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ANDE Andersons

Participants
John Kraus Director, IR
Pat Bowe President and CEO
Brian Valentine SVP and CFO
Anne Rex VP, Corporate Controller
Farha Aslam Stephens
Brandon Groeger Vertical Group
Eric Larson Buckingham Research Group
Ken Zaslow BMO Capital Markets
Call transcript
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Operator

Good day, ladies and gentlemen, and welcome to The Andersons 2018 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. I'd now like to turn the conference over to John Kraus, Director, Investor Relations. ahead. go Please

John Kraus

morning, for Good thank for you Thanks, Andersons everyone, Second us The Call. Quarter joining Candice. and XXXX Earnings

provided that presentation a our have points. will talking We enhance slide

that result factors, company's publicly webcast, statements, at viewing described documents, on page many the forward-looking in offerings. in presentation competitive today the industries, connection in actual This including being supporting Investors conditions, weather, and filed is andersonsinc.com. of both could includes and company's filings discussed company's the differ 'XX and reviewed. in webcast you're conditions, Today's not constitutes factors a independent made slides conditions information, the prepared If United of via call internationally, the will sync. slides audio financial be Certain will completely results are this information general the and and auditors from the the have be with it the and website presented prospectuses company's those including the recorded, in our States forward-looking our Act available shortly as economic additional statements materially which in and

The Adjusted income and income, alternatives be statements the EBITDA adjusted give determined net additional and that accounting as today's or financial allowing reasonable, are period-to-period be operating principles. the believes its generally presentation This accepted EBITDA and these an as remarks pretax to income, operations, to upon company to accurate. income evaluation and others comparability. assurance Although underlying and not performance considered adjusted should and its adjusted by assumptions before about forward-looking do prepared company non-GAAP that the can provide of taxes, assumptions better EBITDA not are information no investors pretax information believes income, which measures. financial based and it EBITDA will contain prove

Brian Controller. Officer; Pat President Chief Bowe, Valentine, Rex, Corporate today Financial and Executive President Anne On Officer; and Chief with are me and and Senior the call Vice President Vice

questions prepared We answer our your remarks. will after

the I'll opening floor his for turn Pat Now over to comments.

Pat Bowe

you, joining our Thank review you and call performance. our Thank this to quarter everyone. second XXXX morning, John, morning for good

further, so Financial Chief Berkshire of as little to Senior President Brian to Hathaway third Lubrizol Brian's go a and go to to welcome Chief today. Officer Officer a I'd on is Vice a easy in recently finance, like Brian The has job, our company. new Corporation, we're accounting any the day most Financial Valentine, on Today I Before distinguished career and enjoyed Andersons. going the him

Brian begin I'll great Anne units. remarks for operating with While our some the will as outlook I'll provides who's a by color any review, Rex, of four balance of some conclude about our providing your also make Interim comments XXXX. to on our our each presentation, CFO, Brian a here of financial is our done business answer After help job questions. prepared

the adjusted good. not Plant second Rail quarter The performances overall results. were while stronger results Ethanol second Grain Groups our quarter posted Nutrient much were than The reported better and as numbers, both XXXX and Groups

addition, asset results. include Rail and of part our our In our that were Groups ongoing reported impairment charges results in not Grain operating

which posted to increased capitalize year-over-year most our the year-over-year to our ability on changed from results Grain Our was volatility. Group continue We benefited second during What market improve. results, quarter. seventh improvement our consecutive merchandising

third leading unusual plants of did improved The to have in Ethanol the Trade addition, last one strong operate The year. and In expense results. Lansing they booked group our efficient much quarter DDG in especially XXXX affiliates, performed as to our than Tennessee we on charge quarter the Como, its during million X anticipation We better was early impairment a were manner, Grain also did $X.X able Group, quarter stronger. location. sale production. business its of also a values second highly

the that XXXX XXXX. similar way. for to volumes year. by Plant our warned behind and in were volumes now nutrient half still continued primary nutrient XX% And our up sales also us, of Specialty those Group feel first book up Nutrient for We strong season increases through fertilizer first we the the modestly On rest of remain we EXX, of the prime which last our call, were of is the challenged that than more sales the that will half. to are

lawn compared overall remain railcar due this recovery. our a the and both brighter due continuing On market higher contract but quarter compressed. year-over-year margins high maintenance posted a down as and this recent we comparable are requalification additional However, results to as Lease in utilization business its was the is income specialty fifth totaling Most notably, quarter of manufacturing the resulted consecutive note, expenses advantage in $X.X tank up decided excellent again scrap for first cars rose previous to wholesale nutrient The run Railcars to year, for on quarter. number to gradual our first charges steel an the cars, taking decision the on we This of have rate scrap calls. million. lease and and XXX quarter. discussed prices.

drive Andersons and operation and productivity the We continue The last culture in years here inefficiencies. at to out a optimize have our X created

we by $XX we goal our you our of walk newest the reach to and XXXX. savings now more which later quarter, of XXXX. this of our million expect will last Brian rate we a detailed call about results. review run for on through I'll speak run year, our early, financial million year the rate productivity goal good remainder $X.X of end making additional the achieved on outlook in As progress shared we're a

Brian Valentine

of $XXX sale $X.XX Pat, share of million. of revenues We're or the second these on estimated include The charges quarter and million of These of grain company Thanks, being Andersons X the income In net diluted results and $X.X reported the impairment attributable $X.XX facility share. scrapped everyone. per the The railcars share of Tennessee XXXX, $XX.X opening his good in now Slide Pat charges of was morning, impact the diluted the discussed X. in to per million related to that earnings process the remarks. per on

$XX per share. Our share, results charge business. when second quarter goodwill revenues of of and or million adjusted of than the a net of or better those for $XXX noncash XXXX, excluded diluted considerably were loss diluted generated impairment our Andersons the $XX.X million million of wholesale income net attributable adjusted $XX.X $X.XX to The XXXX the results reported $X.XX per million fertilizer

revenue under sales year, raised almost transactions are $X.X recorded, XX% higher way billion tax effective items Total the of recognition for comparable Group. been the XXXX As discrete certain we particularly changed the Several company's noted rules. last to in company quarter, quarter than or revenues second second rules, this XXXX effective new revenue tax the have XX.X%. recognition would beginning Grain XXXX former the rate quarter

We to continue EBITDA to tax tax still second XX% between full but we of million. evaluating or XX%, to expect $X.X effective Total million adjusted reform. will the and EBITDA that XXXX are company year XXXX rate million XX% $XX.X full quarter compared increased our $XX.X be impact of

Grain Group's the X of charges, business XXXX improved grain The Rail despite in from impairment Slide $X.X were quarter million. due by driver to expenses of pretax base were results the million Group two the shows pretax been margins our sales Trade results year-over-year. Unallocated the quarter income the of much also XX% Excluding same company improvement those related segment better. adjusted would of reported periods. Group's EBITDA primary $X.X fell charges for for income The second was almost changes as results scrapping impairment We the higher again last year the margins railcars. net quarter for merchandising current to second have on by the of charge. Lansing improved year-over-year. below level the to grain

XXXX $X.X other However, we million loss quarter unallocated less expenses Group. Net corporate net in included the from a former Retail Retail loss, of the $X.X million of the year-over-year. incurred second

Year-to-date, up impairment of about Though base Grain more on $X to graph the to improvement million, of million the $X same pretax the the move we Group. and grain to Lansing $X.X period for better continues are strengthen, charge. half results attributable million bridge significant year the than Now is first year Slide than business the the excluding last X. for Trade

of million change For $X.X gain the earnings the million $X.X of the farm to the XXXX Group, on centers. Florida Nutrient Plant relates the sale

the lower service In addition first $XX.X change XXXX in relates other income. income in Retail to Group loss and in was car the million. and the of held former on by sale Rail driven half other a to by a for railcars results reduction The segment charges Group scrapping, the decline

with beginning on move our each on we'll the number Group of units, to X. Slide review Grain business of Now,

impairment million quarter. momentum period The Group million $X.X second in pretax charge, build over income over $X.X continued for to performance of the improved million quarter versus excluding grain of more XXXX a Grain group pretax earned XX% second reported income and $X the XXXX. Base the than in by of improvement second of the quarter XXXX, Our same XXXX. $X.X earnings the million,

of the derived group's income income $X.X their recorded capacity, especially in almost the year-over-year significantly entire storage second XXXX. improvement efforts, pretax affiliates, its Group, same the continued drove the million quarter, Lansing results, Trade with of Lansing's merchandising coupled performance. period business our combining from in Grain's million for Solid the strong improved twice $X.X spanned portfolio. and

XXXX. $X.X than number its year-over-year. Moving income to second values quarter Ethanol rewarded of The four more by second by group more XXXX of million quarter the performance to ethanol were The results in improved of the exceeded the Group's produced team's $X.X or efforts DDG its and gallons quarter plants million earned Slide XX%. X, Ethanol pretax performance second X% about continuing optimize

Plant adjusted of income quarter $XX.X in to second the million XX, Turning the quarter compared pretax second the earned to $XX.X million income of Nutrient XXXX. Group Slide in of pretax

year-over-year, the through great quarter While continued for rest of spring specialty lawn and were and start volume tons up primary season. spot the which increase was contract bright group primary to A was overcome manufacturing the its both enough the compression. not margin nutrient a first business,

Moving cars scrap while during shipped recorded, million Total long-term Rail of the was year. XXX charge being end railcars, $XXX,XXX the quarter scrap pretax four to yards million the Group income result income in to scrap The an of $X.X and of the in remaining of on million the to on impairment quarter. loss railcars, $X.X of a the second charges $XXX,XXX were to at the Slide of of are $X.X idle including at were process number decrease year last highs. decision XXX XX, generated scrapped which the XXX about prices strategic the quarter compared in

operating annual million. reduce $X.X In addition approximately X scrapping improve utilization should by railcar these million also idle will by the generating about rate cash, costs $X.X to points. in railcars about percentage It

quarter from and to retired age railcars were higher will recorded For offset utilization of car loss utilization result. revenue that, loss first to quarter, from in start XX.X% Improved XXXX. highest in Railcar was idle The the offset than scrapping the $X.X gains rates described. sales due resulting to previously than pretax costs, group the quarter, second achieve quarterly lower the allowed maintenance in turn of year's discussion Pat. $X ever. XX.X% railcars averaged base with more which volumes and back repair from a I scrapping rebounded income $XXX,XXX which business And tough to by repair last leasing the million, million, profit was its XX.X% last the from by compared a as

Pat Bowe

Brian. Thanks,

on space and second both U.S. forward As global seventh diluted share. operating crop to The of look opportunities U.S. significant considerably will and The we able to to optimizing our continued to markets in persist big specialty because almost small affiliates environment forward opportunities following to businesses. conditions half S. continues Strong owners deteriorating. All results to us and grow disruptions operating with for The crop because be The capacity for lead Group income than year-over-year The we Ethanol driving trading X we plant in production and margins the plants insights. show environment. improvement. futures continue lock the $X.XX quarterly demand demand XXXX about recorded non-U. and Grain its through are for Grain has quarter continue prospects continue and had its quarters. succeed remain good our the been These strong to Group foods Volatility corn handling Volatility to exist a strong year, risk both quarter. are management expect its second conditions group on should better us rest physical group our and good. production of in per of of should a good running and and well. of trade adjusted XXXX crop net four the will concerns assets very because are consecutive a soybean amounts U.S. in efficiency. today like very half. focus provide third

have both small biggest year-round will of monitoring construction are ahead In granted the unknowns progress EXX we to due exports The of like refiner and second results not have ICM domestically the XXXX. yet currently the higher-value group's in for low record ethanol impacts keep these the that prices. prices XXXX others Kansas, efficiency oil/gasoline addition The improve plant to pricing monitoring the year's under to produce high closely with well half in and continues pace significant a the last help. ELEMENT trade-driven, running waiver new near and expect domestic term exemptions in had industry, impact group coproducts. Ethanol in of will evaluate exceed optimistic conditions are to policy internationally. We're closely. on those projects Ethanol that But supply-demand helped and will The and of plant balance. will clearly that blending good and corn/ we're be RIN us

year and improve The Rail starting Group building be X a note, demand, performance a to Group in appreciation Our stabilize primary in equal and on which under begin group and the the is we group's utilization beginning to is and cars half, is adjusted margin continues to full challenged improve, impacted the continues significantly rise. expenses by top conditions. influenced to the are think cause manufacturing to and Plant business. first the we'll sales of signals years. to results. lease. XXXX rates be its positive prices for Nutrient market our excellence return growing growth increase year Because On inventory lawn of We're to contract its and The number unfavorable execution. uptick first gradually by cost to reducing nutrient to time the Robust momentum GDP improve should our manufacturing through its continued lease line also on focused in in

car to will XXXX resulting took counting to we the solid half achieve rate that Group, targeted are our better. also much and to savings recover. to which will Nutrient in we be as due XX% of the car to year income deliver and change stronger this we building of XXXX prior from results. I'll recognition forward now quarter, XX% are over to feel business repair the a a expect results near-term below by the improving, We our to-date shared pretax your second the on and Not will rules. entertain think those Candice, results we'll closing, $X.X due revenue to to of run the us We're turn more calls, finish XXXX. charges in who scrap idle program the We costs million XXXX continue confident end Plant to sale time that In company our look help it of source We momentum prospects loss requalification XXXX. believe questions. productivity tank need full except car additional

Operator

our And first Aslam from comes Stephens. question Farha Instructions] [Operator of

Farha Aslam

and Pat, benefit for on is burning could globally, global from is up? point You're Grain. crop? question with a My delivery us wheat share -- wheat the could Andersons garner The what you wheat,

Pat Bowe

It's Yes. interesting, Farha.

bit experiencing three last dry call in since -- situation with Eastern and wheat Russia supplies. quite all a because Europe. in couple has The years where of wheat last the glut global changed with parts been conditions Australia have a Let's things we've of about and we changed the talk crops have Europe, crop,

declining starting global wheat we're a see So on of to balance supplies stocks.

U.S. we from we term, for to near that us, position term. But VSR ticks this a Now think the near can the while term, a itself, in for into get global market. price reversed wheat opportunity hasn't income where maintain the for be could as will that we exports two into good completely longer one

in that's Quite story a kind different So of term. corn. long encouraging

As due America, weather U.S. you global Ukraine last the and our stocks still EU, issues know, with large Russia, been should are year, declining current crop especially in exports have and South to strong U.S. levels. continue strong, really price at

good should We've in crop conditions with this red bit which on if than corn, maybe adequate across crop thing time. a handlers this with good have the and the terrific-looking had we week, exports grain belt here. pretty side, are stocks a overall, U.S., other really grain. good outlook crop for terrific But America, really spots in of probably the South is dry more the at increase shape, a Michigan. out bean are weather Crops us, beans of bullish conditions are for just really And in So a are little stocks and here some lastly, the in bit in there. rains remains good movement a

So things for look the business. overall better Grain in fundamentals

Farha Aslam

a recertification cost Could on your with Rail. for Rail for growth just Group? us that for what going you year into and outlook the kind as next And the is of share follow

Pat Bowe

car recertification have this cars recertification that put Rail the Sure, before, as outlook programs the we about we $X working our for approximately our we're in we and through Group. talked to about have and for year, tank million for that it's

decision we our types that fleet, the And with length, year cars, some prices. those utilizations do age cars place, prices starting seeing four advantage rates, will we help We so rail What to look us utilization seeing at factors, of That nice made now, to just scrapping lines. rates have we scrap that in steady, and and nearby and higher rates risen on steel utilization traffic of in increase. with And cars, on up is had now of into we longer-life lease get moving the happen. tariffs these are to highs. just going The get reversal all a the reason next the and quarter. to that's for a to take we're uptick need

rates, We should seen up in big we move haven't improve. it lease think yet a but

Operator

question next our of Heather And Jones comes Group. from Vertical

is now open. line Your

Brandon Groeger

couple to of for XXXX? year-over-year you Lansing Lansing This rest A strong year-over-year. to be continue is Brandon performance for me. from the Groeger on quick questions results expect Do Heather. improved of

Pat Bowe

Yes.

I think, Lansing like just ours. expect strong, we results be to

So the looks fundamentals mentioned just does it for of earlier. reasons those the business, good, it base grain I us like for

to we a So half. Trade in continue strong second the expect Group performance Lansing

Brandon Groeger

And what market when are the on might your around? updated Nutrient thoughts turn Plant

Pat Bowe

good question. That's a

for take these So just was Nutrient very competitive here we right? wholesale this market finished Plant pretty crop crop were the compressed, distributors cycle for So like quarter. it in cycles, Margins ourselves. a

look we've that maybe haven't been long-term the on we encouraging for prices bounce. you If That's a we've to three has signal off of had years. market positive It little the see back so carrying market. better have come commodity seen the a fertilizer increased, for the also charges coming side, a to bottom bit some seen

We the like of near still upside compression business, had sales team and trends. there's it. said in are quite long-term financial commodity get do about plants point term. our a next campaign But those we've efficient results bit this to attack make to this that, cautious we the of our So year, successful to lot specialty have work positive so at of lot think both and year. the in more in sharper Having a we we're a got margin a

Operator

Buckingham comes Research next Eric Group. And from of question Larson

line is now Your open.

Eric Larson

the trade a Trade of just other actually follow -- little quite couple on Number than bit a against a Just to Group. one, just have They diversified a nice broader a questions. Lansing of portfolio grains.

for a might be Can second of think a Lansing? bit business things better help or lines cadence half so have a frac there they we used for I lot others what little the us they do and the and you feel the for on to.

Pat Bowe

been good somewhat mentioned I western feed a some do the and bigger wheat, earlier ingredients. Lansing player, market, a ingredient They're opportunities fundamental going earlier. portfolio to about which presence then a in feed similar we a hard So there's good. have have to diversified the domestic like looks in in as they which Grain be very large and there trading ours, commented They has wheat trade, presence and

mean, food business the As than in sand Eastern will we're a situation be that to improved, if DDG in DDG trader, a for results the Lansing will ingredient was the be shot a improved. solid China frac DDG tariffs, business frac optimistic but exports, to and changes and businesses quite very year, a for in be able That which have the part does a little bit have values sorry, the seen. resolved, be but on Belt, I there. stronger business, seen interesting in It's arm -- also stable, remains Western Western global well, that sand it of that be. still to They very not pet last Belt

overall, be in second as should I mentioned results So Lansing earlier. the half, better

Eric Larson

out This The at you income we a deferred going You revenue one accounting look whole quick of can you one way, and up in about the welcome would a today. be Now the him Brain with but Grain -- well. revenue give of this by we're help change? free business. card deferred to jail question how bunch down Brian, was for again or XX% as on question normally probably, the -- follow us

the EBITDA revenue -- have on in Can you might us help also little us a deferred and side? the future, income? maybe the bit with work give how deferring earnings you that you're If

Anne Rex

to adoption revenue. actually I'm the Grain what revenue for the our In for one down to do net new standard, that going you. was had to answer try we

number. up revenue. So sales there a net from a It's to change of no grossed deferral and cost just sales is of

Operator

[Operator Zaslow BMO comes next of Instructions] Markets. question Capital Ken Our from

Ken Zaslow

has of question on the examples that biggest the kind progress you and improvement and this parse of to about hires has always some of the a how hiring have Can of new contributed because kind difference you it I out? there this. I'd improved try direction kind improvement Is and can that of environment? new more performance? ask X talk the come do like you the Or those just made So think better internal and been operating

Pat Bowe

I a think that's good question.

the Rash been been in now, he some as led business. this great almost beat, industry talent that great that the a plans has Has missed years, same time on I've to a in been -- really got X our here, and Rail And CEO not is So has past company and now who's past in the Corey team. we've Shah, succession all addition President, here as of is fact, business working businesses. XX Recently had there with business. in we've who been the around Rail a before been Grain a the retire our capably We've month. Group retirements. Joe our had business running and been years handle

showing Grain Our is of improvements. business lots

We're of a SAP implementing costs strengthen some need We said we can do back we we've office. Ethanol sales, business weakness solid shaping coming been up. Ethanol. point who's is a in there's of then fertilizer, in Our we some our time Irmen, deployment We've Mike is think lot and have for And there. and here take to got a change team very out of there. in in Jeff we've to Blair improvement here, the we attack really made run had by

a of lot of there's and enthusiasm business. got driving lot that So work he's a

the about improvement, and bottom question. now. driving Brian to have And to great here what about our that's glad in as of So CFO, on We line just right we keep talent. asked focusing feel I'm have and the the all good performance company we're you

Ken Zaslow

Okay.

something the is Just -- that can actually -- is and parse it, you're but -- it actually out is great. it, it there the how results are parse but creating there on? some other potential? enjoying has is that's your internal improvement improving, of a we're out embracing hey, -- much environment's you been But way to it we're underlying just, sort -- taking Or better is

Pat Bowe

restructured taken eliminated know, on as that you drove in of to the that's We in on last offs hard, write aggressive a line. out those. and talent We our other we've think couple assets We've I drive performing those, cost, run-rate productivity, bottom some had of taken $XX helped aggressive of to stance million business, stance an all years. performance take businesses. lines of some at of

We continue determine your had to keep we that's to the keep back tailwinds helped and this, culture have headwinds or a ANDE fate. said focus that Excellence, us. volatility to driving Having what Grain have accountability. market, call, you of that, some on We've some absolute come to

have in very So we're fundamentals Ethanol, of well. to I'd Grain executing have improved. say,

direct result trading well performing shows our very which low a efficiency are of plants Our at high P&L in the our well. markets at Ethanol, of and cost, line is plants and bottom and that operating up the in

time. over and we And slightly lease right -- to conditions And drive and As rates mentioned the got will some has rail -- now shape before, guy to business. the what macro the of then Rail, time improved absolutely work that over condition do. we've help it's have PN, be

we So like but said I'm kind what the feel of place about in good And the execution. it's team, restating earlier, about now we now. leadership have I we

Operator

Our Larson Eric of Buckingham Research next question comes Group. from

Eric Larson

quick question. a Just

unusual on we year know the just How you it by-product improvement know Ethanol that circumstance? Pat, mold on that this last that and year of better due your was to much maybe and DDG a hurting with credits. another also a was result -- vomitoxin of is issue As we pricing follow-up the DDG

Pat Bowe

all, year. other look, there of only was vomitoxin, -- first no -- had So back present go to the we last toxin

are So DDGs out XX%. And the interesting so corn It's stronger overall still little on about Belt, values, recently the across of local DDGs, the in probably Eastern in just less DDGs trading it's XXX% the board. a over market up started in West.

comes So very and that's we're energy and to when gallons of produced really up last helped. yield it our over it production, big so But in efficient are been has year in productivity. part X% use a to

the So productivity the cost lowest success been focus driving has in I plants reason our and real really think for at on Ethanol.

Eric Larson

one you've maybe Pat, final Tennessee ROIC. work of your things then a and going do and things what overall these lot as a And returns assets, rightsizing can Can just past on to to a now else have, little some your you in elevators focusing share that cetera. other with your et of done more question. railcars you're forward? you boost Obviously, some may insight operating significant give performance things, doing

Pat Bowe

Sure.

lot accountability do a Most of to been there's and to on has it comes at to come. border picked, single fruit I that. when line We're hard the low-hanging but think every business. performance work still productivity work of in of there's more driving

in want a of always the the farm, still pull done bolt-on acquisitions. M&A, think right We've we've we'll there's getting of come. execution Excellence at good to can in fully to right smart for and cost sites bolt-on We're of with opportunities will help few, the Grain. especially back-office added working point can a We're that the the also our we continue through as evaluating facilities attack, lot that technologies to on that cost. say will be some bit trigger the the and help on food at little working space, through at place, but of deployment I ANDE procurement SAP now. people us. as We opportunities sales right fertilizer, when a in especially work And each in those We to our having right well

Operator

like concludes Kraus to the our session question-and-answer for any that conference today. turn to And back over I'd closing John remarks. for

John Kraus

for also website on slides We page again to today will presentation at and joining with this later Candice. andersonsinc.com. made mention to I this want be Thanks again, the us morning. information that additional Investors supporting all available you want thank at our

Our well. call XXXX, Tuesday, then, We third again time. earnings that XX:XX quarter next scheduled conference at for join is be you when November will review a.m. our we us results. XXXX X, can Until at hope

Operator

a today's thank have does may conference. and day. and Ladies in conclude gentlemen, you for disconnect. you all program, Everyone, This great participating the