Good day, ladies and gentlemen. And welcome to The Andersons Inc. 2015 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. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Jim Burmeister, Vice President, Finance and Treasurer. Sir, you may begin..

Thank you, Ben. Good morning, everyone. And thank you for joining us for The Andersons’ 2015 second quarter conference call. For the purposes of today’s discussion, we have provided a slide presentation that will enhance our talking points. If you are listening and watching this presentation via our website, the slides and audio will be in sync.

This webcast and supporting slides are being recorded and will be made available on the Investor Relations section of our website at www.andersonsinc.com. Certain information discussed today constitutes forward-looking statements.

Actual results could differ materially from those presented in the forward-looking statements as a result of many factors including general economic conditions, weather, competitive conditions, conditions in the company’s industries both in the United States and internationally, and additional factors that are described in the company’s publicly filed documents including its 34 Act filings and the prospectuses prepared in connection with the company’s offerings.

Today’s call includes 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 true.

On the call with me today are Mike Anderson, Chairman and Chief Executive Officer; Hal Reed, Chief Operating Officer; and John Granato, Chief Financial Officer. Mike, Hal, John and I will answer questions that you may have at the end of the prepared remarks. Now, I will turn the floor over to Mike for his opening comments..

Thank you, Jim. Good morning, everyone. We are pleased to announce that despite many challenges in our markets our portfolio of businesses delivered $31.1 million of net income this quarter. This compares to $44.3 million reported in the prior year with most of the variance coming from lower ethanol margins which were unusually high last year.

Our Rail Group led the way this quarter achieving its tenth consecutive quarter of increasing utilization rates which produced another strong quarter of lease income. The business recognized a $10.6 million pre-tax gain related to an early lease termination. These types of settlement occur from time to time this one was larger than normal.

The business also demonstrated operational improvements in its repair and services business which resulted in its best quarter in a few years. As a result, total rail group pretax income for the second quarter came in at $21.7 million.

Our Ethanol Group build under – profitable performance in the first quarter to deliver stronger results this quarter recording $9.7 million of pretax income and achieving record second quarter production volumes During the quarter, the Plant Nutrient Group completed the acquisition of Kay Flo industries.

We’ve been encouraged by the positive response from their customers were very pleased with the high quality assets and people who have joined our company and the opportunities that are expanding our geographic reach and added products will bring.

We continue to be disappointed with the results in our Grain Group where slower movement from farm to market, weaker sales side margins west [ph] forward contracting activity have lowered the results. Excessive rains during late May and June in much of the Eastern Corn belt had a negative impact on agriculture.

In some areas it prevented farmers from getting on fields to finish planning and restricted the ability to apply a normal amount of nutrients. This had an adverse impact on our nutrient volumes and will negatively impact this year’s crop production.

John and Hal will take you through the detailed results of the quarter and I will finish up with the ground [ph] work for the remainder of 2015..

Thanks, Mike and good morning everyone. In the second quarter of 2015, the company generated net income attributable to The Andersons of $31.1 million, or $1.09 per diluted share and revenues of $1.2 billion. This compares to the second quarter of 2014, when net income of $44.3 million was reported, or $1.56 per diluted share.

Revenues were down in total primarily due to a 38% drop in our ethanol business driven by commodity prices. Second quarter earnings before interest, taxes, depreciation, and amortization EBITDA totaled $72.2 million compared to EBITDA of $90.7 million for the same period of 2014.

The company recorded income tax expense of $18 million for an effective tax rate of 35.7% this quarter, up 1.5% from the second quarter 2015 rate of 34.2%. The higher effective tax rate this quarter is primarily due to the decreased impact of income attributable to non-controlling interest in our ethanol business.

We expect the full year effective tax rate to be approximately 35%. The company repurchased approximately 156,000 shares of its common stock during the second quarter for $6.4 million. Since the end of the second quarter, we have purchased 407,000 shares for $14.9 million and just this week completed our $50 million repurchase program.

This bridge graph shows the increase or decrease in each group’s pre-tax income for the second quarter in comparison to the pre-tax income for the same period of the prior year. The largest driver of year-over-year performance was the impact of lower margins in Ethanol.

Our Grain and Plant Nutrient businesses were challenged in the quarter but this was offset by very strong result in the rail group. Hal will now discuss the key drivers of the performance within each business groups..

Thanks, John, and good morning, everyone. Our Rail Group had an impressive quarter delivering $21.7 million of pre-tax income. Rails’ results included growth in lease income supported by an average rail car utilization rate of 93.5% compared to 89.3% in the second quarter last year.

This was the tenth consecutive quarter of improved utilization and year-over-year the group’s fleet increased by approximately 800 cars. The Group benefited from a settlement related to the return of approximately 750 railcars prior to the end of their lease. We are confident in our ability to redeploy these cars within a number of months.

While utilization rates will take a small dip in the third quarter as these cars return. We expect third quarter utilization remain above 90% and return to the low to mid 90s by year end. With this impressive quarter the Rail Group has surpassed the prior year’s full year pretax income.

We expect the Group’s performance to continue to be strong in the second half of the year. While ethanol margins are well below the record levels seen in 2014, margins did improved during the quarter from near breakeven levels in the first quarter rising to more robust levels in May before falling off through June as corn prices temporarily surge.

The ethanol industry in total produced at high levels during the quarter providing substantial supply to feed strong domestic and export demand. Within this environment our Ethanol Group performed well delivering record second quarter production volumes and generating pre-tax income of $9.7 million.

In prior year, $33.9 million of pre-tax income was reported, but remember record margins were seen at that time.

Margins were bit weaker to-date, but as we look into the second half we see signs for optimism in relatively low corn cost, continued good export and domestic demand and supply levels that should begin to soften as the industry goes through normal maintenance downtime in late August and September.

Turning now to grain, the group had pre-tax income of $3.1 million this quarter compared to $10.4 million in the prior year. Results in our core grain operations continue to struggle as we work through a year of slower movement of grain from farm to market that has led to lower margins and volume.

Our core gain assets reported the loss while profits in our investments in Thompsons and Lansing Trade Group brought the full group results to a profit for the quarter. Revenues were $625.3 million in the second quarter which was slightly below to $356 million in the prior year due to commodity prices that were down approximately 20%.

Bushel saw increased by over 18%, in large part due to the volume from the recent acquisitions in Michigan and Texas. Operating expenses were higher in the quarter versus prior year due to the inclusion of these acquired operations as well as certain costs which are now being allocated to the business for the operation and for the deployment of SAP.

Our Western grain assets under performed in the second quarter delivering pre-tax income below second quarter of last year. Year to-date results however remain slightly better than prior year. We anticipate improved performance for the Western in the second half of the year based on favorable crops.

For those viewing the webcast as you can see from the graph of June 2015 rainfall, many markets in which we operate experience excessive rain which is negative impacted this year’s crops.

Flooding and wet field caused damage to some crops in low lying areas and limited the ability of farmers to apply the nutrients that are normally put down in this period. In some cases the weather also prevented planning which will reduced this year’s expected acreage. The wet weather also impacted the quality of the wheat crop recently harvested.

I should add however that situations such as these do lead to more volatile markets which can provide other income opportunities. The condition of the corn crop is mix, adverse impacts on yields are expected to be felt especially in Indiana, Illinois, Ohio are fairly good conditions exist in much of the Western region.

Soybeans have been more negatively impacted by the excessive rain, especially in many areas of the Eastern Corn Belt. Results in our Plant Nutrient Group this quarter were below previous expectations as volumes did not materialized due largely to excessive rainfall during late May and June, which limited fertilizer application on many of our markets.

Revenues in the quarter were $357.2 which was similar to the prior year as the decline in ton sold was offset by a higher average selling price. The gross profit however was lower as this lower volume was met with lower margins as well.

Same store volumes in the Plant Nutrient Group excluding Auburn Bean & Grain and Kay Flo were down nearly 90,000 tons versus the prior year. This represents a little over 10% drop cause by the excessive rainfall.

Operating expenses this quarter were higher than prior year primarily due to new cost associated with operating Auburn Bean & Grain and expenses related to the one time deal cost and added operating expenses of Kay Flo. This resulted in plant nutrient group pretax income $18.9 million versus $27 million in the prior year.

While this crop year had challenging weather conditions in many of our markets, we remained pleased with the acquired assets and look forward to more normal crop year beginning with the fall applications.

The Retail Group produced pretax income of $1.5 million on revenues of $41 million during the second quarter, which is comparable to the prior year. Now I’ll turn it back to Jim for the treasuries report..

Thank you, Hal. The company’s net working capital as of June 30th was $210 million versus the $252 million a year ago, the largest change in assets were from higher inventory and accounts receivable partially offset by lower commodity derivative assets.

The largest changes in liabilities were from higher short-term debt partially offset by lower commodity derivative liabilities. Short-term borrowings under our line of credit as of June 30th were $141 million compared to $27 million to the same time last year.

Long term debt totaled $417 million at the end of the second quarter versus $300 million a year ago with the primary increase coming from the funding of the Kay Flo acquisition. Shareholders’ equity was $822 million at the end of the quarter after repurchasing $34.2 million of common shares year to-date.

We believe long-term debt to capital is the most appropriate metric of our leverage. Our long term debt to capital ratio at the end of the quarter was $0.35 to $1 versus $0.33 to $1 in the same period last year. Our effective interest rate for the second quarter was 4.02% which is a decrease from last year’s rate of 4.49%.

The company continues to maintain ample access to liquidity within over $850 million committed credit line. Now, Mike will cover a few more points before we take questions..

The volatile markets we are navigating this year reinforce the benefit of our diversified portfolio of businesses. While our Grain and Plant Nutrient Group are experiencing tough market conditions. The Ethanol Group is doing well and our rail business is having a great year.

We remained mindful of slowing volumes of rail shipments in some commodities and there is potential pressure on future renewal rates. We’re very proud of what rail team has accomplished and we’re confident they will finish the year strong. We believe U.S. demand for gasoline will remain strong as well ethanol export demand.

These factors should support ethanol margins through the summer. Leading into the fall we continue to see good demand as production declines due to the industry shutdowns for maintenance.

Our plants continue to run efficiently and well positioned to take advantage of market opportunities which we believe will lead to a solid performance in the second half of the year. The Plant Nutrient Group has gone through a tough crop year as we noted earlier. Volumes lost in the second quarter will not come back.

We expect to see more robust demand beginning in the fall and going into next spring assuming weather patterns are more normal. Our outlook for grain is cautious as used crops will undoubtedly experienced pockets of lower yields and few acres harvested and anticipated in the areas harvested by excessive rain.

Some crops would be able to recover by harvest and the West is actually expected to see strong yields. Overall lower production volume will pose challenges in many regions in the second half of the year and potentially into early 2016. Overall, we are optimistic about the rest of the year.

We do expect to see grain’s second half performance improve over the prior year. Our Plant Nutrient Group should have a second half similar to last year. Ethanol earnings will be down from record levels last year but still good. And our Rail Group should have a solid finish to a great year.

We’ll now hand it back to Ben, our operator so that we can begin to take your questions..

Thank you, sir. [Operator Instructions] Our first question today comes from the line of Heather Jones of BB&T Capital Markets. Your line is open. Please go ahead..

Good morning..

Good morning, Heather..

I guess my first question would be on the grain business. I think earlier this year you had said that you’d guided over the near term for the grain business to yield per -- show results from the $0.15 to $0.25 range, you said this year it would be towards lower end of that. And I assume you’re talking about your core grain ex Thompsons and Lansing.

And so given the first half performance do you expect the second half performance to be strong enough to still get you to the low end of the range?.

Hi. This is Hal. First, yes, it is the core grain business that we were talking about specifically with those numbers and we did guide to the lower end of that range. We do expect after the excessive rains in the second quarter and some of that impact to not to be slightly less than we expected it to be when we gave that guidance.

Still in a similar range, but at the bottom end of that range at best..

Okay.

And looking at – so as a follow-up to that, looking at 2016 and I fully understand everything that can change in the meantime, but based upon your best information at this point and given what the trends in your Western Corn Belt assets, I mean, what is your thought on 2016, do you think you’re going to be at a low end into that range next year because of the weather issues.

From this year what is best guess now towards 2016?.

As you said, there’s a lot of things that are going to go into that, which will start with the actual crop size from this fall. So it is really hard to say. I think what we have to do is we have to get to the crop, see what the Western crop, which is better and see what kind of carry we have in the marketplace especially in the corn crop.

The bean crop is a latter crop, it has much more to do with this summer weather and we don’t carry nearly as many beans. So the answer to that really we won’t see until we get the – start to get corn yields off across the cost of spectrum of both corn belts, so it’s really awful hard to say something about 2016 right now..

Okay. Thank you..

Thank you. Our next question comes from the line of Farha Aslam of Stephens, Inc. Your line is open. Please go ahead..

Hi, good morning..

Hi, Farha..

My question is focused on ethanol.

Would you be willing to share with us what your EBITDA per gallon was in that Ethanol Group in the second quarter, and kind of what you’re seeing currently and if you’d locked-in any margins going forward?.

Yes. The answer to the first question, we don’t share the EBITDA by the segment and we’re just relative to margins. Well, talk about margins; we mentioned margins have soften here especially as corn ran up at the end of June.

We expect them to be fairly consistent here as driving demand good for the summer and we’ll start to see slightly lower production going into the fall, so, fairly consistent at these current levels. We have very light locked-in right now. Actually I think we have about 10% locked in.

We had 10% locked-in as we got into Q3, so relatively small amounts forward at this point in time in the ethanol business..

But have you seen margins improve in July and as in attendance there I’ve got two questions.

You reduce that kind of quarterly run rate of profitability in ethanol and your second half to be similar to your first half?.

Generally similar, yes, we expect second half to be generally similar based on what we see it in the current conditions. Margins have soften a bit in third quarter. We’ve saw corn prices rise at the end of second quarter and ethanol margins clearly took a hit at the beginning in the third quarter.

So, at this point in time they are softer and we need to see good summer driving demand into the fall and fall shutdown season and hopefully cheap corn in the fall to do that, but we would hope to see them similar..

Okay. So hope to see similar second half versus first half, great. That’s very helpful. Thank you..

Thank you. Our next question comes from the line of Kenneth Zaslow of BMO Capital Markets. Your line is open. Please go ahead..

Hey, good morning everyone..

Hi, Ken..

Can you talk about the other opportunities that you alluded to?.

On the grain side?.

I believe that’s what it was – it sounds like you maybe take a little bit aggressive trading with Lansing, I can’t understand what you were exactly saying.

What order of magnitude are we talking about?.

Well, order of magnitude, no we’re not changing our business model, okay. The point is that as we get a wide variety of qualities of grains which is especially prevalent in the wheat crop this year.

And as we get dislocations in local places because of very bad damage to crops, we get certain supply and demand conditions that allow us to trade across a little bit broader territory that something that we tend to do, but this year the Eastern Corn Belt happens to be a place where we have some very widely varied crops, good and bad just depending on how the rains hit or didn’t hit.

It’s something that Lansing does on a regular basis. It’s kind of the market opportunities that take place on dislocation that we’re clearly looking hard to help, makeup for some of the downfall in the acres and the other negative incidents that occur because of the excessive rains to the Eastern Corn Belt..

And what’s the order of magnitude of this?.

I would say, the order of magnitude is not business changing. It’s to make up some of the downturn and what we’ve seen because of the slightly reduce acres in yields..

Great. Thank you very much..

One of the numbers of things to be done..

Great. I appreciate it..

Thank you. Our next question comes from the line of Brent Rystrom of Feltl. Your line is open. Please go ahead..

Yes. Good morning. Just couple of quick questions.

As part of the Plant Nutrient Group are you expecting a change in the mix of business this fall given the wet conditions, I’m thinking insecticides, fungicides stuff like that? And then, does that have any margin implications?.

We don’t expect the substantial change in the mix. We don’t. What has changed in the initial applications as obviously the decline in the basic nutrients we did see from a wheat perspective a variety of fungicides and things that were down that was mostly done in the second quarter. We will see some pieces of that.

There’s clear that you get the added moisture, but that’s not a huge piece of business. It is an opportunity for us to sale some of those very specific pieces. And if the weather is good and the crop is off on a timely basis, the soil nutrient content is obviously low given what happen this spring and we would to see good demand.

But again that’s timing based on farmers and the actual season in harvest and the weather conditions at harvest time..

Thank you. And then my follow-up or second question both you and Mike actually given your history in this, can you refresh us on how you view your menial events is impacting your business. So thinking of 2009 or 2010 or more specifically it looks like this year’s [Indiscernible] could be a strong as the one we had in the late 90s.

How has that impacted your business in the past?.

So, Mike, I’ll start on that and Hal and I’ve not rehearsed, it could 180 from me on this and that’ll be fine. And actually if it’s 180 degrees that won’t surprise me because you get these big weather patterns that have an impact in a little bit of shot one way or another can cause you to have a minimal or a large impact.

So Mike, if I look back to the times we talk about [Indiscernible] well ahead of time and then see what happens. I don’t think you can correlation from the prediction of what would happen to what actual happened in the areas that we do business, and frankly in macro sense for corn soybeans.

At times you end up for the big impact because share something around you have a big drought, other times it pushes water in a timely weather. So that, and I’m not weather expert and I’m not highly studied in it. So it’s more of my history and anecdotal..

My thought Mike would be maybe historic I believe, and [Indiscernible] brings in more mild winter to your region..

Historically and a broad sense that is true, the question is does it include Illinois, does it go to Pennsylvania or Mike said, if it shifts a little bit its vastly different but historically that is accurate..

Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of Heather Jones of BB&T Capital Markets. Your line is open. Please go ahead..

Thanks for taking the follow-up. I was wondering if you could give us a sense of – corporate expense was lower than we expected this quarter.

I was wondering if you could give us a sense of how much of that SAP expense is shift out to corporate and into the grain business and how we should think about that moving forward?.

Heather, this is John. I would say, incrementally more has shown up in grain on a year-over-year basis, but from first quarter to second it’s the same in terms of the shift to grain.

And then, following up on that I think you saw a little bit of drop this quarter relative to last year was primarily driven by lower incentive based compensation accruals with the bunch of other puts and takes that come and go related to timing and other things.

And then, let me provide a little bit more color which what I can say is that we expect the second half for this segment to be pretty much in line with the first half which is a little bit better than what we previously told you..

Okay. Awesome and going back Mike to your comments about rail, so from what I understand there has been significant weakness clearly on the corn side, anything related to oil and so you mentioned something about knowing that could pressure utilization and not and renewal rates.

So I was wondering if you could give us – because from what I understand Anderson’s exposure to those segments is not – I mean it has exposure but it’s not huge.

So wonder if you could give us some more detail on what how you expect it to impact utilization rate further up for Andersons going into 2016 and 2017 because I think those average lease life is still on its 5 year range, correct?.

Yes, the average is the same. I’m going to let Hal answer that one..

And Heather there is no real next years’ average kind of returns on leases is about the same as always. So we are kind of average as you would as you add. Relative to the specific products that could impact and obviously we’ve seen a downturn in the demand from the oil and fracking side and but we haven’t seen any other unusual activity.

Corn crop is of good size. It’s not going to be a whole lot different, so we don’t expect a substantial change in the utilization of cars.

GDP hasn’t changed dramatically in the United States and typically lot o rail traffic follows that, but as you can see if you track it there has been a decline in carloads across just a broad spectrum of the economy, so that’s I would just say a general softening as that had a slight impact of the rate issue or utilization.

It depends on the car mix as it comes in the year and it just we’re ahead of the game, we are looking forward the curve and we’re trying to do our best to mitigate those pieces as we always do.

It’s not a negative; it’s just a slight trend and the general economy that we watched closely to make sure or the front of how we put together our car demand for next year. So….

And I’ll add a little more kind of broader than rail comment. We’ve been through this public since '96 and we talk about this regularly in these businesses that we’re in they are not hockey sticks and they go up and down.

And when it gets good, we are really grateful to it, sometimes it gets really good like ethanol last year; well it’s not going to continue and really bullish rail. Just to remind – follow up on Hal’s comment you see a little – you see a weak cap, weak reduction, modest reduction in carloads, you see the oil side of it.

So you see those are few things that could take the edge of what’s a really good situation. But we don’t see whereas last year I think it was pretty clear we were – so we’re going to go down a lot in ethanol. Frankly, wasn’t because ethanol was bad, it’s just it was so good.

This year we feel that went rail, we feel good about rail, really good about rail. But there is a few things that say, okay you don’t just get new [ph] work just because it’s really good. I’d say the flip side is we’re highly confident of P&G volume next year.

In fact, I’m going to ask John right now because I think it’s a good time to kind of make a comment of what we are into this around the second quarter rail and the lease settlement which we get these periodically and some other things because that’s a big up, but we got this fertilizer down is to me just as unusual on the downside is the rail lease settlement is on the upside.

John..

Mike I think you encapsulated it. We did have the early lease termination which was unusually large, but it’s not an unusual event for us in particular and in this case we’re fortunate that we’re probably going to be able to redeploy those cars as we’ve noted in a relatively short period of time, so view that as a positive event.

More importantly, I mean it comes at a time when we had unusually wet weather which negatively impacted our plant nutrient business and probably will have an impact on overall crop yield this year.

That really to me encapsulates and highlights the benefits of the portfolio we have and you kind of have two events that I wouldn’t say won’t happen again but they offset in this particular quarter and I think kind of give us a normal outcome for the Anderson.

I think overall and I just don’t want people to lose this perspective and we’ve highlighted it particularly with the lease, the rail side.

I mean the leasing business is operating exceptionally well and so is the repair business and I think it would be at this service if the rail group simply say they had a great quarter based on the lease termination..

Right, right. And actually my final question is sort of a follow on to that is, so you had the gain on lease but you also normally have some gain on rail car sales in the quarter and if we look at that year-to-date number, it’ -- call it roughly 9.5 million.

And you guys have noted in the past that the annual number doesn’t move around at time but it can shift around a lot quarter to quarter.

So should we expect the second half the gain of sale number should we expect that to look like first half similar to second half of 2014, how should we be thinking about that?.

Give me one second here. I would say that I think at this point we don’t completely go into all the details all the time but I think similar probably to slightly down for the second half in terms of what we’re looking at with the view today, Heather..

Well its – for the first half..

Yes, yes..

Okay, thank you so much..

Depending on what happens, things can change but that’s kind of our view today..

Okay. Appreciate it..

Thank you. And our final question today comes from the line of Brent Rystrom of Feltl. Your line is open, please go ahead..

Yes thank you. First question, you see [Indiscernible] industry this morning so that they see a terrific order book for nitrogenous fall. I would assume that some of your confidence this fall is reflecting that and I’m curious is the order book relatively similar, East Corn belt versus the West from what you can see..

Yes, yes, I would agree..

All right.

And then on the ethanol margins, just thinking about the last year where you guys had a year ago the record crops, the access corn and probably some advantages on basis, do you anticipate that you are going to have some basis inversion this year issues as far as regionally on your Eastern assets?.

Yes a little bit more than last year clearly. Obviously the western crops are better and probably Michigan is better than Ohio. But we will see a difference across the groups and the Ohio one with a little bit of struggle right now, but yes that makes sense given the current crop conditions..

All right. Thank you guys..

I would add but not near like the drought here a few years ago..

All right. Thank you again..

Thank you. And ladies and gentlemen that does conclude our question and answer period. I’d like to turn the conference back over to Mr. Mike Anderson for any closing remarks..

I want to thank you all for joining us this morning. I also want to mention for those that are interested there are appendix slides to this presentation available on the andersoninc.com website at the shareholders relations tab, under the second quarter earnings call replay.

Our next conference call is scheduled for Thursday, November 5, at 11:00 AM Eastern Time to review our third quarter 2015 results. We hope you are able to join us again at that time. Until then, have a great day..

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. And you may all disconnect. Have a great rest of your day..