreciate it.

Thank you. Your next question comes from Christine Healy, from Scotiabank. Please, go ahead.

Good morning.

Hi. You guys have talked a lot about your corn grain business so far. Maybe can you speak to Lansing? I know contribution was weaker in the quarter. I'm assuming it was impacted by some of the weather and rail delays as well. Do you see improved results from Lansing for the remainder of the year?

I will tell that you in general, the conditions that we experienced were similar to what impacted their earnings. Maybe one additional thing on their side I would say is the western railroads were even a more substantial issue for trading and merchandising grain than the eastern railroads. There was some very expensive rail freight out there to get freight moved, so volumes and costs, and still is today. That western railroad negative impact hit Lansing more than us because their facilities are out there. But all similar factors, low basis, low space earnings, low basis appreciation, and, in their case, even a little bit more of high freight cost in the western belt than we would experience because of their volume being primarily in the west.

Okay. And then, similar outlook as well? Things can get a little bit better in the next quarter, but no windfall?

(inaudible) the rail is doing?

Yes, the rail situation in the western belt really hasn't changed much yet. So I am not so sure I would say much about the second quarter expectations, but, clearly, looking forward to that third and fourth quarter. They have a little bit more impact on the southern crop than we do which gives them some late third quarter opportunities ahead of us, generally. So yes, I wouldn't say much about the second quarter because of the freight situation, but it should be slowly better, yes.

Thanks. That's very helpful. And then lastly, on Thompsons acquisition there. How is that performing versus your expectations?

Actually, Thompsons performed close to expectations, maybe not quite up to what we might have hoped for the first quarter, but was relatively close. We see the progression they have made up there relative to the transition into that marketplace as being real positive. The crops up there, and the conditions up there are similar to the area we see here so we expect good crops. We actually think maybe a little bit of a better of a wheat crop up there with not a significant amount of demand on that wheat crop. So, maybe some more opportunity for them on the wheat side than what we might see here in the States. But I think we are looking forward to exceed to pro forma for the year.

Great, thanks so much.

Thank you. Your next question comes from Eric Larson, from CL King. Please, go ahead.

Good morning, everyone.

Hi, Eric.

Just a quick question. On your mark-to-market charge of $4.2 million in the quarter. Obviously, that is going to reverse off. Is that going to drift into Q3 or is it mainly � will be a positive Q2 impact?

That specific piece that ended as of the end of March, end of Q1, that specific piece is very, very much a Q2 number. Remember, that if we crunch more forward into the third quarter, or fourth quarter, we could have a mark-to-market on that forward stuff. This $4.2 million is heavily oriented toward Q2.

Okay. That helps. And then, I did some adjusting on your equity earnings in the grain division which is primarily Lansing and even taking out your � the 8.3 percentage point lower interest you have in that business, it looked like it was probably a $3.5 million to $4 million negative swing. Would that be in the ballpark?

Are you comparing it to Q1 last time?

Yes.

It's relatively close. There are two other items in there that impact it slightly, but your number is not far off.

All right. And then, obviously, the movement in your Plant Nutrient business going into Q2, and you think you can get most of that back. How do you think the margins look this year versus last going into the heavy Q2 planting season?

Yes. First of all, you are right. We do expect much of the volume to just roll into Q2, and conditions here the last week or two in most of our territories have been pretty good. We hear people talking about over 60% on the crop report next Monday from the government. We will see how that goes. On the margin side, what we are seeing on the margin side is slightly lower margins than previous year at this point in time. But they're still pretty good compared to the historical average. As we see the planning progress occur here in May, and maybe even into the early parts of June in some of the northern places, it looks like we should see a fairly consistent movement and so that will help us with the product movement and fairly consistent margins right now from what we have seen.

All right. And I know this is not a division we talk about much very often, but you had a pretty negative swing in your Turf and Specialty in the quarter. Is that weather related? Is that something you can grab back in Q2 as well? Was it shipments getting your products into retailers in Q1? What happened in the Turf and Specialty side that had such a significant variance in the quarter?

It was very heavily oriented towards the transportation issues. At some point in time we had actual operational issues to get the plants running at some points in time given some of the numerous snow days and closures we had in our territory. But it was pretty much around logistics. We do expect to make up most of that in the second quarter. We are off to a slow start in some of the end user markets for the fertilizer products and the specialty products. That's just to do with the cold weather, as well. So, we are still at this time expecting much of it to come back in Q2 and we are looking for our year to be similar to our earlier expectations.

Okay. My final question is, I don't have a cash flow statement in front of me here, so I can't go and see what proceeds you received from acquisitions, how it will be termed in your cash flow statement. What was the growth proceeds that you received for your 8.3% position in Lansing?

Eric, this is Nick. I am not sure we actually gave that number in the K, or that it will be in the Q, when we file it. Let me find what is out there and get back to you with that answer.

Okay, all right. Thank you, everyone.

Thanks.

Thank you. I would now like to turn the call over to Mike Anderson for closing remarks.

I want to thank you 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 andersoninc.com web site at the investors tab, under the first quarter earnings call replay. Our next conference call is scheduled for Thursday, August 7th, at 11AM Eastern Time to review our second quarter 2014 results. We hope you are able to join us again at that time. Until then, have a wonderful day.

Thank you. And thank you for your participation in today's conference. That does conclude the presentation. You may now disconnect, and have a good day.