Q3 2021 Andersons Inc Earnings Call

November 3, 2021

[music].

Good day, ladies and gentlemen, and welcome to the Andersons 2021 third quarter earnings conference call. At this time all participant lines are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time to ask a question you would need to press Star then one on your telephone.

As a reminder, this conference is being recorded if anyone should require operator assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Mike Holter, Vice President corporate controller and Investor Relations. Please go ahead.

Thanks, Sara good morning, everyone and thank you for joining us for the Andersons third quarter 2021 earnings call.

We've provided a slide presentation that will enhance today's discussion.

You're viewing this presentation via our webcast the slides and commentary will be in sync.

This webcast is being recorded and the recording and the supporting slides will be made available on the investors page of our website at Andersons, Inc. Dot com shortly.

Please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimers in our press release related to forward looking statements.

Certain information discussed today constitutes forward looking statements that reflect the company's current views with respect to future events financial performance and industry conditions.

These forward looking statements are subject to various risks and uncertainties.

Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC.

We encourage you to review these factors.

This presentation and today's prepared remarks contain non-GAAP financial measures reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation.

On the call with me today are Pat Bowe, President and Chief Executive Officer, and Brian Valentine Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions I will now turn the call over to Pat.

Thank you, Mike and good morning, everyone.

Thank you for joining our call. This morning to review our third quarter results.

We are extremely pleased with our overall third quarter results, which included an all time record performance and the trade group and continued our strong momentum.

Well it was solid AG fundamentals, we have executed well.

Trading through in an inverse market and addressing supply chain and labor challenges in the period of significant volatility.

The company recorded its best third quarter since 2014.

With the sale of our rail leasing business in August I'm also excited to note that our trailing 12 month adjusted EBITDA from continuing operations exceeded $294 million not including the rail segment.

Across the company. Our teams are working hard to provide extraordinary service to our customers in these favorable markets.

Trade had a great quarter, executing well and dynamic crane markets, where low grain stocks have provided excellent merchandising and elevation opportunities.

We had especially strong elevation margins in a number of regions.

Our Louisiana locations were not impacted by the recent hurricanes and we were able to continuously serve customers.

Idaho also benefited from strong basis appreciation and its wheat inventory.

Our propane distribution business continued to perform very well.

Winter wheat harvest receipts were better than expected and we are seeing storage income return to the corn and wheat markets.

We also saw incremental gross profit from new profit centers in the quarter, including our Swiss trading office.

Although our ethanol segment had a loss in the quarter Board crush margins were improved and U S. Ethanol stocks ended the quarter very low.

As we predicted in our last earnings call, we were negatively impacted in the third quarter by high corn basis at our ethanol plants, but I've seen relief as we started the corn harvest.

We completed scheduled shutdowns and increased quarterly production of ethanol.

Co products, especially distillers corn oil and high protein feed were sold at improved values.

Third party merchandising of ethanol and related products nearly doubled 2020 results.

The quarter also included Mark to market losses of $6 8 million, what we expect the majority of these to reverse in the fourth quarter.

Plant nutrient quarterly results were comparable to prior year and in line with our expectations for this seasonal business.

Our year to date numbers are strong and we've been well positioned in this high priced and limited supply AG fertilizer market.

Our agricultural product lines performed well.

While our turf and specialty manufacturing business margins were negatively impacted by rising input costs and labor challenges.

Our rail leasing business was sold in August and we announced the intent to sell the rail repair business.

We have used a portion of the rail sale proceeds to reduce debt.

I'm very proud of our team and their performance over the past quarter and for the entire year executing well in these volatile markets and staying focused on serving our customers now.

I'm now going to turn things over to Brian to cover some key financial data and when he's finished I'll be back to discuss our outlook for the rest of 2021, Brian.

Thanks, Pat and good morning, everyone. We're now turning to our third quarter results on slide number five.

In the third quarter of 2021, the company reported net income attributable to the Andersons from continuing operations of $13 $9 million or <unk> 41 per diluted share.

And adjusted net income from continuing operations of $5 $2 million or <unk> 15 per diluted share.

Revenues of $3 billion.

This compares to a net loss attributable to the company of $1 $5 million or <unk> <unk> per diluted share and an adjusted net loss of $2 $9 million or <unk> <unk> per diluted share and revenues of $1 $9 billion in the third quarter of 2020.

Adjusted EBITDA from continuing operations for the third quarter of 2021 was $56 $3 million, an increase of 20% when compared to third quarter 2020, EBITA of $47 million.

Adjusted EBITDA from continuing operations for the trailing 12 months was $294 $3 million, an increase of nearly $130 million.

Each of our three business units has significantly improved year to date EBITDA compared with 2020.

Our effective tax rate varies each quarter based on the amount of income or loss attributable to the noncontrolling interests.

We recorded taxes for the quarter at an effective rate of 24, 7% and are currently forecasting a full year effective tax rate of between 22% and 25%.

Next we'll move to slide six to discuss cash liquidity and debt.

We generated third quarter cash flow from continuing operations before changes in working capital of $55 $6 million compared to $52 $8 million in 2020.

Year to date cash flow has already exceeded our full year of 2020.

We've seen an expected seasonal reduction in short term debt as the balance of readily marketable inventories has declined somewhat and we have paid down our revolver.

Futures prices in the grain markets remained high but are down from the levels earlier this year.

Typically our highest borrowings occur in the spring as a result of our seasonal businesses.

And we have seen a reduction from the $915 million borrowed at March 31, as inventories have been reduced.

We continue to take a disciplined approach to capital spending, which we will expect will be about $85 million for the year.

We have reduced long term debt by more than $300 million since yearend.

We have met our stated target of a long term debt to EBITDA ratio of less than two and a half times.

With lower leverage and a stronger balance sheet, we are well positioned to invest in our core agricultural businesses.

We also ended the quarter with more cash than is typical.

A portion of which will be used for our fourth quarter tax payment, which we expect will be approximately $90 million to $100 million, resulting from the significant asset sales.

Now, we'll move on to review of each of our business segments, beginning with trade on slide number seven.

Trade had record third quarter, adjusted pre tax income of $27 $6 million compared to pretax income of $6 $9 million in the same period of 2020.

Elevation margins from early harvest draw areas were particularly strong.

Merchandising gross profit was about 50% higher than the prior year and includes $7 million related to new businesses.

Storage income opportunities have returned for wheat, as we were able to accumulate larger than expected new crop bushels.

In addition to the organic growth. We just mentioned we also closed on the acquisition of Capstone commodities just after the end of the quarter, which will help to extend our feed ingredients supply chain to southwestern U S areas.

Trades adjusted EBITA for the quarter was $43 $9 million nearly double the adjusted EBITDA of $22 $3 million in the third quarter of 2020.

Moving to slide eight ethanol had a third quarter pre tax loss attributable to the company of $3 $6 million compared to third quarter 2020, pre tax income of $1 $1 million.

Improving board crush margins were reduced by high corn basis prior to the fall harvest.

This was partially offset by strong co product values and third party trading results.

As Pat mentioned, our third quarter results included unrealized mark to market losses from hedging activities of nearly $7 million most of which we expect to reverse in the fourth quarter.

As of this call we have completed all of our planned maintenance shutdowns for the year.

Ethanol generated EBITA of $19 $2 million in the third quarter of 2021 <unk>.

Compared to $24 $4 million in the third quarter of last year.

Turning to slide nine the plant nutrient business recorded a pretax loss of $5 $8 million in the third quarter compared to a third quarter 2020 pretax loss of $5 $4 million.

Similar to last quarter, well positioned inventory with continued demand led to solid margins per ton in our agricultural product lines.

Our turf and specialty business experienced a small volume increase but was challenged by inflation and labor and raw material costs.

Plant nutrients EBITA for the quarter was $1 $8 million compared to $2 2 million in the third quarter of 2020.

I'd now like to turn things back to Pat for some thoughts about the remainder of 2021 and a preview of our strategy for longer term growth.

Thanks, Brian.

We remain positive in our outlook for 2021.

While grain export demand has seasonally slowed we expect high global demand for U S produced crops into 2022.

This demand continues to support world grain trade and commodity prices higher than historical averages.

Harvest in our dry area is progressing well farmer income is high and we expect an abundant harvest that will provide us additional merchandising and elevation opportunities into 2022.

Given these conditions, we remain optimistic and the potential for our trade segment.

Worldwide supplies are projected to be tight beyond this 2021 harvest.

Some storage income opportunity has returned to corn and wheat, and we're able to acquire more of the summer wheat harvest than projected.

A large 2021 harvest will reduce but not eliminate the impact of strong worldwide demand.

With our broad trade portfolio, the benefits from merchandising grain for consumptive demand as well as by providing storage space you see continuing complementary opportunities.

We continue to navigate well in these volatile markets and we remain focused on managing risk.

While we believe our fourth quarter and trade could be comparable to 2020 keep in mind that the prior year included some especially high margin soybean sales.

Good results from the harvest despite some delays from recent wet weather across the corn belt.

And ethanol gasoline demand has returned to pre pandemic levels and board crush margins are strong and positive into the first quarter of 2022.

U S. Ethanol stocks are currently low but industry production is increasing to meet this demand.

Co product values support our overall margin as the new renewable diesel demand continues to drive high corn oil values.

We have received approval on our California Air Resources Board application for ethanol sales from our college, Kansas plant.

Once verified we expect to begin shipments to California later this year.

We expect our plant nutrient segment to continue to perform well an ongoing period of tight supply.

We have strong relationships with our suppliers and continue to appropriately manage positions and price risk demand.

Demand looks to be strong in all product lines.

We are well prepared to execute in volatile markets and have a solid track record in managing risk logistics and operations.

With our strong balance sheet, we are well prepared for this volatility and are committed to maintaining and improving our financial metrics.

With a positive nearby outlook, we're excited about our prospects for growth.

Now, let's turn to slide 11, where I'll summarize key aspects of our growth strategy.

Over the past several months, we completed a strategy review with an outside consultant and recently shared the conclusions with our board of directors.

Included in this work was a deeply view of our portfolio and the decision to divest of our rail business and focus on our core agricultural verticals.

We're optimistic about the long term growth prospects in our core AG segments, including adjacent new products and markets.

We're using two trees here to illustrate our two verticals of grain and fertilizer as well as several current product lines together with future growth opportunities.

Examples of our targeted growth areas include.

Applying our expertise in commodity trading and logistics.

Two exciting new areas with limited investment in fixed assets.

This can include strategically redirecting merchandising talent to focus on new products or geographies, such as our new Swiss trading office.

It also could include bolt on acquisitions of complementary trading companies that align with our core like our recently announced capstone commodities acquisition.

In addition to focusing on current product lines.

We're also investigating adjacencies, such as farm gate solutions for carbon and other opportunities in sustainable AG.

We will continue to invest in premium products and food and feed supply chains.

We are evaluating both organic and new ingredients for human and animal consumption, including pet food and our expanding our organic fertilizer offerings.

Biofuels as a rapidly evolving space, especially in supply chain surrounding renewable diesel.

We'll participate here, primarily through input and off take agreements as well as optimizing our production of feedstocks.

In addition, we will continue to improve efficiency at our ethanol plants in order to maintain our strong position.

In addition to expanding our organic fertilizer offering we're developing innovative new specialty products for consumers and growth of crops beyond traditional row crops.

We will also consider M&A within our core areas of strength and product line extensions for our manufactured products.

We will continue to maintain discipline in our capital allocation and stay true to investing within our core.

These are exciting times in the AG industry with favorable evolving trends don't align with the andersons core strengths and capabilities.

We are well positioned to capitalize on these opportunities.

With that I'd like to hand, the call back to Sarah and we'll be happy to entertain your questions.

You ask a question you will need to press Star then one on your telephone.

Sure. Your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Ken Zaslow with BMO capital markets. Your line is now open.

Hey, good morning, guys.

Thank you.

Just a couple of questions I have one is when you think about the current quarter. What do you think was either transient on the positive side or on the negative side during the quarter.

And.

Can you discuss the magnitude of that that would be my first question.

Okay. Good question Ken.

It's funny I take a week ago, 10 days ago and Kenny.

<unk>, which is actually good for harvest conditions. So it feels like maybe the weather isn't as big a concern maybe it would've been 10 days ago, So that seems to have alleviated.

Harvest harvest side.

Probably the biggest swing factor is really about ethanol pricing and Megan dish crush margins right now in production has picked up so much.

Vincent stays strong.

Through November and December will be a big factor in our quarterly results.

I see but was there anything from the storm I think you mentioned that you.

Our Louisiana plant was not impacted but the elevation margins were higher.

Is there something that maybe not.

Is that.

Something that was created because of the storm. It is kind of onetime in nature, and we don't want to minimize your business model, but may not be.

Going forward is that the way to think about it is there but on the flip side. It sounds like there are other things that might have negatively impacted you in terms of.

Supply and logistics things like that just trying to get a base of anything that is extraordinary in the corner.

That's a fair clarification I think it's important to note. So our assets are domestic assets in north Louisiana. So we're not at the Gulf I'm not talking about export elevators. Unfortunately, some of our colleagues in the industry has suffered from severe damage from the hurricanes, which we feel horrible about these are domestic shippers of rail and storage assets.

In the northern part of the state we were able to Dodge any damage from any storms and severe weather. So we were able to capture those early premiums probably higher than normally would be because the inverse was so steep this year. So we had really good results in Louisiana.

First harvested corn to come off in the country and we're able to take advantage of so right place right time.

And will that happen again next year, I guess time will tell.

Just not very good year in Louisiana for Us.

When you talk about your capital allocation, let's say bolt on with a lot of things wondering that you didn't see as much.

Is the focus on the high protein feed and where you're going to go on that strategy can you talk about where you think.

Not in the next quarter, but when you think about next year and the year. After how big do you think that could be how important is that to your growth algorithm and is there any sort of risk of that.

All these crushers come on bringing on capacity.

Yes, that's good clarification.

Didn't mention that that was a mistake. So we still continue to pursue <unk>.

<unk> feed strategy at our ethanol plants.

Have it installed and doing very well at our western plants in Kansas, and Iowa, and we are working on projects to do additional work.

Higher value feed products in our eastern plants. So we see that being a part of the overall crush margin optimization in years going forward and also reducing energy and lowering our Ci score as well so that is a big part of our optimization of ethanol assets in the years ahead like I said, we're not doing it all in one.

Quarter.

Second away at those projects in a logical fashion, we're still very friendly to value add to two <unk> I think one of the challenges short term Ken as you mentioned so the protein complex is crushing will increase for oil products across the country may keep some pressure on meal and feed.

Relative to corn, so that could be a little bit of a caf II overall returns on the protein complex.

So in general, but overall, improving net corn cost for ethanol plants, we feel makes lots of sense long term.

Okay.

Final question is okay. So you've added the Swiss trading I think you probably added a couple of other little training businesses as well as some other new businesses can you frame.

How and just take it for like a year and it is a hard question.

Last year, the things that you've done how much incremental profits associated with that but more importantly, how much you think it will add.

In 2022, and 2023 and again I think about the trading the.

The training operations that you've added in different locations at different products, you've added and is there a way to kind.

Some of that together to see right, we shouldn't get too much capital and it has been.

This time much return is what we expect and then we can kind of parlay that into the stuff that youre going to do in the future.

Just trying to think of it like that I know, it's a hard question, but any sort of framework would be helpful.

And Ken.

Maybe harder to define in the short term but.

I would say that this past year, that's even go back a little bit that.

The acquisition of Lansing back to 2019 was the biggest in our country's history and that's really paid huge dividends for us and really broadened our portfolio and so we're really happy about the results of that integration and where we're going with the talent and being able to broaden those product lines. So that's what's leading us to some of these opportunities and feed ingredients.

So, we're adding with capstone to take us to the Texas and southwest markets. The opening of our Geneva office is about extending our supply chain, mostly to Africa. So those businesses are up and going and going well not a big contribution to this year. This current quarter, but next year I would say, maybe I'd say probably 10.

15%.

And I would say probably $10 million to $15 million of EBITDA is kind of a reasonable range for 'twenty two for those on an incremental basis and I think the bigger question, you're asking Ken as we have some ideas in the pipeline to be able to do more of that in those numbers.

Is harder to project out because those are not completed deals, but that's where we'd like to through 'twenty. Two 'twenty three 'twenty four continue to broaden our supply chains and add new products and Thats, what we had in kind of growth capital when we talk.

In previous discussions about.

Our projects down the road.

Okay, Let me let me just.

And one more time, because I think it's actually interesting so in a capital constrained environment were you able to only putting capital wherever you could you've got probably about $10 million to $15 million, while going forward you will actually have more capital to deploy assuming that you don't do anything.

Poorly and you keep the same strategy the opportunity should be greater than that $10 million to $15 million, because you have more capital to release and.

Your.

Capital discipline should not.

Go down the way side is that a fair way of looking at it.

Great for an absolutely it's a very fair point and part of the strategy I mentioned that we reviewed with our board and the decision behind the sale of our rail assets was to improve our balance sheet and to create dry capital for those growth plans that we think can be.

Higher returns candidly than we were making with our rail business. So our plan is to continue to grow in those segments.

It's likely not one super large acquisition early so something like we did with Lansing, we're probably more mid sized type.

Type of acquisitions would be in the 50 to $2 50 kind of range. So we're excited to look at those opportunities we don't want to be.

Pay too high in a super hot market, but those opportunities are quite attractive for many of our segments that we think we could can grow with.

Great I really appreciate it thanks guys.

I appreciate it.

Thank you. Our next question comes from the line of Ben B and Vanilla with Stephens. Your line is now open.

Hey, Thank you good morning, everybody.

Good morning, Ben.

I wanted to follow up or maybe ask a similar question to Ken as it relates to.

For the third quarter.

And also maybe this year a little bit.

Where do you think you are in terms of delivering earnings relative to your.

Potential.

Do you think you're continuing to theirs.

There is continued opportunity do you think the net of everything is over earning obviously you've laid out a long term goal of meaningfully higher EBITDA.

Uh huh.

And you will invest capital to get there, but <unk> had a number of kind of puts and takes this year and so I'm just trying to get a sense of kind of where the equilibrium now.

That's a very fair comment.

Ben and I think it's hard to look back I'd love to say I think our team did a very good job, especially.

Especially in the grain markets to navigate the inverse and all of the activities is here with shortage of truck drivers in the container challenges. There's a lot of interesting obstacles I think in the overall economy right now that everyone is dealing with.

From labor shortages and manufacturing to transportation challenges, we've been able to navigate through that I think there is opportunity for us to do even better.

We haven't had any big <unk>.

Negative hits to any of our businesses are important losses, we've done well across the board in all of our product lines I think there's potential to do even better.

Margins arent at historical highs, but they were back in the 2012 to 2014 periods. So you can't say, we are trading at all time highs, but we've done well this year, especially in our trade group I think our fertilizer business has more potential upside as we continue to have.

For farmers to really put nutrients into their crops and as we work forward on carbon I think there'll be a lot of interesting opportunities in grain and fertilizer related to sustainability. We continue to work on transport food supply chain that has higher margin opportunities both in human consumption.

Food as well as pet food ingredients. So there's a lot of areas that I think we can do even better and we have more growth potential on volume and margin in those businesses. So.

The answer is I think the best is still in front of us.

I think than a lot of those a lot of those puts and takes I think kind of offset to your point I mean in trade when you see some opportunities in Louisiana and also in Idaho with Zelle conditions up in the Pacific Northwest I think but at the same time higher corn basis and ethanol.

All offset that Pat talked about some of the higher input costs and labor costs in <unk>.

Plant nutrient so I think on the whole and none of US earlier in the year I think folks wouldn't have predicted series coming back into the wheat market. So I think on the whole. Some of these puts and takes offset and I do think there's opportunity for continued growth from here.

That's great.

Sticking on the topic of future growth.

Brian I think you said.

Youre expecting $85 million of Capex. This year should we expect.

Little bit more than that next year.

Do you think about investing in the pipeline ahead of you but.

Organic and inorganic growth.

What's a reasonable level of capex to be thinking about.

I would say so I would probably put it in the range of $100 million to $125 million is probably where I would frame it.

Would probably say that half of that is sort of maintenance capital and the rest being allocated to growth would be where I'd go from a high level estimate perspective at this point.

I think it's a good clarification.

Our capex during tighter times during Covid and everything we tightened our belts now we have some upkeep to do and our assets and plan to spend more on our assets to make sure. They're shipshape as we have good fertilizer and grain opportunities in front of us but that also includes some.

Significant capital projects, where we can really improve our assets and thats going to become very important for us as we think there'll be stressed in the coming years with very busy volumes.

Okay, that's great that makes sense.

If I think about the pipeline of opportunities ahead of you what is the organizational bandwidth of the andersons to pursue these future growth opportunities do you feel like.

Company is primed and prepared to go pursue these.

Growth opportunities you know.

Fully digested Lansing, you've bolted on a few acquisitions here and there.

Obviously gotten.

The divestiture of the rail business behind you.

What is the bandwidth of the company to go out and pursue growth how are you.

Do you have excess bandwidth to pursue that.

I think we have a really strong bench with like you said the acquisition of Lansing, we really broadened our capabilities on merchandising and business development.

<unk> would be a year ago, how we move people into a virtual trading desks to participate and renewable diesel supply we've come a pretty important player in that business.

We have the ability to apply talent emerging opportunities.

The exciting part is there is lots of opportunities in the sustainability part from the farm gate.

All the way up into end customers.

A lot of that the new space that everyone in the industry is learning about and applying resources too.

So I think we have the capabilities to do we need now.

And these new growth opportunities, we got talent to execute against it so.

Simple answer is I think we're in very good position to execute against our growth strategies, when we get into some of the assets and growth opportunities within those assets, we'd probably have to bring on some additional resources at that time, but excited about the team we have and the opportunities in front of them.

Okay. Thanks, so much congrats and best of luck with the rest of the year.

I appreciate it thank you.

Our next question comes from the line of Eric Larson with Seaport Global Your line is now open.

Yes, good morning, everyone. Congratulations on a good quarter.

Yes.

My first question is really.

It's really.

Our current operations.

Specific so.

Sure.

I knew that you had some decent inventory in wheat.

And I'm.

I'm curious what contribution.

Basis depreciation played in your third quarter numbers and even more important.

You've got to have some attractive basis going full appreciation going forward I mean spring wheat prices have pushed through $10 on the Minneapolis exchange in.

Can you give us an idea of what your inventories are and maybe what the timing of some of those basis appreciation gains could be realized.

Yes, that's fair appointing you were talking about spring, we remember that our inventories are most are soft red wheat from the eastern crop are all tied to the wheat market overall.

Carey's, we're probably about 70% of full storage and software suite. So that's a good thing.

We hadn't been able to enjoy.

Suffered weak carry the last couple of years, so seeing some carrying charges returned to wheat was good. That's why we are excited to buy a little bit more weight than we originally had in our program. So we like putting wheat into our Toledo complex.

Storage.

Based on depreciation I think that's very specific question about the market right now I think it's a good position for us that we will have I think that those software values are going to be valuable over time.

A lot was like we talked about in Idaho, a lot of our situation Idaho was about quality right. So having the right quality wheat are blending.

We both white wheat and hard wheat in the west really had a lot of value to this year. So I think your point, Eric is about the wheat market, which sometimes gets overlooked and teams kind of quiet right now it is very interesting from a quality.

Our blending capability and storage, which is kind of old fashion grain business to come back and I think we have some upside.

In our earnings on wheat overall.

Yes.

<unk> had real you had real shortages in the west of wheat, and even small grain. This last year I mean, we're talking really tight numbers on.

On on carryover, so I suspect that that will be a positive going forward for you.

You mentioned small grain so for us we participate in the market as well as <unk>. So those crops were hurt in Canada and up on the high plains. So it's been an interesting trading opportunity and we've done well in merchandising small grains.

Are we going to have enough Oates for all of the demand next year path just out of curiosity, what your thoughts are on that.

It's going to be a tight market. So it is going to provide some interesting merchandising trading opportunities, but it's a.

One of our tighter commodity markets this year.

Got it okay. So moving on.

You provided some very specific guidance.

Over the next couple of years Pat on on your on your forward EBITDA.

And what I'm curious about it is is can you express your confidence in that guidance.

And then number two related to that.

If we can even.

Characterized a normalized ethanol market, but.

Youre still pretty far well below kind of what I would think as your average EBITDA contribution from ethanol.

So what could be an annual.

If you normalize the ethanol market, that's a really tough question, but what what should you what could we expect.

As an EBITDA contribution from ethanol.

Going forward over the next couple of years.

Well.

Had a couple of handful of questions on <unk>, So I'll start at the beginning.

It's about our outlook against our EBITA targets that we put forward a year ago and a few months ago I feel very confident in our opportunity to grow.

The AG markets now are providing opportunities for our companies to be able to look at things like sustainability and the change of renewable diesel impacting the entire oilseed complex has made a big difference. So I think we have a new period for the grain business and fertilizer business than we did.

Five and six years ago, and so we have opportunities for growth and I think the unique thing that we're positioned well and things that fit into our strength managing supply chains working with farmers working with end customers understanding of the environmental landscape as it relates to ethanol coming from that business and how the market works for.

<unk> and working in a space, it's complicated with government regulations, I think that helps us as well.

Navigate these new market opportunities. So we're kind of excited about those new areas, but probably more importantly, just the fundamentals back to exports.

Who wouldn't see grades around the world.

Mastic specialty crops and specialty products for human consumption food as well as pet food areas for growth. So a lot of our core businesses.

Have some upside and we can do that through bolt ons when it expansions new product lines things like that to grow.

Good examples organics organic fertilizer business is an attractive opportunity for us. So these are crazy way out their ideas of things, we know how to do and that gives me more confidence that we'll be able to execute against it.

The second question, Brian joining us Eric just to add to that.

We went through Pat mentioned that we went through.

Pretty detailed corporate strategy review this year and so I think our teams really have a lot of focus.

And a lot of energy on key areas, where we really believe that we can add value and are able to be successful.

<unk> competitive advantages.

Yes.

I think when we think about our modeling and some of the numbers that are out there going forward. They do include some M&A, we're going to continue to be disciplined in our approach and make sure that we're not over.

Overpaying the markets have been pretty robust as you know and so.

Some of that then it certainly won't be linear, but we're going to continue to look for those opportunities.

The second.

I understood it Eric.

Very hard to pinpoint exact numbers on average as you set for ethanol.

Again, I've been around ethanol and evolved in plant for almost 30 years now it's very difficult to forecast because it's so many factors, but if you looked at the underlying factors today and ethanol we have an abundant corn crop.

We have very high corn oil values driven by renewable diesel.

Good supporting values for value added feed products and <unk> in general.

We have a global market of higher commodity prices in the energy sector, which supports gasoline prices, which is good for ethanol.

We have a new administration that is very focused on clean energy and it just recently at the summit talking about <unk> and carbon reductions. So theres a lot of things that can be very favorable to ethanol in the near term. So I think those opportunities for ethanol to be quite profitable.

This year as we get.

Gasoline demand to come back after being a little bit depressed through the whole COVID-19 period. So there's a lot of things that are lining up on the favor of ethanol short term you also heard about reasonable at least reasonable I'm, sorry, recent developments about sustainable aviation fuel and that potentially coming down the pike.

A lot of exciting things that could support ethanol near term long term. The big question is more about E vehicle penetration rate and that's probably the macro longer term challenge, but near term ethanol could be quite good and it's shaping up more checks on the positive side than on the negative side.

Okay, Yes.

I would agree.

Your balance sheet is.

It's incredible.

<unk> improvement, obviously rail the rail sale help that.

A lot et cetera, but.

You also announced a $100 million share repurchase program.

With your balance sheet right now could you not execute both debt and your strategic growth.

Yes.

Strategic growth.

Alternatives available to you right now simultaneously or do you think maybe we have some bigger.

Growth opportunities from an opportunistic point of view that require a little bit more capital so you're conservative on the on your share buyback.

Good question I think when it comes to share repurchases just as simple as we currently see more opportunities. So we're really excited about to deploy capital for growth to grow the company and Thats, our keen focus right now.

Okay. Thank you I'll pass it on.

Sure.

Thank you.

<unk> to ask a question you will need to press Star then one on your telephone one moment for questions.

There are no further questions I will now turn the call back to Michael for closing remarks.

Thanks, Tara we want to thank you all for joining US. This morning. Our next earnings conference call is scheduled for Wednesday February 16th 2022 at 11, a M. Eastern time, when we will review our fourth quarter results.

As always thank you for your interest in the Andersons and we look forward to speaking with you again soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Yes.

[music].

Okay.

Uh huh.

Okay.

Yes.

[music].

Yes.

[music].

Okay.

[music].

Sure.

Okay.

[music].

Okay.

[music].

Sure.

Yes.

Sure.

[music].

Yes.

Thanks.

[music].

Yes.

[music].

Telephone.

As a reminder, this conference is being recorded if anyone should require operator assistance. Please press Star then zero.

I would now like to hand, the conference over to your house today, Mike Holter, Vice President corporate controller and Investor Relations. Please go ahead.

Thanks, Sara good morning, everyone and thank you for joining us for the Andersons third quarter 2021 earnings call. We have provided a slide presentation that will enhance today's discussion if you're viewing this presentation via our webcast the slides and commentary will be on saying.

This webcast is being recorded and the recording and the supporting slides will be made available on the investors page of our website at Andersons, Inc. Dot com shortly.

Please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimer in the press release related to forward looking statements.

Certain information discussed today constitutes forward looking statements that reflect the company's current views with respect to future events financial performance and industry conditions.

These forward looking statements are subject to various risks and uncertainties actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors.

Thank you, Mike and good morning, everyone.

Thank you for joining our call. This morning to review our third quarter results.

We are extremely pleased with our overall third quarter results, which included an all time record performance and the trade group and continued our strong momentum.

Along with solid AG fundamentals, we have executed well.

Trading through in an inverse market and addressing supply chain and labor challenges in the period of significant volatility.

The company recorded its best third quarter since 2014.

Across the company. Our teams are working hard to provide extraordinary service to our customers in these favorable markets.

Trade had a great quarter, executing well and dynamic grain markets, where low grain stocks have provided excellent merchandising and elevation opportunities.

We had especially strong elevation margins in a number of regions.

Our Louisiana locations were not impacted by the recent hurricanes and we were able to continuously serve customers.

Idaho also benefited from strong basis appreciation and its wheat inventory.

Our propane distribution business continued to perform very well.

Winter wheat harvest receipts were better than expected and we are seeing storage income return to the corn and wheat markets.

We also saw incremental gross profit from new profit centers in the quarter, including our Swiss trading office.

Although our ethanol segment had a loss in the quarter or crush margins were improved and U S. Ethanol stocks ended the quarter very low.

As we predicted in our last earnings call, we were negatively impacted in the third quarter by high corn basis at our ethanol plants, but I've seen relief as we started the corn harvest.

We completed scheduled shutdowns and increased quarterly production of ethanol.

Co products, especially distillers corn oil and high protein feed were sold at improved values.

Third party merchandising of ethanol and related products nearly doubled 2020 results.

The quarter also included Mark to market losses of $6 8 million, what we expect the majority of these to reverse in the fourth quarter.

Plant nutrient quarterly results were comparable to prior year and in line with our expectations for the seasonal business.

Our year to date numbers are strong and we've been well positioned in this high priced and limited supply AG fertilizer market.

Our agricultural product lines performed well.

While our turf and specialty manufacturing business margins were negatively impacted by rising input costs and labor challenges.

Our rail leasing business was sold in August and we announced the intent to sell the rail repair business.

We have used a portion of the rail sale proceeds to reduce debt.

I'm very proud of our team and their performance over the past quarter and for the entire year executing well in these volatile markets and staying focused on serving our customers well.

I'm now going to turn things over to Brian to cover some key financial data and when he is finished I'll be back to discuss our outlook for the rest of 2021, Brian.

Thanks, Pat and good morning, everyone. We're now turning to our third quarter results on slide number five.

In the third quarter of 2021, the company reported net income attributable to the Andersons from continuing operations of $13 9 million or <unk> 41 per diluted share.

And adjusted net income from continuing operations of $5 2 million or <unk> 15 per diluted share.

Revenues of $3 billion.

This compares to a net loss attributable to the company of $1 $5 million or <unk> <unk> per diluted share and an adjusted net loss of $2 9 million or <unk> <unk> per diluted share and revenues of $1 $9 billion in the third quarter of 2020.

Adjusted EBITDA from continuing operations for the third quarter of 2021 was $56 3 million, an increase of 20% when compared to third quarter 2020, EBITDA of $47 million.

Adjusted EBITDA from continuing operations for the trailing 12 months was $294 3 million an increase of nearly $130 million.

Each of our three business units has significantly improved year to date EBITDA compared with 2020.

Our effective tax rate varies each quarter based on the amount of income or loss attributable to the noncontrolling interests.

We recorded taxes for the quarter and an effective rate of 24, 7% and are currently forecasting a full year effective tax rate of between 22% and 25%.

Next we'll move to slide six to discuss cash liquidity and debt.

We generated third quarter cash flow from continuing operations before changes in working capital of $55 6 million compared to $52 $8 million in 2020.

Year to date cash flow has already exceeded our full year of 2020.

We have seen an expected seasonal reduction in short term debt as the balance of readily marketable inventories has declined somewhat and we have paid down our revolver.

Futures prices in the grain markets remained high but are down from the levels earlier this year.

Typically our highest borrowings occur in the spring as a result of our seasonal businesses.

And we have seen a reduction from the $915 million borrowed at March 31, as inventories have been reduced.

We continue to take a disciplined approach to capital spending, which we will expect will be about $85 million for the year.

We have reduced long term debt by more than $300 million since yearend.

We have met our stated target of a long term debt to EBITDA ratio of less than two five times.

With lower leverage and a stronger balance sheet, we are well positioned to invest in our core agricultural businesses.

We also ended the quarter with more cash than is typical.

A portion of which will be used for our fourth quarter tax payment, which we expect will be approximately $90 million to $100 million, resulting from the significant asset sales.

Now I'll move on to review of each of our business segments, beginning with trade on slide number seven.

Trade had record third quarter, adjusted pre tax income of $27 $6 million.

Compared to pre tax income of $6 9 million in the same period of 2020.

Elevation margins from early harvest draw areas were particularly strong.

<unk> gross profit was about 50% higher than the prior year and includes $7 million related to new businesses.

Storage income opportunities have returned per week, as we were able to accumulate larger than expected new crop bushels.

Trades adjusted EBITA for the quarter was $43 9 million nearly double the adjusted EBITDA of $22 $3 million in the third quarter of 2020.

Moving to slide eight ethanol had a third quarter pre tax loss attributable to the company of $3 6 million compared to third quarter 2020, pre tax income of $1 $1 million.

Improving board crush margins were reduced by high corn basis prior to the fall harvest.

This was partially offset by strong co product values and third party trading results.

As Pat mentioned, our third quarter results included unrealized mark to market losses from hedging activities of nearly $7 million.

Most of which we expect to reverse in the fourth quarter.

As of this call we have completed all of our planned maintenance shutdowns for the year.

Ethanol generated EBITA of $19 2 million in the third quarter of 2021.

Compared to $24 4 million in the third quarter of last year.

Turning to slide nine the plant nutrient business recorded a pretax loss of $5 8 million in the third quarter compared to a third quarter 2020 pre tax loss of $5 $4 million.

Similar to last quarter, well positioned inventory with continued demand led to solid margins per ton in our agricultural product lines.

Our turf and specialty business experienced a small volume increase but was challenged by inflation and labor and raw material costs.

Plant nutrients EBITDA for the quarter was $1 8 million compared to $2 2 million in the third quarter of 2020.

I would now like to turn things back to Pat for some thoughts about the remainder of 2021 and a preview of our strategy for longer term growth.

Thanks, Brian.

We remain positive in our outlook for 2021.

While grain export demand has seasonally slowed we expect high global demand for U S produced crops into 2022.

This demand continues to support world grain trade and commodity prices higher than historical averages.

Harvest in our dry area is progressing well farmer income is high and we expect an abundant harvest that will provide us additional merchandising and elevation opportunities into 2022.

Given these conditions, we remain optimistic and the potential for our trade segment.

Worldwide suppliers are projected to be tight beyond this 2021 harvest.

Some storage income opportunity has returned to corn and wheat, and we're able to acquire more of the summer wheat harvest than projected.

A large 2021 harvest will reduce but not eliminate the impact of strong worldwide demand.

With our broad trade portfolio that benefits from merchandising grains for consumptive demand as well as by providing storage space you see continuing complementary opportunities.

We continue to navigate well in these volatile markets and we remain focused and managing risk.

While we believe our fourth quarter and trade could be comparable to 2020 keep in mind that the prior year included some especially high margin soybean sales.

Good results from the harvest despite some delays from recent wet weather across the corn belt.

And ethanol gasoline demand has returned to pre pandemic levels and board crush margins are strong and positive into the first quarter of 2022.

U S. Ethanol stocks are currently low but industry production is increasing to meet this demand.

Co product values support our overall margin as the new renewable diesel demand continues to drive high corn oil values.

We received approval on our California Air Resources Board application for ethanol sales from our cohorts Kansas plant.

Once verified we expect to begin shipments to California later this year.

We expect our plant nutrient segment to continue to perform well an ongoing period of tight supply.

We have strong relationships with our suppliers and continue to appropriately manage positions and price risk.

Demand looks to be strong in all product lines.

We are well prepared to execute in volatile markets and have a solid track record in managing risk logistics and operations.

With our strong balance sheet, we are well prepared for this volatility and are committed to maintaining and improving our financial metrics.

With a positive nearby outlook, we're excited about our prospects for growth.

Now I will turn to slide 11, where I'll summarize key aspects of our growth strategy.

Over the past several months, we completed a strategy review with an outside consultant and recently shared the conclusions with our board of directors.

Included in this work was a deep review of our portfolio and the decision to divest of our rail business and focus on our core agricultural verticals.

We're optimistic about the long term growth prospects in our core AG segments, including adjacent new products and markets.

We're using two trees here to illustrate our two verticals of grain and fertilizer as well as several current product lines together with future growth opportunities.

Examples of our targeted growth areas include.

Applying our expertise in commodity trading and logistics to.

Two exciting new areas with limited investment in fixed assets.

This can include strategically redirecting merchandising talent to focus on new products or geographies, such as our new Swiss trading office.

It also could include bolt on acquisitions of complementary trading companies that align with our core like our recently announced capstone commodities acquisition.

In addition to focusing on current product lines.

We're also investigating adjacencies, such as farm gate solutions for carbon and other opportunities in sustainable AG.

We will continue to invest in premium products and food and feed supply chains.

We are evaluating both organic and new ingredients for human and animal consumption, including pet food and our expanding our organic fertilizer offerings.

Biofuels as a rapidly evolving space, especially in supply chain surrounding renewable diesel.

We will participate here, primarily through input and offtake agreements as well as optimizing our production of feedstocks.

In addition, we will continue to improve efficiency at our ethanol plants in order to maintain our strong position.

In addition to expanding our organic fertilizer offering we're developing innovative new specialty products for consumers and growth of crops beyond traditional row crops.

We will also consider M&A within our core areas of strength and product line extensions for our manufactured products.

We will continue to maintain discipline in our capital allocation and stay true to investing within our core.

These are exciting times in the AG industry with favorable evolving trends.

<unk> with the Andersons core strengths and capabilities.

We are well positioned to capitalize on these opportunities.

With that I'd like to hand, the call back to Sarah and we'll be happy to entertain your questions.

You ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Ken Zaslow with BMO capital markets. Your line is now open.

Hey, good morning, guys.

Thank you.

Just a couple of questions I have one is when you think about the current quarter. What do you think was either transient on the positive side or on the negative side during the quarter.

And can you discuss the magnitude of that that would be my first question.

Good question Ken.

It's funny I take a week ago 10 days ago, Kenny Wayne.

Wayne because as you know we have that those big storms come across the corn belt and we're worried about maybe some delays in harvest now this week, we've got really bright sunshine and the eastern grain belt, some fast which is actually good for harvest conditions. So it feels like maybe the weather isn't as big a concern maybe it would've been 10 days ago, so that seems to alleviate.

Good on the.

Harvest side.

I think probably the biggest swing factor is really about ethanol pricing and Megan These crush margins right now in production has picked up so much.

And stay strong.

Through November and December will be a big factor in our quarterly results.

But was there anything from the storm I think you mentioned that.

Our Louisiana plant was not impacted but the elevation margins were higher.

Is there something that may not.

Is that.

Some of that was created because of the storm. It is kind of onetime in nature, and we don't want to minimize your business model, but may not be.

Going forward is that the way to think about it is there.

Flip side it sounds like there are other things that might have negatively impacted you in terms of.

Supply and logistics things like that just trying to get a base of anything that was extraordinarily Florida.

First a clarification I think it's important to note. So our assets are domestic assets in north Louisiana. So we're not at the Gulf I'm not talking about export elevators. Unfortunately, some of our colleagues in the industry has suffered from severe damage from the hurricanes, which we feel horrible about these are domestic shippers of rail and storage assets in the <unk>.

Northern part of the state we were able to Dodge any damage from any storms and severe weather. So we were able to capture those early premiums probably higher than normally be because of the inverse with so steep this year. So we had really good results in Louisiana.

The first harvested corn to come off in the country and we're able to take advantage of so right place right time.

And will that happen again next year, I guess time will tell.

Very good year in Louisiana for Us.

When you talk about your capital allocation listen bolt on you look at a lot of things wondering that you didn't say as much.

Is the focus on the high protein feed and where you're going to go on that strategy can you talk about where you think not.

All these crushers come on bringing on capacity.

Yes, good clarification Kevin.

Didn't mentioned that that was a mistake. So we still continue to pursue high protein feed strategy at our ethanol plants, we have it installed and doing very well at our western plants in Kansas, and Iowa, and we are working on projects to do additional work.

Quarter pecking.

Pecking away at those projects in a logical fashion, we're still very friendly to value add to <unk> I think one of the challenges short term Ken as you mentioned so the protein complex is crushing will increase so oil products across the country may keep some pressure on meal and feed.

<unk> relative to corn, so that could be a little bit of a cap to overall returns on the protein complex in general, but overall, improving net corn cost for ethanol plants, we feel makes lots of sense long term.

And then my final question is okay. So you've added the Swiss trading I think you probably added a couple of other little training businesses as well as some other new businesses can you frame.

How and just take it for like a year is a hard question.

Last year, the things that you've done how much incremental either profits were associated with that but more importantly, how much you think it will add.

In 2022, and 2023 and again I think about the trading.

The training operations that you've added in different locations at different products, you've added and is there a way to kind of.

Some of that together we.

We felt this much capital.

So much of a return is what we expect and then we can kind of parlay that into the stuff that youre going to do in the future.

Just trying to think of it like that I know, it's a hard question, but any kind of framework would be helpful.

And Ken.

Maybe they're harder to find in the short term but.

I would say that this past year that even go back a little bit that the acquisition of Lansing back to 2019 was the biggest in our country's history and that's really paid huge dividends for us and really broaden our portfolio and so we're really happy about the results of that integration and where we're going with the talent and being able to broaden those product clients. So that's what's Lee.

And is that some of these opportunities and feed ingredients, so adding with capstone to take us to the Texas and southwest markets.

The opening of our Geneva offices about extending our supply chain, mostly to Africa. So those businesses are up and growing and growing well not a big contribution to this year. This current quarter, but next year I would say, maybe I'd say, probably 10% to 15%.

Ken I would say probably $10 million to $15 million of EBITDA is kind of a reasonable range for 'twenty two for those on an incremental basis. So I think the bigger question, you're asking Ken as we have some ideas in the pipeline to be able to do more of that and those are numbers that much harder to project out because those are not completed deals, but that's where we'd like to do.

'twenty two 'twenty three 'twenty four continue to broaden our supply chains and add new products and Thats, what we had in kind of both capital when we talk and.

In previous discussions about.

Our projects down the road.

So let me let me just.

Great and one more time, because I think it is actually interesting so in a capital constrained environment, where you're able to only putting capital wherever you could you've got probably about $10 million to $15 million.

Now going forward, you will actually have more capital to deploy assuming that you don't do anything.

Poorly and you keep the same strategy.

The opportunity should be greater than that 10% to $15 million because you have more capital to release and your.

Capital discipline should not.

Go down the way side is that a fair way of looking at it.

Greg Foran, absolutely, it's a very fair point and part of the strategy I mentioned that we reviewed with our board and the decision behind the sale of our rail assets was to improve our balance sheet and to create dry capital for those growth plans that we think can.

We provide higher returns candidly than we were making with our rail business. So our plan is to continue to grow in those segments, it's likely not one super large <unk>.

Acquisition early so something like we did with Lansing, but probably more mid sized.

The type of acquisitions would be in the 50 to $2 50 kind of range. So we're excited to look at those opportunities we don't want to be.

Pay too high in a super hot market, but those opportunities are quite attractive for many of our segments that we think we could can grow with.

Alright, I really appreciate it thanks guys.

I appreciate it.

Thank you. Our next question comes from the line of Ben <unk> with Stephens. Your line is now open.

Hey, Thank you good morning, everybody.

Good morning, Ben.

I wanted to follow up.

Ask a similar question to Ken as it relates to the third quarter.

And also maybe this year a little bit.

Where do you think you are in terms of delivering earnings relative to your potential.

Potential.

Do you think you're continuing to.

<unk> opportunity do you think the net of everything is over earning obviously you've laid out a long term goal of <unk>.

Meaningfully higher EBITDA.

And you will invest capital to get there.

<unk> had a number of kind of puts and takes this year and so I'm just trying to get a sense of kind of where the equilibrium now.

That's a very fair comment.

I think it's hard to look back I'd love to say I think our team did a very good job.

From labor shortages and manufacturing to transportation challenges, we've been able to navigate through that I think there is opportunities for us to do even better.

We haven't had any big <unk>.

Negative hits to any of our businesses are important losses, we've done well across the board in all of our product lines I think there is potential to do even better.

Margins arent at historical highs like they were back in the 2012 to 2014 periods. So you can't say, we're trading at all time highs.

Done well this year, especially in our trade group I think our fertilizer business has more potential upside as we continue to have.

Incentives for farmers to really put nutrients into their crops and as we work forward on carbon I think theres been a lot of interesting opportunities in grain and fertilizer related to sustainability. We continue to work on transport food supply chain that has higher margin opportunities both in human.

<unk> food as well as pet food ingredients. So there's a lot of areas that I think we can do even better and we have more growth potential on volume and margin in those businesses. So.

Answer is I think the best is still in front of us.

Yes, I think than a lot of those a lot of those puts and takes I think kind of offset to your point I mean in trade when you see some opportunities in Louisiana.

Also in Idaho with Zelle conditions up in the Pacific Northwest I think but at the same time higher corn basis, and ethanol offsets that have talked about some of the higher input costs and labor costs in.

Plant nutrient so I think on the whole none of US earlier in the year I think folks wouldn't have predicted series coming back into the REIT model. So I think on the whole. Some of these puts and takes offset and I do think there is there is opportunity for continued growth from here.

That's great.

Sticking on the topic of future growth.

Brian I think you said.

Youre expecting $85 million of Capex for this year should we expect a little bit more than that next year.

Do you think about investing in the pipeline ahead of you but.

Organic and inorganic growth.

What's a reasonable level of capex to be thinking about.

I would say so I would probably put it in the range of $100 million to $125 million is probably where I would frame it.

Would probably say that half of that is sort of maintenance capital and the rest being allocated to growth would be where I'd go from high level estimate perspective at this point.

I think it's a good clarification.

Our capex.

Tighter times during Covid and everything we tightened our belts now we have some upkeep to do and our assets and plan to spend more on our assets to make sure. They're shipshape as we have good fertilizer and grain opportunities in front of us but that also includes some.

The significant capital projects, where we can really improve our assets and thats going to become very important for us as we think there'll be stressed in the coming years with very busy volumes.

That's great that makes sense.

If I think about the pipeline of opportunities ahead of you.

The organizational bandwidth of the andersons to pursue these future growth opportunities do you feel like the <unk>.

Company is primed and prepared to go pursue these.

Growth opportunities you know.

Fully digested Lansing, you've bolted on a few acquisitions here and there.

Obviously gotten.

The divestiture of the rail business behind you.

What is the bandwidth of the company to go out and pursue growth are you.

Do you have excess bandwidth to pursue that.

I think we have a really strong bench with like you said the acquisition of Lansing, we really broadened our capabilities on merchandising and business development.

Example, would be a year ago, how we move people into a virtual trading desks to participate and renewable diesel supply we've come a pretty important player in that business I think we have the ability to apply talent to emerging opportunities.

The exciting part is there is lots of opportunities in the sustainability part from the farm gate.

All the way up into end customers.

A lot of that is new space that everyone in the industry is learning about and applying resources too.

So I think we have the capabilities to do we need now.

And these new growth opportunities, we've got talent to execute against it so.

Simple answer is I think we're in very good position to execute against our growth strategies, when we get into some of the assets and growth opportunities within those assets, we probably have to bring on some additional resources at that time, but I'm excited about the team we have and the opportunities in front of them.

Okay. Thanks, so much congrats and best of luck with the rest of the year.

Thank you.

Our next question comes from the line of Eric Larson with Seaport Global Your line is now open.

Yes, good morning, everyone. Congratulations on a good quarter.

My first question is really.

As released.

Current operations.

Specific so.

Sure.

I knew that you had some decent inventory and weak.

And I'm.

I'm curious what contribution.

Basis depreciation played in your third quarter numbers, and we are even more important.

<unk> got to have some attractive basis going full appreciation going forward.

Spring wheat prices have pushed through $10 on the Minneapolis exchange.

Can you give us an idea of what your inventories are and maybe what the timing of some of those basis appreciation gains could be realized.

Yes, Thats fair appointing you were talking about spring, we remember that our inventories are most are soft red wheat from the eastern Cropper, they're all tied to the wheat market overall.

Carey's, we're probably about 70% of for storage and software suite. So that's a good thing.

We hadn't been able to enjoy suffer.

Suffered weak carry the last couple of years. So has seen some carrying charges returned to wheat was drilled thats why we are excited to buy a little bit more weak than we originally had in our program. So we like putting wheat into our Toledo complex.

For storage.

Basis, depreciation I think thats very specific question about the market right now I think it's a good position for us that we will have I think that those software values are going to be valuable over time.

A lot was like we talked about in Idaho, a lot of our situation Idaho was about quality right. So having the right quality wheat are blending.

We both white wheat and hard wheat in the west really had a lot of value of this year. So I think youre point, Eric is about the wheat market, which sometimes gets overlooked and seems kind of quiet right now its very interesting from a quality of.

Blending capability and storage, which is kind of old fashion grain business to come back and I think we have some upside.

In our earnings on wheat overall.

Yes.

You had real good you had real shortages in the west of wheat, and even small grains. This last year I mean, we're talking really tight numbers on.

On on carryover, so I suspect that that will be a positive going forward for you.

You mentioned small grants so for US we participated in the <unk> market as well as <unk>. So those crops were hurt in Canada and up on the high plains. So it's been an interesting trading opportunity and we've done well in merchandising small grants.

Are we going to have enough oleds for all of the demand next year path just out of curiosity, what your thoughts are on that.

It's going to be a tight market. So it's going to provide some interesting merchandising trading opportunities.

One of our tighter commodity markets this year.

Got it okay. So moving on.

You provided some very specific guidance.

Over the next couple of years Pat on on your on your forward EBITDA.

And what I'm curious about it is is can you express your confidence in that guidance.

And then number two related to that.

If we can even.

Characterized a normalized ethanol market, but.

Youre still pretty far well below kind of what I would think as your average EBITDA contribution from ethanol.

So what what could be an annual.

If you normalize the ethanol market, that's a really tough question, but what what should you what could we expect.

As an EBITDA contribution from ethanol.

Going forward over the next couple of years.

I had a couple a handful of questions on <unk>, So I'll start at the beginning.

It's about our outlook against our EBITA targets that we put forward a year ago and a few months ago I feel very confident in our opportunity to grow.

<unk> and working in a space, it's complicated with government regulations, I think that helps us as well.

Navigate these new market opportunities. So we're kind of excited about those new areas, we're probably more importantly, just the fundamentals back to exports.

Who can see grades around the world.

<unk> specialty crops and specialty products for human consumption food as well as pet food areas for growth. So a lot of our core businesses.

Have some upside and we can do that through bolt ons plant expansions, new product lines things like that to grow.

Good examples organics organic fertilizer business is an attractive opportunity for us. So these are crazy way out their ideas are things, we know how to do and that gives me more confidence that we'll be able to execute against it.

The second question.

Brian do you want to add.

Eric just to add to that.

We went through Pat mentioned that we went through a.

Pretty detailed corporate strategy review this year and so I think our teams really have a lot of focus.

And a lot of energy on key areas, where we really believe that we can add value and are able to be successful.

<unk> competitive advantages.

Yes.

Overpaying the markets have been pretty robust as you know and so.

Some of that then it certainly won't be linear, but we're going to continue to look for those for those opportunities.

The second.

Understood It Eric.

Very hard to pinpoint exact numbers on average as you said for ethanol and again I've been around ethanol and evolved in plant for almost 30 years now it's very difficult to forecast because it's so many factors.

But if you looked at the underlying factors today and ethanol, we have an abundant corn crop.

We have very high corn oil values driven by renewable diesel.

Good supporting values for value added feed products and <unk> in general.

We have a global market of higher commodity prices in the energy sector, which supports gasoline prices, which is good for ethanol. We have a new administration that is very focused on clean energy and it just recently at the summit talking about <unk> and carbon reductions so theres a lot of things that can.

Be very favorable to ethanol in the near term so I think those opportunities for ethanol to be.

Profitable this year as we get.

Gasoline demand to come back after being loaded depressed through the whole COVID-19 period. So there's a lot of things that are lining up on the favor of ethanol short term you also heard about reasonable at least reasonable I'm, sorry, recent developments about sustainable aviation fuel.

<unk> potentially coming down the pike. So there's a lot of exciting things that could support ethanol near term long term. The big question is more about E vehicle penetration rate and that's probably the macro longer term challenge, but near term ethanol could be quite good and it's shaping up more checks on the positive side than on the negative side.

Okay, Yeah, no I would I would agree.

So.

Your balance sheet is.

It's an incredible incredible improvement, obviously rail the rail sale help that.

A lot et cetera, but.

You also announced a $100 million share repurchase program.

With your balance sheet right now could you not execute both debt and your strategic growth.

Yes.

The strategic growth of it.

Alternatives available to you right now simultaneously or do you think maybe we have some bigger.

Growth opportunities from an opportunistic point of view that we require a little bit more capital. So your concern with the vogtle on your share buyback.

Okay. Thank you I'll pass it on.

Sure.

Thank you as a reminder to ask a question you will need to press Star then one on your telephone one moment for questions.

There are no further questions I will now turn the call back to Michael for closing remarks.

Thanks, Dara, we want to thank you all for joining US. This morning. Our next earnings conference call is scheduled for Wednesday February 16th 2022 at 11, a M. Eastern time, when we will review our fourth quarter results as always thank you for your interest in the Andersons and we look forward to speaking with you again soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q3 2021 Andersons Inc Earnings Call

Request a DemoDemo

ANDE

The Andersons

Earnings