Q1 2024 The Andersons Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen.
Speaker Change: Welcome to the Andersons 2024 first quarter earnings conference call.
Rocco: My name is Rocco and I will be your coordinator for today.
Speaker Change: At this time, all participants are in listen only mode.
Speaker Change: Later, we will facilitate a question and answer session.
Rocco: To ask a question my first start with one on your telephone since you remove yourself from queue. Please press Star then two.
Speaker Change: If at any point you need assistance, Please press star zero to reach an operator.
Speaker Change: As a reminder, this conference is being recorded for replay purposes.
I will now hand, the presentation to your host for today, Mr. Mike Holter, Vice President corporate controller and Investor Relations. Please proceed.
Michael T. Hoelter: Thanks, Rocco good morning, everyone and thank you for joining us for the Andersons first quarter earnings call. We have provided a slide presentation that will enhance today's discussion.
Speaker Change: If you're viewing this presentation from our webcast the slides and commentary will be on saying.
Speaker Change: 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.
Speaker Change: Please direct your attention to the disclosure statement on slide two 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.
Speaker Change: 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 FCC. We encourage you to review these factors.
Speaker Change: This presentation and today's prepared remarks contain non-GAAP financial measures reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation.
Speaker Change: On the call with me today are Pat Bowe, President and Chief Executive Officer, Brian Valentine Executive Vice President and Chief Financial Officer, and Bell Kruger Chief operating officer. After our prepared remarks, we will be happy to take your questions. We will now turn the call over to Pat.
Patrick E. Bowe: Thank you, Mike and good morning, everyone.
Patrick E. Bowe: Thank you for joining our call. This morning to discuss our first quarter results.
Speaker Change: Outlook for the remainder of 2024.
Speaker Change: First quarter results were solid for the company and overall very comparable to last year.
Speaker Change: The mix of our results is a bit different with trade down against last year's record first quarter, and renewables and nutrient and industrial both generating favorable results against 2023.
Speaker Change: I want to thank our teams for their hard work in producing these results and transitioning markets with a continuing focus on operating safety.
Speaker Change: As expected trade had a slower start to the year as farmers have been reluctant to engage in forward sales as these lower price levels.
Speaker Change: Coupled with this is softer global demand for U S crops as worldwide supply and demand has become more balanced.
Speaker Change: These factors impacted both our physical grain assets and our merchandising teams.
Speaker Change: Our premium food and pet food ingredients business saw significant year over year improvement.
Speaker Change: This is a smaller but growing portion of our trade business and improvement comes for both organic growth and two recent accretive acquisition.
Speaker Change: Operating performance in the renewables business was very strong and driven primarily from our ethanol plants.
Speaker Change: We had record first quarter production and efficient operations benefiting from lower natural gas prices and solid ethanol yields.
Speaker Change: The ethanol crush hedges the team executed during the fourth quarter also helped our ethanol margins.
Speaker Change: We were successful in increasing volume in our renewable diesel feedstock merchandising business.
Speaker Change: Been challenged by compressed margins on industry fundamentals.
Speaker Change: Our feed co product values were also weaker with the overall lower commodity price environment.
Speaker Change: In our nutrient and industrial business, we experienced an increased margin and volume in our agricultural fertilizer product lines in this seasonally slow quarter.
Speaker Change: Results were significantly improved from the first quarter of 2023.
Speaker Change: Brian will now cover some of the key financial data after that we will be back to discuss our outlook for the remainder of 2020 for Brian.
Brian A. Valentine: Thanks, Pat and good morning, everyone. We're now turning to our first quarter results on slide number five.
Brian A. Valentine: In the first quarter of 2024, the company reported net income attributable to the andersons of $6 million or 16 cents per diluted share.
Brian A. Valentine: This compares to a net loss of $15 million or <unk> 44 cents per diluted share and adjusted net income of $7 million or 20 cents per diluted share in the first quarter of 2023.
Brian A. Valentine: Adjusted pretax earnings were $7 million for the quarter, which was comparable to the $8 million in 2023.
Brian A. Valentine: With renewables and nutrient and industrial both showing improvement offset by a year over year decline in trade.
Brian A. Valentine: Adjusted EBITA for the first quarter was $51 million compared to adjusted EBITDA of $55 million in the first quarter of 2023.
Brian A. Valentine: Trailing 12 months adjusted EBITDA totaled $401 million.
Brian A. Valentine: Our effective tax rate varies each quarter based primarily on the amount of income or loss attributable to noncontrolling interests.
Brian A. Valentine: We recorded taxes for the quarter at a 9% effective tax rate.
Speaker Change: We now expect our full year adjusted effective tax rate between 18 and 22%.
Speaker Change: Next we'll move to slide six to discuss cash liquidity and debt.
Speaker Change: We generated cash flows from operations before changes in working capital of $48 million in the first quarter of 'twenty 'twenty four demonstrating our ability to consistently generate strong operating cash flows in changing markets.
Speaker Change: Our cash flow generation combined with lower commodity prices and delayed farmer engagement resulted in a negligible short term borrowings at the end of the quarter.
Speaker Change: Next we will take a look at capital spending and long term debt on slide seven.
Speaker Change: We continue to take a disciplined responsible approach to capital spending and investments, which we expect will be approximately $150 million to $175 million for the year.
Speaker Change: Roughly half of which is typically related to maintenance capital.
Speaker Change: Our long term debt to EBITDA is currently less than one and a half times, which is well below our stated target of less than two and a half times.
Speaker Change: We have a balance sheet with significant capacity to support growth investments that meet our strategic and financial criteria.
Speaker Change: We continue to evaluate growth projects in our pipeline, including additional M&A opportunities are.
Speaker Change: Our project pipeline has been increasingly active over the past few months and we are excited about potential opportunities to execute on additional growth projects, including the recently announced acquisition of reading Prime a bolt on acquisition and expanding our geographic reach and our turf business.
Speaker Change: Now, we'll move on to review of each of our businesses beginning with trade on slide eight.
Speaker Change: Trade reported first quarter pretax income of $6 million and adjusted pre tax income of $9 million compared to $24 million in the same period of 2023.
Speaker Change: We had mixed operating results in our trade business portfolio when compared to our record 2023 first quarter.
Speaker Change: As Pat mentioned aggregate results of our merchandising businesses were solid but down in a backdrop of a less dynamic U S screen market with lower commodity prices and less volatility.
Speaker Change: In addition, given recent geopolitical unrest, we have intentionally and prudently pulled back on activity in certain regions.
Speaker Change: The financial results for our grain assets were relatively consistent year over year as domestic producers are still hesitant to sell to forward sell due to lower commodity prices.
Speaker Change: And bind with limited basis appreciation to start the year.
Speaker Change: Our assets are well positioned once the greens are brought to market.
Speaker Change: Investments in growth projects, including acquisitions, and additional food corn capacity led to improved results in our premium food and pet food ingredient businesses.
Speaker Change: Trades adjusted EBITDA for the quarter was $24 million compared to $44 million in the first quarter of 2023.
Speaker Change: Moving to slide nine.
Speaker Change: Renewables had a very strong first quarter generating pre tax income attributable to the company of $16 million and $13 million on an adjusted basis compared to $6 million in the first quarter of 2023.
Speaker Change: Our current quarter earnings doubled year over year due to stronger ethanol margins and favorable ethanol crush margin hedges executed during the fourth quarter.
Speaker Change: Production facilities continue to operate efficiently with record first quarter production and lower natural gas prices.
Speaker Change: Renewable diesel feedstock volumes continued to grow but we are seeing margin compression on industry fundamentals.
Speaker Change: Feed ingredient demand is also strong but at a lower value as it is tied to the price of corn.
Speaker Change: Renewables had EBITDA of $35 million and adjusted EBITDA of $32 million in the first quarter compared to $22 million in the first quarter of last year.
Speaker Change: Turning to slide 10, the nutrient and industrial business reported a first quarter pretax loss of $2 million compared to a loss of $10 million in 2023.
Speaker Change: Overall fertilizer prices stabilized in this seasonally slow quarter.
Speaker Change: The improvement year over year was driven by increased volumes and margins in core agricultural product lines.
Speaker Change: Nutrient and industrial had EBITDA of $7 million for the quarter compared to an EBITDA loss of $1 million in the first quarter of 2023.
Speaker Change: And with that I'll turn things back over to Pat for some comments about our outlook for the remainder of 2024.
Patrick E. Bowe: Thanks, Brian.
Patrick E. Bowe: We remain positive about our 2024 outlook against the changing market environment.
Patrick E. Bowe: Well the last few years brought us volatile demand driven markets, our global balance of supply and demand will now allow us to demonstrate our ability to deliver good results in carry markets with more focus on the value of our great assets.
Patrick E. Bowe: We continue to expect a sizable U S harvest, but acknowledged pockets of weather related planting and fertilizer fertilizer application delays due to wet weather, which is typical in this spring season.
Speaker Change: Our trade business outlook remains solid.
Speaker Change: Although strong levels of global supply and reduced prices have caused both farmers and end users to reduce their forward contracting.
Speaker Change: Markets have recently begun to move higher which could bring more volatility into the mix.
Speaker Change: At this time, we continue to expect a normal growing season.
Speaker Change: In February we talked about our lowered expectations for wheat storage income with a large purchases from China during the fourth quarter.
Speaker Change: Subsequent cancellations I'm, a significant portion of that wheat purchases from China has resulted in a return of carry to the wheat markets leading to a more positive outlook.
Speaker Change: We're also very pleased with the growth in our premium food and feed ingredient products and look for that to continue to both grow organically and through acquisitions.
Speaker Change: Our renewables segment looks to build on their outstanding first quarter, our second best Q1 ever the renewables business is an important part of our growth strategy and we continue to make progress towards lowering the carbon intensity of our ethanol. This includes enhancements at our production facilities.
Speaker Change: As well as supportive farmer programs that should position us to acquire lower carbon corn as a feedstock in the future.
Speaker Change: The outlook for this business remains strong.
Speaker Change: Proving and maintaining our four production facilities for optimal efficiency is crucial to us.
Speaker Change: After the quarter end, we completed all four maintenance shutdowns and successfully returned to full production.
Speaker Change: Our renewable diesel feedstock merchandising business is also an important growth engine for the company and while we increased volume in the quarter margin compression reduce the year over year result, we believe that with additional renewable diesel refinery demand expected in 2024 values and.
Speaker Change: Margins will stabilize.
Speaker Change: The nutrient and industrial business outlook also remains positive as we anticipate solid demand for the AG fertilizers and specialty liquids that we supply.
Speaker Change: The spring planting season is critical to this business and it is typical we have pockets of our geography that have experienced wet weather.
Speaker Change: We're also ready to be support our customers with both input supply and application services when needed.
Speaker Change: We continue to work on operational improvements and our turf business and recently closed on the acquisition of reading Brian.
Speaker Change: Turf fertilizer manufacturer located in new Jersey that expands our geographic reach to the East coast.
Speaker Change: So with our strong balance sheet position and a desire for growth. We're excited about significant opportunities in each of our three segments.
Speaker Change: We have a number of organic growth initiatives as well as our pipeline is very robust.
Speaker Change: With changes in the AG markets. We're also focusing on organic and acquisition opportunities that should help us achieve our 2025 run rate EBITDA target of 475 million.
Speaker Change: We will continue to maintain and maximize our response and our decisions that benefit our customers and maximize shareholder value.
Speaker Change: We execute on growth opportunities within our stated strategy.
Speaker Change: With that I'll turn things back over to Rocco and we will take your questions.
Rocco: Thank you as a reminder to ask a question. Please press Star then one at this time.
Speaker Change: Today's first question comes from Ben <unk> with Stephens. Please go ahead.
Speaker Change: Okay.
Ben: Hey, Thanks, good morning, everybody.
Ben: Okay.
Ben: Hey, good morning, guys.
Ben: Bob.
Bob: Good morning.
Bob: If I think about kind of all the puts and takes that you laid out in.
Bob: In the trade business.
Bob: The risks from geopolitical uncertainty and maybe the pullback associated with that are more balanced less volatile backdrop.
Bob: But now a week Gary in the markets you know large crop here in the U S and help us think through net of all of those factors how are you.
Bob: Youre thinking about for the remainder of the year.
Gary: Maybe a year over year comparison of kind of trade contribution to pretax earnings to the business.
Gary: Sure very good question, Ben I'll get it started and then turn it over to Bill who knows it better than I do.
Bill: I think the interesting thing to think about us as we've talked about the balance of our portfolio. So the good news for us is.
Bill: Kerry just coming back to the weak market as you know historically, we're very well positioned for storage of soft wheat inventories in our eastern assets and thats going to be a nice income source for us a traditional way of earning carry in comment our elevators, but some of the volatility that we had a year ago with really tight inverse markets.
Bill: We took advantage of that with some of our point to point trading that's not there this year, which asked us to do something quite different. So we just haven't add a lot of farmer engagement selling at lower prices or even customers wanting to on the buy side wanted to book ahead forward, but that will change as we go through the crop year I think the farmers see what's coming.
Gary: What's our plan team they have a little more confident position than if we have a little pop like we've seen recently well have better farmer engagement.
Bob: <unk> be able to work through these merchandising through the course of the year in a different fashion well turn it over to Bill if you can elaborate further.
Bill: Good morning, Ben.
Bill: The only thing I'd add to what.
Bill: What Pat had cause.
Bill: <unk> there is.
Bill: In Q1, you had kind of a combination of items you had lower prices and the producers had been used for the end users were being rewarded by waiting. So we just saw a lot fewer transactions occurring now that we're getting into our corn.
Bill: Planting and we've had this recent rally we're seeing a lot more activity pick up and as we've talked about before your end users.
Bill: Currently at least in the U S are doing very very well. So we don't anticipate any changes there.
Bob: And assuming we end up with the expected.
Bob: Fall crops are we actually feel like we're positioned really well.
Bob: We're going to see less volatility likely in 2020 four as we look forward today, which will not benefit our merchandising businesses, but at the same time, we have a lot of capacity that we're able to.
Bob: Cumulated cheap harvest basis, and be able to trade that into the marketplace as the market dictates.
Speaker Change: And maybe just add one more thing to that I know you know this well Ben but its primarily domestic suppliers. So we're not so much a tilt to adjust towards exports are big export pool, which we don't have right now we really focus on those beef swine poultry customers as well as ethanol flour millers.
Speaker Change: Other food and pet food business. So the diversification we've done over the last several years, especially in the food and pet food area kind of Diversifies, our portfolio domestically and we work closely with those customers and we expect that to be a nice support for us.
Speaker Change: Okay very good.
Speaker Change: Thinking.
Speaker Change: Strategically about capital allocation and kind of positioning of the business.
Speaker Change: You guys have sort of been swimming upstream I suppose in accumulating.
Bob: U S domestic grain assets and some of the larger competitors of yours have been.
Bob: Selling or leaning out of thought exposure.
Bob: Why does it makes sense for you guys to allocate capital to those businesses. How are you doing it differently and you know what.
Bob: Why is it attractive to you in a backdrop, where some of your competitors are moving away from that business.
Speaker Change: I'll take that then.
Bob: If you look back over the last five years in fact, we've actually trimmed our asset portfolio.
Bob: Uh huh.
Bob: <unk> been able to utilize our remaining assets.
Bob: Very positively.
Bob: The other difference that we have versus some of our competitors. As you mentioned is we believe that we have the connection from the producer all the way through to the end user with our ability to manage logistics manage risk and be able to be a good supplier to those customers.
Bob: So we see value in having the assets that we do have in being able to work with the producers will talk later on some of the regenerative AG products that we've been working on the last couple of years and so we see our fit in that AG supply chain across north.
Bob: Erica.
Speaker Change: Maybe to add on to that too bad debt just to Echo what Bill said.
Speaker Change: We did.
Speaker Change: Modifier portfolio, we sold Champaign, Illinois, which one of our biggest assets and previous to that we'd sold assets. We had in Tennessee in Iowa. So we had kind of shrunk our footprint, a little bit and great assets.
Speaker Change: A lot of the bolt on acquisitions <unk> done have been in pet food and investments we made into food grade corn. So we're kind of working on those parts of the portfolio are niches, where we can differentiate and bill mentioned now, let's try to position ourselves well with regenerative bag and working around our ethanol plants, how it can be a low carbon.
Speaker Change: Wider in working with borrowers on that so it's kind of a.
Speaker Change: Client assets were great asset fixed isn't our focus it's really about how do we broaden our portfolio and give us higher margins.
Speaker Change: Okay very good very helpful. Thank you my last question, if I could ask one more just on the ethanol business.
Speaker Change: You had kind of a inkling of a positive outlook a little bit there can you talk about kind of what your expectations are as we enter the summer driving season with respect to where we see them.
Speaker Change: Days of inventory export demand.
Speaker Change: Kind of production.
Speaker Change: Across the industry.
Speaker Change: Yeah, I will start with that one also Ben if you look at Q1 exports up 25 plus percent year on year.
Speaker Change: We believe that our calendar 2000.
Speaker Change: 2020 for ethanol exports will.
Speaker Change: <unk> seen an increase over 2023, we expect that to continue as everyone knows we did get the waiver passed on <unk>. So we will see that continued demand.
Speaker Change: And.
Speaker Change: We really view, our ethanol plants as some of the best in class and are able to continue to manage our <unk>.
Speaker Change: Really strong results through production capabilities, our risk management and kind of more importantly, being able to really target the opportunities that we see towards the end of this year and so we do feel pretty positive on the renewable section Pat hit.
Speaker Change: On our renewable diesel feedstock business continues to grow in volume our customers there have seen margin compression due to the.
Speaker Change: Slow uptake or ability for some of the Rd plants to come online and run at full capacity, but we continue to see our value and that part of the supply chain.
Speaker Change: Continue to bring us growth in volume.
Speaker Change: Over the long run I think it'd be a trade and bill can comment more on this we were like what we saw in other government last week as far as regenerative bag and the outlook.
Speaker Change: FERC programs for first off down the road.
Speaker Change: A big focus for us is position our ethanol plants to be low Ci big scale high volume quality assets can be important assets to supply.
Bill: Okay, No aviation fuel market and maybe do you want to yeah.
Bill: We have been working aggressively the last 18 months.
Speaker Change: And longer than a couple of situations in making sure that we have a pathway to achieve 45 Z.
Speaker Change: We have good geological footprint in the east we have obviously the pipeline runs very close to our Denison, Iowa plant. So we feel like we have a pathway for all of our ethanol plants.
Speaker Change: Some are closer than others to being executed, but we are choosing very selectively.
Speaker Change: <unk> that we want to move at and the plant the plants excuse me that will bring us the most value the quickest and we do feel like we have some good opportunities there.
Speaker Change: Okay, great. Thanks, so much.
Speaker Change: Thank you and our next question comes from Ben Clevie Lake Street Capital markets. Please go ahead alright.
Benjamin David Klieve: Alright, Thanks for taking my questions I would like to continue the conversation.
Benjamin David Klieve: A little bit here with the ethanol the jet opportunity.
Benjamin David Klieve: That's it.
Benjamin David Klieve: It's interesting that there is.
Benjamin David Klieve: There's a lot of different takes on on this opportunity it seems.
Benjamin David Klieve: It's very wide ranging and I'm curious you talked about your kind of enthusiasm for the news out of the administration last week regarding <unk>.
Benjamin David Klieve: Regenerative AG practices supporting the ethanol the jet opportunity.
Benjamin David Klieve: I've also heard a lot of thought that that this isn't really going to be practically implementable on.
Benjamin David Klieve: For some time do you do you really get the sense that your farmers within.
Benjamin David Klieve: The footprint of your existing ethanol facilities are going to be implementing all the various initiatives that are encouraged over the next few years or is that something that they're pretty.
Benjamin David Klieve: Kind of indifferent or or just not going to participate in.
Speaker Change: Well I think all producers will be focused on what they can do to enhance their profitability. The negative comments that you have likely heard from the administrations.
Speaker Change: 40 B R.
Speaker Change: Our primarily related around bundling, which means that you have to use all three practices alright.
Speaker Change: And.
Speaker Change: That we hope will be unbundled in the 45 Z.
Speaker Change: And geographically whether you you talk about the enhanced efficiency fertilizer cover crop.
Speaker Change: Or no till are going to be different in each of our geographies on which one of the three the producers can use but where they're able to making the assumption that they are unbundled.
Speaker Change: Where they are able to apply those three.
Speaker Change:
Speaker Change: Optionality I believe that they are going to utilize them and they're also going to be able to continue to look at other practices and risk management that we've been pretty good at providing over the last several years. So.
Speaker Change: In general bundling is going to be a challenge if it's not <unk>.
Speaker Change: Decoupled in the 45 Z, but our belief today is that it likely will be.
Speaker Change: And maybe Pat this is Pat.
Patrick E. Bowe: It's the first go here right. So for the first time carbon modeling schemes are being recognized by the administration and farming technologies to reduce.
Patrick E. Bowe: As part of the program. So it's good to have that out there in writing and the use of the Greek model again theres several of those but having the Greek model used for federal tax policy. It's the first time, we've seen that we feel thats, a good step right and industry associations and grower associations will be working with the government I'm trying to get.
Patrick E. Bowe: The next bill to go around this to maybe be more friendly to applications at the grower level I think the simple strategy for a company like the Andersons.
Patrick E. Bowe: We really like our three eastern plants, how they are positioned and we like the geology. The day after the potential for <unk> at our sites and we wanted to take advantage of that so those who have the biggest most efficient modern ethanol plants with lowest Ci scores will be the winners and that's our focus and so this isn't it.
Patrick E. Bowe: Overnight thing that also and everyone's going to producing ethanol jet tomorrow, it's going to be a journey you've got to take the steps one at a time to be positioned for success and that's where we're positioning ourselves.
Speaker Change: Got it very helpful.
Speaker Change: And Pat you touched on kind of my follow up question is around.
Speaker Change: Around.
Speaker Change: The carbon sequestration out of your three eastern plants do you have any material capex included in that $150 million to $175 million number associated with.
Speaker Change: What that what that type of initiative.
Patrick E. Bowe: Yes, So we mentioned before and Brian can chime in here. So we said about 50 50 of our capital expenditures would be.
Speaker Change: <unk> spending versus M&A, and we project that to be the same that includes some plans for Ccs and our ethanol plants.
Speaker Change: But I think some of that will be I can see it being this year and I can see has been certainly going into 'twenty five and even beyond.
Speaker Change: And that's part of the point these things don't happen overnight right. It's involved in permitting and working with neighbors and you've got you've got to buy the equipment and you've got to get it installed so.
Speaker Change: Working through that process with some really good advisors will be confident to be able to announce something when we have a really firm plans in place got it no that makes sense that nothing is easy and we'll look forward to update you in coming quarters on an on all those initiatives.
Speaker Change: Yes.
Speaker Change: Turning to the quarter, one kind of a very specific question and the trade group I'm wondering if you can isolate the impact of the international business.
Speaker Change: Got you.
Speaker Change: You are that you backed away from for Gil geopolitical purposes can you just kind of talk about maybe the magnitude of the EBITDA contribution for that business last year and kind of the outlook for reentering.
Speaker Change: Those markets you're in and later part of this year.
Speaker Change: Yeah.
Speaker Change: Yes, I'll take that one.
Speaker Change: The change year on year is somewhere in that $5 million to $10 million EBITDA range and our focus is on making sure that there is ample euro U S. Dollar liquidity in the markets that were supply and so we feel like.
Speaker Change: It's in the best interest of the company and the shareholders to wait until some of that liquidity comes back before pursuing more opportunities. We have ongoing business. The business is operating well today.
Speaker Change: Just being very focused on the risk that we're willing to take.
Speaker Change: Maybe I can add to that Ben I think it's about just a shift of focus within geographies right. So our Lucerne office has been very successful we set up operations in Romania that has gone very well for us from an origin standpoint, Jeff.
Speaker Change: With the challenges in the Black Sea and Red Sea.
Speaker Change: Kind of on a go slow as you know last year. We mentioned, we had some currency struggles with Egypt. So we wanted to get that back under control. So we'd rather just be very prudent with our approach to risk there, but we still think that is an opportunity for growth, especially long term growth for us.
Speaker Change: Got it.
Speaker Change: Very good and then lastly, I was curious if you can elaborate a bit on your outlook for kind of first half results.
Speaker Change: And a nice segment last.
Speaker Change: Last year I know there was a kind of a big seasonality shift from Q1 into Q2.
Speaker Change: Can you kind of frame the kind of first half expectations for that segment from from last year to this year.
Speaker Change: Yes, I can do that certainly I think you guys. You said right now is kind of peak season for that business second quarter is really tends to be the strongest quarter for our for our nutrient and industrial business and so when we look at the entire first half year over year.
Speaker Change: I would probably expect it to be flat year over year to maybe down slightly.
Speaker Change: I think as we speak we're probably seeing a little bit lower volumes, but higher margins year on year.
Speaker Change: Got it very good alright, that's helpful. I. Appreciate you all taking my questions I'll get back in queue.
Speaker Change: Yeah.
Speaker Change: Thank you and our next question comes from Scott Fortune with Roth.
Scott Thomas Fortune: Please go ahead.
Scott Thomas Fortune: Thank you and thanks for taking the questions just wanted to follow up a little bit on that nutrient side. We've covered obviously the renewables, but just kind of the kind of investments or capex that that you're looking at nutri industrial side and are you looking to kind of continue to expand the pet food niche that you use.
Scott Thomas Fortune: Built out nicely from that standpoint.
Speaker Change: Yes, again, Scott welcome to the call. Thank you for being with us today.
Speaker Change: Mentioned, we added a small bolt on acquisition in our turf business on the East Coast really trying in New Jersey.
Speaker Change: <unk> in the East coast and mid Atlantic, we hadn't addressed before.
Speaker Change: A nice geographic move for US we will look at those opportunities, it's really geography by geography, and I think the overall market of M&A and I can't speak to all industries, but it feels like things are a little bit better we're seeing more things pop up coming from bankers and in the in the pipeline in general I don't know if thats a higher <unk>.
Scott Thomas Fortune: The rate environment, or whatever but I think theres going to be some opportunities for us to deploy capital wisely, well want those to be within our strategies and fit right within our core business. One of those players that you mentioned was pet food and specialty food ingredients. So we've been able to grow the last couple of years again those have been more small to mid size.
Scott Thomas Fortune: Bolt on acquisitions and those tend to work well for us we've been doing some additions of technology and equipment in our plants to support customers, that's a real plus.
Scott Thomas Fortune: As well as investments were going to be making in carbon sequestration, we talked about in ethanol. So there is a good opportunity for growth that fits within our strategy. Yes. Scott. This is Bryan just to clarify a little bit I know you had asked specifically about nutrient and industrial that business. If I think about our growth capital that business with <unk>.
Bryan: <unk> will probably allocate call it $10 million to $15 million of growth capital to that segment. This year, Pat mentioned, a lot of those projects get into automation and improvements.
Bryan: Our plant things that maybe you didn't pencil a few years ago that now you make good sense and just to clarify one further.
Bryan: Pet food ingredient business is also a place that we're allocating capital that actually rolls up under our trade segment.
Bryan: And we have done a couple of acquisitions in that space.
Bryan: With ACG enbridge over the past.
Bryan: 12 months to 18 months, so just wanted to clarify that as well.
Speaker Change: Got it that's helpful and just kind of a follow up so that kind of puts you are committed to achieving your long term target here for 35 million a 25.
Speaker Change: And the bridge is coming from internal investments and expansion kind of M&A. It sounds like Pat you think kind of the M&A side potentially improve.
Speaker Change: Proving in this kind of environment, but just kind of step us through bridging to get there and you're making a lot of initiatives, but just kind of the priorities.
Speaker Change: Can you just kind of it.
Speaker Change: Yes, I can take a first shot at that and then certainly patent bill can chime in.
Speaker Change: And we've talked to previously.
Speaker Change: To achieve that $475 million.
Speaker Change: EBITDA run rate target by the end of 'twenty five certainly will require M&A. We've said previously that we expect it to be about 50 50.
Speaker Change: We are seeing a lot of a lot more M&A activity in our pipeline.
Speaker Change: And so we're we're continuing to evaluate those closely I would say the good news is they do spread across.
Speaker Change: All of the segments that are close to our core and so.
Speaker Change: There's been there's been good activity and hopefully valuations will come in line. So that we're able to achieve the right return expectations.
Speaker Change: I would say on the whole probably.
Speaker Change: A little bit larger portion allocated to renewables followed by trade followed by fertilizer is how I would kind of think of framing up the big picture. There. So I don't know Pat if there's anything you wanted to add to that that makes sense and like we said Scott.
Patrick E. Bowe: We can't achieve that number by organic alone will need to do some and we've passed on several deals in the last three years. If this were a little too pricey I think maybe that will change somewhat in this environment, we have a strong balance sheet and so we're well position to move on that and so especially ones that fit in our core competency that we can.
Patrick E. Bowe: Great maybe capture synergies. So those are the areas we're focused on.
Speaker Change: Great and just one last thought.
Speaker Change: Big picture.
Speaker Change: Can you talk about the AG cycle.
Speaker Change: In the past, we've seen commodity prices come off a little bit of tick up here, but.
Speaker Change: Farmers income overall is still very solid but are you seeing any additional pressure here.
Speaker Change: But you see front on the AG cycle or he can remain well positioned in the eastern plants, and obviously growing the renewable side and you remain well positioned on the ethanol side, just kind of your your picture of kind of the AG cycle, where we're at right now as we get the next couple of years.
Speaker Change: Oh, I'm going to start and bill can chime in here.
Bill: You said like we're off the peak of the start of the Ukraine or when commodity prices really spike we've had big.
Speaker Change: Big production response in South America, we've had good crop conditions.
Speaker Change: Couple of years in a row here in the U S.
Bill: This is a normal.
Bill: Cycle kind of boom after having some peak pricing.
Bill: I think it's a good thing for our ethanol business that initially you start to add the pressure on feed values as corn prices come down it feels like we.
Bill: At a bottom here, we've kind of picked up here a little bit recently I think the demand domestic domestically across all of our industries is quite attractive.
Bill: So it's just really exports that are really the slowest segment and ethanol as bill talked about earlier as it looks to be really strong. This year. So we're pretty positive about that so in general this is not a crash, it's a big market spike it feels like a return to kind of the normal and growers as you mentioned.
Bill: None of the Pic income they had two years ago, there is still a very solid.
Bill: So we're at a kind of good position in U S AG in general.
Speaker Change: Yeah. The only thing I would add to that is the AG cycle is going to.
Speaker Change: <unk> be tied a lot more to the global AG markets supply and demand.
Speaker Change: And so we still have very strong.
Speaker Change: Great corn, and bean Carryout waits a little tighter.
Speaker Change: But we've been able to understand that over the last two.
Bill: Two or three cycles, how thats going to work.
Bill: I do think that the one opportunity here for the producers is going to be tied to their ability to generate incremental farm income from whichever programs. They choose to participate in and I think that will help soften the landing.
Bill: Over the next.
Bill: 12 to 18 months.
Bill: Yeah.
Speaker Change: Perfect I appreciate the detail thanks.
Speaker Change: Thank you. This concludes the question and answer session I'd like to turn the conference back over to Mike Hoffman for closing remarks.
Michael T. Hoelter: Thanks, Rocco we want to thank you all for joining US. This morning. Our next earnings conference call is scheduled for Wednesday August seven 2024 at 11, a M. Eastern time, when we will review our second quarter results as always thank you for your interest in the Andersons and we look forward to speaking with you again soon.
Speaker Change: Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change:
Michael T. Hoelter: [music].