Q4 2022 Andersons Inc Earnings Call
Good morning, and welcome to the Andersons fourth quarter 2022 earnings Conference call.
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I would now like to turn the conference My culture, Vice President corporate controller and Investor Relations. Please go ahead Sir.
Thanks, Joe Good morning, everyone and thank you for joining us for the Andersons fourth quarter earnings call. We have provided a slide presentation that will enhance today's discussion if you're viewing this presentation on 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.
Thanks, Mike and good morning, everyone.
Thank you for your interest in the Andersons and for joining this call.
We're excited to review our overall operating results for the fourth quarter, which capped a record year for us.
As we noted in yesterday's earnings release strong AG fundamentals existed in 2022, and our team's performance has once again been exceptional.
We ended with full year record earnings and adjusted EBITDA from continuing operations of $412 million.
As you know, we previously set aggressive targets for EBITDA growth and I'm pleased to say that we exceeded our 2025 goal of $375 million to $400 million of EBITDA three years early.
Later in this call I'll discuss updated targets for 2025.
The trade business posted a record fourth quarter.
Which also capped a record year for the segment.
Our fourth quarter results were led by improved performance across our asset footprint.
Rising basis fires and storage income.
Merchandising results were also very strong and benefited from our attention to customer needs and ability to source grain for regions and countries with grain deficits.
Our renewables business again generated solid profits, but was not able to match last years record quarter, that's industry crush margins weakened.
Our low carbon feedstock business continues to grow and make positive contributions to our renewables segment.
Yeah.
Alright nutrient experienced mixed results with buyers on the sidelines as market prices have declined for major AG fertilizers.
We didn't have good engagement on a fall application and especially the liquids business.
Manufactured product lines were also impacted by reduced consumer demand.
I'm thrilled with our second consecutive year of very strong results.
I'm very proud of our anti team and their performance and optimizing results in an environment of strong AG fundamentals.
I'm now going to turn things over to Brian to cover some key financial results. When he's finished I'll be back to discuss our early outlook for 2020 free Brian .
Thanks, Pat and good morning, everyone. We're now turning to our fourth quarter and full year results on slide number five.
In the fourth quarter of 2022, the company reported net income from continuing operations attributable to the andersons of $15 million or 44 cents per diluted share and adjusted net income of $34 million or <unk> 98 cents per diluted share.
This compares to adjusted net income from continuing operations attributable to the company of $39 million or $1.14 per diluted share in the fourth quarter of 2021.
Adjusted pretax income attributable to the company of $50 million nearly matched our prior year fourth quarter record due to the sizable increase in the performance of trade.
For the full year gross profit increased to $684 million up more than $90 million or 15% compared to 2021 on revenues of $17 $3 billion.
Adjusted EBITA for the quarter was $104 million compared to $130 million in the fourth quarter of 2021.
Full year, adjusted EBITDA was $412 million, almost $60 million better than 2021 adjusted EBITA and a second consecutive record.
Now, let's move to slide six to review, our cash flows and liquidity.
We generated fourth quarter cash from operations before working capital changes of $90 million in 2022.
Compared to $84 million in 2021.
Full year cash from operations of $315 million is comparable to the prior year, which included $30 million of cash tax refunds.
Ah readily marketable inventory continues to exceed our outstanding short term debt.
While commodity prices are higher compared to 2021 inventories on hand are down.
Short term debt at year end is seasonably seasonally low due to timing of producer payments after harvest.
Typically our highest borrowings occur in the spring as a result of our seasonal businesses.
We continue to have adequate liquidity amidst ongoing volatility and have strong support from our banks as they understand the key role that we play in the egg supply chain.
Moving to slide seven.
We continue to take a disciplined approach to capital spending and investments, which were $110 million for the year about half of which related to maintenance capital.
Our long term debt to EBITA remains well below our stated target of less than two and a half times.
In addition to the previously mentioned capital spending we closed on two separate bolt on acquisitions during the quarter bridge.
<unk> and trade and moat farm services in plant nutrient.
Both are performing well and the integration is underway.
We continue to evaluate growth projects in our pipeline, including additional M&A opportunities.
We have a balance sheet that will support growth investments for those that meet our strategic and financial criteria.
We continued to utilize our share repurchase program executing over $5 million of share repurchases in the quarter.
The total cash used for this program to date is over $14 million through January .
Now, we'll move on to review of each of our businesses beginning with trade on slide eight.
Trade reported pretax income of $27 million and adjusted pre tax income of $52 million in the fourth quarter of 2022.
Compared to adjusted pre tax income of $27 million in the same period of 2021.
Fourth quarter 2022, adjusted pre tax income excluded approximately $25 million of charges, resulting from insured inventory damaged in a fire and an asset impairment.
Our merchandising teams continue to execute well in these dynamic markets with gross profit increasing 30%.
And adjusted pretax income nearly doubling from the prior year.
Increased elevation margins in our grain assets also improved significantly from the fourth quarter of 2021.
Trade had adjusted EBITDA for the quarter of $72 million compared to adjusted EBITDA of $42 million in the fourth quarter of 2021.
For the full year 2020 to.
Trade had record adjusted EBITDA of $199 million, which was up more than 30% compared to a $151 million in 2021.
Moving to slide nine.
The renewable segment reported fourth quarter pretax income attributable to the company, a $13 million compared to $27 million in 2021.
Ethanol crush margins were substantially lower during the quarter, especially compared to the extreme highs in the fourth quarter of 2021.
Continued strength in corn oil values and execution by our renewable diesel feedstock merchandising team helped to offset the lower ethanol crush margins.
Renewables had EBITDA of $36 million in the fourth quarter of 2022 compared to $78 million in the fourth quarter of 2021.
For the full year renewables generated record EBITDA of 180 $180 million compared to $166 million in 2021.
Turning to slide 10.
The plant nutrient business reported fourth quarter pre tax income of $2 million a decrease from the record of $16 million generated in tight fertilizer markets during the fourth quarter of 2021.
The business experienced lower margins in our agriculture products as fertilizer prices continued to drop dramatically during the quarter.
Farmer income remains high which supported higher margins in our specialty liquids products. However volumes were lower in anticipation of further declines in fertilizer prices.
Our manufactured one products business also experienced slower demand and some additional inventory write downs, which we believe are now behind us.
Plant.
<unk> EBITA for the quarter was $11 million, a decrease from $24 million in the fourth quarter of 2021.
For the full year plant nutrient had EBITDA of $73 million, which was comparable to 2021.
And with that I'll turn things back over to Pat for some comments about our outlook.
Thanks, Brian .
Yes.
Coming off a second consecutive record year, we remain excited about our prospects for 2023.
AG fundamentals remain favorable and.
So we're well positioned to execute in this environment.
We expect ongoing volatility in dynamic grain markets will continue to provide good merchandising opportunities.
At this time, we expect higher U S corn plantings, which is positive for all of our business segments.
Yield challenges in the western corn belt from the 2022 harvest will continue to influence markets well into the fall.
We expect trade to continue to perform well and execute on these opportunities.
The return of storage income to wheat, and higher spring corn plantings should be positive for our eastern assets.
Amphenol crush margins have been low to start the year. However, we believe that spring industry maintenance shutdowns and increases in driving miles may positively influence to the second quarter.
We're also making a number of investments in our plants to improve both the quality and yield of distillers corn oil a low carbon intensive input to the renewable diesel industry and we continue to benefit from strong oil values.
As renewable diesel production ramps up we are well positioned to support plants through our numerous supply agreements on various feedstocks.
Strong farmer income and increased corn plantings are expected to continue to drive demand for our fertilizer and especially liquid products.
We believe that declining prices in this period prior to field work has kept buyers on the sidelines.
We expect to see higher volumes and plant nutrient as we approach the spring planting season, but.
But we'll likely see more normalized margins lower than last year's peak.
With these delays in purchasing having available product near key crop production areas in the eastern grain belt is an advantage. We continue to closely monitor risk and our core fertilizer positions as market prices have declined but must also be ready to serve our customers when they need our products.
We anticipate further growth in our specialty liquid fertilizer and industrial product lines.
Next we will revisit our growth strategy as described on slide number 12.
Our strategy remains to grow within and adjacent to our core grain and fertilizer verticals as global demand for food feed and fuel is expected to grow.
These areas include sustainable and carbon reduction opportunities.
As mentioned in our earnings release, we have many projects under evaluation in our pipeline.
We have proven our ability.
To execute new projects, but also exercised discipline, while growing our company.
We expect to continue to focus on these markets as we bring our unique ability to remain nimble and innovative across these verticals.
Our balance sheet remains strong with the capacity to fund growth and our leadership is focused on delivering against our strategy.
We're particularly excited about the renewable diesel feedstock market opportunities as we're well suited to provide inputs and services to refiners merchandising third party renewable feedstocks and enhancing our own corn oil production processes.
In addition.
And to expanding organic fertilizer offerings, we're developing innovative new specialty products for consumers and growers of crops beyond traditional row crops, including biologicals and micro nutrients.
We will also consider M&A within our core areas of strength, including farm centers within our fertilizer footprint and product line extensions for our manufactured products.
So turning now to slide 13, I want to provide an update regarding our progress against EBITDA goals.
In late 2017, we establish an EBITA goal of $300 million by 2020.
Which was approximately double our 2017 result.
Since that time, we increased our EBITDA target to $350 million to $375 million by 'twenty, three and $375 million to $400 million by 2025.
Given our strong performance over the past two years, we've now exceeded these goals well ahead of schedule.
As such we are revising our 2025, EBITDA target up $100 million to $475 million.
Which would represent a compound annual growth rate of almost 20% from 2018 to 2025.
I'll now provide you a little bit more detail on slide 14.
So with this new target, we expect to maintain discipline in our approach to capital investment keep our long term debt to EBITDA ratio less than two five times and continue to improve ROIC.
While continuing to optimize our portfolio.
On this chart you can see our historical EBITDA by business segment, and where we expect to grow in each segment as we move forward I'm sorry, as we move toward our 475 million dollar goal in 2025.
Because of the volatility in AG markets. This growth may not be linear, but overall fundamentals remain positive and we're excited about our growth prospects.
Our team is committed to providing exceptional service to our customers and we'll continue to make decisions that support steady growth and strong shareholder returns.
I'll now turn the call back over to our moderator, Joe and we'll be happy to take your questions.
Okay.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Right.
Yeah.
And our first question here will come from Ben <unk> with Stephens. Please go ahead.
Hey, Thanks, Good morning, guys and congrats on the quarter.
Thank you Ben.
I wanted to ask Pat if you could.
You talked a little bit in spots about how you expect things to evolve through the balance of this year with respect to.
I think you talked a little bit about renewables you talked about plant nutrient can you talk a little bit about the cadence of earnings.
Earnings as we move through this year, and where you feel most versus lease confident and maybe where you are you're blind spots might be as.
As you think about the full year EBITDA opportunity.
Sure Ben Yeah. Good question I think.
Overall as I mentioned I think you know our.
Our earnings are going to moderate some coming off the peak earnings of this past year with.
Commodity prices really sorted 'twenty two.
As you well know fertilizer prices are down almost 40%, 50% from the peak at the time of Ukraine War. So we don't have the environment, we had with the high inflationary pressure on commodities that we had last year, having said that we still felt pretty confident about the original targets. We put forward for 2023.
Which was the $3 50 to 375 million in EBITDA, we felt good about that I think it's the weakness is in the early part of the ethanol cycles. So this first quarter as you well know board crush margins have been soft.
Corn basis has come off a little bit and we have good pretty good feed values and oil values. So we could see that reverse later in the year and we're optimistic to see a turnaround in ethanol, but we're starting out a little softer maybe.
Maybe than we would've liked.
The other point would be in the fertilizer markets with the weakness in fertilizer prices. The farmer as we mentioned has sat on the sidelines as markets have come down quite a bit we're right at that time of year right now.
80 degrees here today, so hopefully we can start to get some decisions made by the growers and the wholesalers to get active to prepare for spring application season, because it hasn't really engaged yet so we're in a little bit behind where we'd normally be we're optimistic on volume with an increase of expected increase in corn acres in.
Planting we think we'll see a good volume of fertilizer production. So that's an area that we think will.
Like ethanol start out a little weaker but then may have occurred.
Stronger finish to volume later in the year.
On the grain side I think we haven't seen the Chinese come to the market as big as we did in previous years, but it's expected as they've opened up their economy little more with Covid.
Restrictions being lifted.
We're still remaining to see that having said that we've got good wheat storage income I expect a big.
Suffered wheat crop, which is good for our eastern assets and again higher corn acres. So I think theres going to be trading opportunities that can play out well for us later in the year, we'll probably have a slower start and hopefully a stronger finish to the year.
Okay that makes sense.
I know the area of investment and growth for your business has been your renewables feed.
<unk> capabilities around trading sourcing origination can you talk a little bit about as we look forward.
Much of that business.
For ratification is volume dependent versus price dependent and maybe any thoughts on to start the year.
Why is that oil prices might have been a little bit softer than what would be your expectation that we see things firm as we move through this year and we start to see incremental renewable diesel production come online.
Very good point.
Then so a couple of points. There one is we set up a couple of years ago, the renewable diesel trading desk or we've been successful in originating feedstocks for our D. Manufacturers. In addition to our own corn oil production at scenario, we'd still like to grow.
We've looked at a couple of acquisitions there we haven't done anything big at this time, but we will still continue to look in that area. Because we think that it's going to be a area of good opportunities for us as a merchandiser as we go forward and as you mentioned I think on the plant startups. Some are a little bit behind so it's a question of when the R&D.
Startups are relative to the feedstock demand. So I think we were a little bit behind which maybe it's put some pressure on it but as those as a couple of big ones coming online, which will drive demand backup for feedstocks. So maybe it's a maybe a taken a breath a little bit on this very important.
Journey on R&D growth and that we do expect to see really strong demand.
At the end of this year and into the next year and year after that for renewable diesel demand. So we're still very optimistic about that segment.
Okay great.
I wanted to think longer term and I do want to ask about your new financial goals that you laid out here, but I wanted to.
Talk a little bit theoretically longer term about.
Sustainable aviation fuel the extent to which you expect youll participate in that the likelihood of that as a meaningful opportunity to firm up industry F&B and maybe provide you guys with ice offtake and what sort of partnership with any you might be interested in considering as you think about the future.
Yes.
Question, but it's an area that we're quite excited about we don't have anything to announce at this point.
Sometimes with new Tech technologies.
Sometimes I at least personally I don't want to be on the bleeding edge I'd like to be a fast follower and be aligned with big players in those segments.
In the oil industry that supply the aviation industry as you know our.
Ethanol business, we're partners with marathon petroleum and we've been benefited from that outstanding partnership for many years, we both look at opportunities optimistically for SaaS in the future. We think this is gonna be a key focus.
For both the government and the industry to look at I'm.
Looking at cleaner fuels for the aviation industry, we think that's going to happen.
Exact timing and exact technologies still probably remain to be seen and it's an area that we'd see ourselves participating in we just don't have any specific announced.
Announcements or partnerships to name at this time, but it's an area that's going to be very good for our industry. It's I think when I say our industry for the renewables industry and for agriculture in general So we've been through a few of these over the years, whether it's the beginning days of ethanol that I was involved in many years ago or.
Now the beginning days of renewable diesel the same will be true for a sustainable aviation fuel and we think that can be a nice new.
New opportunity for AG processors to participate in and have a nice benefit for the ethanol business. So.
It's a stay tuned you hear lots of announcements and a lot of things have been going on in the last couple of years. We're still just continuing to build that segment out and lots of things are still to be played out and its future.
Okay fair enough.
Brian if I could ask about the Capex budget can you help bucket out youre spending for this year.
And then to the extent you guys are spending on growth Capex what.
What is a reasonable timeframe in which we should start to see some associated.
Operating profit from those investments.
The ramp of those projects.
Sure Ben.
I would say for 2023, I would bucket or ballpark capex spend in the range of $125 million to $150 million.
I'd characterize similar to how we have in the past I would expect about half of that to be in the maintenance capital category and the rest growth and I would expect we have a number of projects that have been in our backlog and pipeline kind of coming online over time. So I would say as you think about modeling those as you get toward the <unk>.
Later half of the year and then into 2024, starting to see those layering in and contributing in a positive way similar to the ones that we've had in previous years.
If I could add on to that Ben you asked about in a previous conference call, we talked about growth Capex and I use the baseball analogy of singles and doubles and those being smaller to midsized acquisitions. Just wanted to highlight we closed on two in this past quarter, one as moat farm services a farm service.
Center in our.
Sweet spot here in Ohio, Indiana border as well as.
Bridge, Agri, which as a pet food ingredients business out in the West as you remember previously we.
Purchase a company capstone ingredients in the southwest dairy markets. So these are the singles and doubles that have become immediately accretive of these these acquisitions have already been integrated and are providing cash right away. So this is kind of bolt ons that make a lot of sense for us and we're optimistic with <unk>.
Others in the pipeline that we'll be able to close on.
Some of those in this coming year, and then just to clarify the any acquisitions and similar to these bolt ons would be above and beyond the 125 to $1 50. So the the 125 to $1 50 would be our capex for maintenance capital and growth capital investments in our facilities and then M&A could be on top of that.
Okay, Great last one from me thinking about these new financial goals that you laid out.
How much do you have to spend to get to that level of EBITDA and then how much of it is dependent on just a continuation of a tight F&B around all of the markets unless you participate yes, I would say the way we're thinking about it right now is that kind of a balanced mix of organic growth.
And growth investments, whether they be internal and our capex. So just kind of modeling those out depending on which side of the side of the business those are in.
Could could kind of lead you to a number in that regard I would say we also as we look at it Pat referenced singles and doubles.
We continue to stay focused on maintaining our long term debt to EBITDA at two five times or below and we have we have plenty of capacity within our existing capital structure. We believe in our balance sheet to be able to fund the growth investments.
In that regard Ben we would estimate if you want to call. It 50 50, but as you know those things are lumpy and when when something comes around we said at our current debt ratio of one four times, we have capacity.
To make a bigger deal if the right opportunity comes but we want to keep it core to our verticals and in areas that make a lot of sense for us, but we do see opportunities for growth and let's just call. It a balanced mix as Brian said over the next couple of years.
Between our gist.
Gross it makes sense to our core businesses as we're putting capital to strengthen our grain elevators and fertilizer plants and ethanol plants as well as new geographies or new product lines for us.
Okay understood very good thanks, so much for taking my question.
I appreciate it.
Our next question will come from Eric Larson with Seaport Research partners. Please go ahead.
Yeah. Thanks, guys, congratulations on a fantastic quarter and year, well well earn so I'll walk you. Congrats thank you Eric I appreciate it.
So my first question I know you guys don't guide quarterly I'm, not not even asking for that but.
Can you just give us Pat just a little bit better flavor kind of on a cadence basis in the first half second half.
You had the onset of the UK.
Ukrainian War last year, you were able to take advantage of.
Massive increase quickly in board prices are locked in some really good number for for later on in the year.
Would you look how should we should we think that maybe it's less.
Front end loaded and more backend loaded again or how can you.
Give us a little because we don't know how all those contracts are actually you know, yes. It came to.
Just give us a little help on how we should be modeling for second half, yes, sure exactly its attention to think about it we're coming up I mean, it was the 20th when the war broke out of February one year ago right. So Brian . Initially initially it was quite a concern about positions et cetera, but really got the.
And fertilizer markets really rocketing as you remember I think we have the opposite situation. This year with weak fertilizer markets, we talked about earlier and you know this well Eric just not a lot of engagements so far.
Ethanol crush has been very weak. So the first quarter is going to disappoint I think we're gonna be behind where we'd like to be so I'll start out slow second quarter I am quite optimistic so I think we'll see that engagement on fertilizer.
With plant shutdowns and hopefully increase driving miles, we could see ethanol margins turnaround and I think there's good opportunities for the grain trade business.
We have as you know again, Eric we have we didn't come with wheat carries that are look good and we have a big wheat crop. So as we get into the summer wheat harvest will be good for us in the east.
And I think theres going to be good merchandising opportunities. When we talk about second third quarter still with inverted cash markets and grain. So we can start to first quarter and then we'll see an improvement second third quarter.
Fourth quarter, we got a whole another crop then right. So we've got time to wait and see but we still feel this can be a good year like we said back on the pace. We said before we said $3 $53 75, a couple years ago, we thought that'd be a great number. So I think we'll be on pace to do something along the lines of that just not at that peak pace of loss.
Sure that would take a.
A really big change like an ethanol fundamentals or something to make that happen.
Okay. Good so diving a little further into that so.
The one thing that youre going to have positive again until the new crop is harvested this fall.
We don't have any corner in the western corn belt, you Hope you had a great year in the eastern corn belt last year. Good harvests, you've got corn there are.
Are you are you getting corn are you shipping corn to the western corn belt to feedlots.
Will that continue.
Basis in the West is yes.
Do you know off the chart, it's pretty amazing.
Or some of these numbers are can you can you give us a little help on that yes sure absolutely.
One of our product lines, we call Midwest truck and Thats, a very active business in a big business for us where we're moving trucks across the Midwest from points of surplus the points of deficit. So this is a lot into the Texas, Feedlot, Kansas, Oklahoma markets and moving Nebraska, and then what further eastern grain to these areas of <unk>.
False that's been a very good business for us the last couple of years, we expect that to continue.
So that's on the positive side also on the positive side, our ethanol plants are big plants located in the east are well positioned with good corn basis, and we've been operating well from a run rate perspective, our western plants. As you know we have the coal, which Kansas newer plant has really struggled because of high basis levels there.
That's been difficult and some of those premiums we anticipated originally for the.
California market just haven't been there so that's been difficult for us as well as Denison, Iowa is also has a little bit higher corn basis, but it's not quite as bad as Kansas. So we have had some of the negative side of that although the Kansas is a smaller plant we have made up for that with our trading opportunities in grain so.
That's a good good place for us to be as far as our Midwest merchandising business and we continue to see that to be an active profit center in 'twenty three.
Okay next question so.
We had some really difficult export conditions on the Mississippi last fall really dry conditions are low low water levels I think it restricted a bunch of exports now we haven't seen.
We're all expecting China to come back in but.
We're going to get that Mississippi replenish here pretty quickly we've got a lot of snowfall. It's warming up we aren't in Schnapper ran up here yesterday. So this is gonna and do you think that that low Mississippi.
Getting them back to a better you know all.
Our water level for our barges do you think that's going to help the exports in the next month or two or do we need to see you know, Brazil kind of run more out of core before it comes back to you.
No you make a good point Erik I think we'll get back to more normal navigation on the Mississippi I mean, those challenges with low water. The mid Miss last year really kind of upset things at the same time as you remember we had pretty poor service from the major railroads last year. So logistics was a difficult challenge last year.
Interesting enough as a barge market has improved or navigation improve so has rail logistics. So rail logistics has improved and our industry here of late in the last couple of months, which is a good thing for all of our customers. The Big question is is the demand and as you know Brazil crop conditions have improved.
Chinese have approved our Brazilian corn for imports. So maybe we're just late to see Chinese demand hopefully, we will see it come back to the market to drive Gulf values that can be very important for the U S basis. This year.
We'd really like to see that export program kick back in.
The other side container freight is actually improve too so we might start to see some shipments by containers. So the export markets as far as the U S is concerned is ready to serve we just need to see the customers show up.
Okay. So are you are you are you still shipping a lot out of the great Lakes right now.
Yes, it's been a really good year for great lakes shipment for us and not frozen which is unusual.
I think almost record volumes and led by soybeans. So.
We're also added like I said, a big year on wheat, the Ontario crop plantings are we're really good as well as Michigan, Ohio, So it's going to be a big soft red wheat year for the lakes as far as potential delivery in economics for wheat, So theres a good situation for the Andersons when it comes to the lakes.
So another demand question here.
This relates to our to our U S livestock, we obviously know that.
The beef herd is down very substantially it's the lowest in something like 50 or 60 years in terms of total numbers.
It looks like we could actually given look at let hog production margins, we could actually maybe see the hog production start kick back up again.
How do you look at it overall.
U S livestock demand for feed it it seems to be an area of controversy today.
By far an expert on livestock demand, but as you know that there we've seen a lot of cattle come off feed economics in the west have just been really difficult with high grain prices.
But we do see there's going to be interested just follow the consumer right. So as inflation will it continue to trim demand or will people be again chicken and pork heaters as well as you know just basic hamburger barbecue season. This year, what we see it come back at the retail level, thus driving demand and we could see that obviously in the chicken.
And hog sector first.
I think this drought in the west is going to have to be.
Relieved in order to see cattle back on feet in a big way in the far west. So that's kind of a different fundamentals as far as just a feeding economics and as you know these are cycles that take quite a while to turn but long term we're still in good position.
As an industry for cattle feed in the United States, but I think we're going to see like you said some some tight supplies here this year.
Okay. So we're halfway through the month of February crop insurance prices are.
In price discovery for crop insurance for the farmers.
So far it's probably better than I would've thought honestly.
Good grain prices so far.
Which means that you will have farmers trying to maximize yield next year your liquids should be strong.
Farmers are going to have the income.
Hmm.
How do you think that this could compare favorably year over year in your second quarter. I mean, you had a good your second and fourth quarters, obviously, the ones that we really have to focus on.
Third is getting more important too but.
How does all of that stack up through your second quarter right.
Everything you said is totally true in fact that we just had one of our big growers in Michigan come through town. This morning, who I met for breakfast on its way to the Big Farm show in Louisville This year.
It was interesting to hear his input about.
His cash returns mean, the highest last year.
And spending on seed and inputs and how much more expensive they are but still getting good returns per acre on that all the things that you know.
So they want to maximize yields we think that's positive for illiquid specialties. We think it's positive for volume we're still concerned about margins because it's just of late.
Remember last year prices were really skyrocketing at the time there was a shortage.
<unk> was out as you said and supplies were tight so farmers were all concerned and wholesalers about getting volume. This year. That's not the concern is more of a pressure on prices. So I'm concerned a little bit about margins as we enter the spring season, I think volume could be up though on our AG wholesale business.
The other thing that hurt us in the fourth quarter was a weak consumer business. So the consumer products and lawn and garden really just fell off a cliff and left a lot of people with excess inventories and we were a victim of that as a wholesale producer there.
And we had to discontinue and eliminate some of the products. We had in storage, which took some write downs on that in the quarter, which we don't like to do.
<unk> seen that come back, we'll probably a slow return to so we're kind of moderate on how quickly fertilizer market is going to rebound, we do forget about the volume and once we get the grower to engage we should have a really good volume side margins remain to be seen Eric. So that's one I'm going to be cautious on I'm not we're not hit.
The panic, but we just don't think it will be as good as last year and it'll be hard to top last year's margins.
Yeah, Okay that makes sense. So look there's a lot of concern out there about.
Farmer income this year and I've tried I've tried to kind of just some of those fears I mean, we're not going to have the government support that we had last year.
The farmer returns are going to be down, but what people I think forget is that we're still going to generate.
Let's say $120 of profit per acre that's still you.
No.
Yes.
Mounds and steps above what average income is for us on the farm. So the farmers are going to help the farmers are going to are going to have money. This year.
Yeah, we see it right now obviously I mean things could change as you know they can change quickly, but it should be a really good farmer income year, again, and well above average, even though it'll be down and down pretty substantially in some cases year over year, but with all that being said Pat.
You know what.
What what would be your you've already highlighted some of your top concerns fertilizer margins.
What else.
In terms of a headwind.
Is that we should our headwinds that we should keep an eye on what are the top three.
Three or four concerns.
Let's start with the positive side as I mentioned, we have high farmer income as you just talked about you've had high commodity prices, we still have a tight global commodity backdrop that keeps our business pretty excited and that's what this trend is continuing.
Unfortunately on the on the heels of the extended Ukraine War.
Brazil production has gotten better they've made they've gotten good range.
It should be better so a little bigger crop waiting to see what's going to happen with China on demand. So we'll watch that what's happening there and near term ethanol has been a little weaker than it was a year ago.
The backdrop, though is still pretty positive. This renewable diesel diesel demand growth is a big impact to our industry and that's going to be helpful.
We still see global exports as an attractive on a broad scale and we still have our customers on both ends on the food and feed and fuel side still very strong. So in general I think you've heard from others in our industry already we feel the overall trend continues to be tight and optimistic.
But just not at a further pace, we had last year, where we started out so strong.
One final question wheat is weak.
It has generally been a big a big merchandising crop, where you guys are particularly spring, particularly the <unk>.
Soft the soft wheat.
Varieties.
Give us.
How did how did your wheat business do last year and how should we look at week. This year do you have much in storage.
The planting is looking good favorable for you in the eastern corn belt give us a quick rundown on how we should at week, yes.
Yes, good point circuit I don't know the exact numbers off top my head, but your answer is just that we have strong weak volumes in storage higher than we had a year ago. We have wider carries on the wheat board than we did a year ago, we have higher planting and say, we did a year ago and it looks to be crop conditions, so far in our dry area.
Soft red wheat, which is Ontario province in Canada, as well as Michigan and in Ohio, All look to be in good shape and no big winter kill So we're expecting a good soft red wheat production and.
And with carriers in the market, we will have higher income period U S wheat isn't really.
Especially software isn't factoring into the global export grid, Russia is still dominating the export trade we still participate in.
In our global export trade that we're involved in with wheat and all parts of the world.
And hopefully we will have wheat exports out of the U S and heart rate out of Texas Gulf and good good shape that can help our overall wheat program. This year. So bottom line, we're bullish on wheat, even though.
<unk> prices are relatively low.
Little bit calmer than when it comes to corn or soybeans, it's going to be a good income source for Andy.
Okay. So one question final question for Brian Brian You said in your prepared comments.
Rmi is higher than all of your short term debt you guys got a great balance sheet here on last few years of really liquefied you guys dramatically.
So.
Prioritize and funnel.
For me, what what you know what you're going to do with the balance sheet, obviously, some bolt ons.
<unk> had some small share buybacks, you've got dividends I mean, how what you know what's what's your priority for all of the cash that you're generating right now.
I would say.
It continues with the balanced approach I would say our first preference would be to invest in good solid growth projects and bolt on acquisitions that will help us continue to make good progress towards that $475 million goal by 'twenty five.
At the same time, you just said it we have a share repurchase program that we've that we've started to execute under and I would expect us to continue to utilize that program.
That makes sense.
We've paid a dividend now for probably I don't know as long as the company has been public in over 100 consecutive quarters.
I would expect us to continue to just take a call. It a very logical approach to that and wouldn't anticipate any kind of big special dividend or anything like that but I would say a balanced approach that enables us to hopefully prioritize good.
Solid growth projects and returns, but with some balanced return to shareholders.
Alright, gentlemen, thank you much all look forward to a follow up call later talk to you soon thank you.
With no remaining questions. This will conclude our question and answer session I would like to turn the conference back over to Mike Holton for any closing remarks.
Thanks, Joe we want to thank you all for joining US. This morning. Our next earnings conference call is scheduled for Wednesday May three 2023 at 11, a M. Eastern time, when we will review our first quarter results as always thank you for your interest in the Andersons and we look forward to speaking with you again soon.
Yeah.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.