ANDE
#Thank you, Katina.
Good morning, everyone, and thank you for joining us for The <UNK>s 2015 first-quarter conference call.
For the purposes of today's discussion we have provided a slide presentation that will enhance our talking points.
If you are listening and watching this presentation via our website, the slides and audio will be in sync.
This webcast and supporting slides are being recorded and will be made available on the Investor Relations section of our website at www.<UNK>sinc.com.
Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions in the Company's industries both in the United States and internationally, and additional factors that are described in the Company's publicly filed documents, including is 34 Ag filings and the prospectuses prepared in conjunction with the Company's offerings.
Today's call includes financial information for which the Company's independent auditors have not completed their review.
Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that the assumptions will prove to be true.
On the call with me today are <UNK> <UNK>, Chairman and Chief Executive Officer; <UNK> <UNK>, Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer.
<UNK>, <UNK>, <UNK> and I will answer questions at the end of the prepared remarks.
Now I will turn the call over to <UNK> for opening comments.
<UNK>.
Thank you, <UNK>.
Good morning, everyone.
The year started off much as we had expected with a soft cash basis environment, relatively light movement of grain from the farm and low oil prices, which provide challenges for many of our businesses.
Despite these factors we delivered a profitable quarter in Ethanol, saw improvements in both the Grain Group and rail leasing.
Our Ethanol Group was subject to the same factors experienced across the ethanol industry.
Margins were driven lower due to seasonably low demand and high inventories as well as ongoing low fuel prices.
Still we were able to generate $5.3 million in pretax income due in large part to our strong operational performance and the hedge positions that were in place as we entered the quarter.
Our Grain Group improved from a weak fourth-quarter performance posting a $6.5 million improvement year over year in pretax income when adjusted for last year's $17.1 million pretax gain from the partial sale of our stake in Lansing Trade Group.
Our Rail Group delivered strong results with an 18% increase in lease income versus the prior year driven by higher lease and utilization rates.
The Group's overall results were lower year over year due entirely to gains on rail car sales being down $6.3 million this quarter versus the same quarter last year.
As previously announced, starting with the first quarter, we are reporting our former Turf & Specialty Group and Plant Nutrient Group results together.
Recasted financial data and other metrics for this new group are provided in this presentation and in the soon to be filed Form 10-Q.
The Plant Nutrient Group produced a slight improvement in pretax income.
Typically the winter months are seasonably slow and volumes for this year's planting season got off to a slow start due to unfavorable weather conditions in many of the regions where we operate.
However, we expect the majority of this volume to be regained in the second quarter.
I will now turn this over to <UNK> who will provide more details of the total Company results.
Good morning, everyone.
Thanks, <UNK>.
In the first quarter of 2015 the Company generated net income attributable to The <UNK>s, Inc.
of $4.1 million or $0.14 per diluted share on revenues of $950 million.
This compares to the first quarter of 2014 when adjusted net income of $12.1 million was reported or $0.42 per diluted share.
Revenues were down this year within our agricultural businesses due to lower commodity prices and in our Rail Group due to fewer railcar sales.
First-quarter earnings before interest, taxes, depreciation and amortization, EBITDA, totaled $28.8 million compared to an adjusted EBITDA of $45.9 million for the same period in 2014.
The Company's first-quarter 2015 effective tax rate was 21.7% compared to 34.8% in the first quarter of 2014.
This rate reduction is primarily driven by a $600,000 nonrecurring tax benefit attributable to the accounting for an investment in a foreign affiliate.
The 2015 effective tax rate is projected to be about 35%.
The Company continued to repurchase shares in the first quarter, buying back a total of 631,000 shares for $27.8 million.
As of quarter end we had fully repurchased the shares issued last year as part of the acquisition of Auburn Bean and Grain and have $21.3 million remaining under the existing share repurchase authorization.
For those viewing the slide presentation, this slide demonstrates how GAAP earnings per share reconcile to the adjusted earnings per share when the partial redemption of Lansing Trade Group is considered.
This bridge graph shows the increase or decrease in each group's pretax income for the first quarter in comparison to the adjusted pretax income in the first quarter of the prior year.
The specifics behind these differences will be detailed by <UNK> as he walks through the results of each of our business groups.
<UNK>.
Thanks, <UNK>.
The Company's net working capital as of March 31, was $233 million, a small decrease versus both December 31 and the prior first-quarter results.
Inventories increased $18.4 million at the end of the first quarter versus last year primarily due to higher plant nutrient inventories and the inclusion of Auburn Bean and Grain's inventories, which was partially offset by decreases in grain and ethanol inventories, both primarily due to lower commodity prices.
Borrowings under our short-term credit line as of March 31 were $312 million compared to $226 million at the same time last year, up seasonally from year end.
Long-term debt totaled $323 million at the end of the first quarter, an increase of $17 million from the prior years.
In the quarter we paid off $60 million of long-term debt and partially replaced it with $30 million of private placements with maturities of 15 and 25 years.
As our short-term borrowings are very seasonal we believe that long-term debt to capital is the appropriate measure of leverage within our balance sheet.
Our long-term debt to capital ratio was 0.3 to 1 at the end of this quarter versus 0.35 to 1 a year ago.
The average long-term interest rate for the first quarter was 4.67%, which increased from last year's rate of 4.63%.
The Company continues to maintain ample access to liquidity with total committed lines of credit under the syndicated facility of $850 million.
<UNK> will now cover a few more points before we take questions.
<UNK>.
As we look toward the remaining eight months of the year we feel a good bit of optimism.
The recent progress in planting has been heartening to see and supports a good performance from our plant nutrient business in the second quarter and our Grain Group later in the year at harvest time.
We also feel better seeing improvements coming from challenged locations in the West.
Ethanol remained profitable in a challenging first quarter and provides future upside as margins continue to rise.
I am proud of the lease income that our Rail Group delivered in the first quarter on higher lease and utilization rates and believe the Group will provide strong earnings this year.
Overall, we are optimistic about the balance of the year.
Recently the range of full-year earnings per share estimates by our analysts varied widely with a span of more than $1.00 from $2.25 a share to $3.40 a share.
We believe that a level closer to the center point of these estimates is a good place to start.
We will now hand it back to you, Katina, our operator, so that we can begin taking your questions.
<UNK>, this is <UNK> and I want to just piggyback on <UNK>'s last comment.
We have seen this happen over the last ---+ I mean I got involved in the 1970s ---+ several cycles where the space built, farm economics are good, grain elevator economics are good for carrying grain and that creates a surge to build capacity which lasts a long time.
And all of a sudden you have capacity that grows faster than the growth of the crop.
What has happened in the prior year cycles and I think will happen this time is farm income drops a little, the income is not as good in the traditional grain elevator storage space.
You don't ---+ the building slows down but yields continue to improve.
So the crop size ends up pushing back and then getting back into what I will call maybe a more surplus situation.
So it takes a few years but that is a structural thing that has helped push us to the low end of the range we are at.
Exactly.
Yes, that's exactly how we see it.
<UNK>, this is <UNK>, I mean as we have talked in the past, across our four core segments we are always looking for opportunities where we can invest and exceed our cost of capital for that particular business.
So I think the answer is, yes, but I don't think it is anything different than we have done and spoken about over the last several years.
I would add as you look at the last two years comparables, we had reasonably similar margin environment to a year ago ---+ in the ballpark, and I can't remember exactly two years ago on the volume side last year was delayed first quarter.
First quarter was low last year and it pushed in the second quarter.
The year before was a little more normal in that regard.
I think you can look at those to get some guidance, <UNK>.
Yes, <UNK>, this is <UNK>, hi.
Yes, it is the depreciation associated with the actual deployment of the ERP system.
I would like to reiterate though there are other items that go through there, so some of that is timing.
And at yearend we did say that we thought the full year other group for this year would be very similar to what we had last year, which was about $34.5 million.
Yes, hey.
Yes, a portion of that was ERP, there is really three big pieces there.
There is labor and benefits somewhat offset by lower stock comp and performance comp.
There is the ERP piece as well as a maintenance and depreciation piece.
And related somewhat to our Auburn acquisition.
I think for now that is probably a good estimate of where we are going to be, <UNK>.
I think we said 45%, let me make sure what I told you.
Yes.
<UNK>, this is <UNK>.
A good portion of the movement is related to the ERP system and the deployment of that.
Some of it is related to stock comp and other forms of compensation as we have expanded our business.
And the last answer is at least for 2015 we've said we are going to be comparable to 2014 in that particular area and we'll comment on 2016 later in the year.
I want to add, and <UNK> or <UNK> feel free to supplement, two points.
The grain side of the ERP has been more challenging and expensive than we had initially planned, that is a true statement.
And it is going to be expensive into the future.
But the main point I wanted to make is we are a growing Company and we needed a foundation and a platform to build our growth on.
So ---+ and this stuff sometimes doesn't come in smooth increments and you get these step functions.
But we are putting something in that is a foundation for future growth.
I mean I think as <UNK> said, <UNK>, this is really an investment for the future and we will get a return on this as we continue to grow and it allows us the ability to leverage our existing platforms as we add to them, as we add new products, new regions, new businesses potentially.
So it is a regeneration of the old systems which give us a lot of room to grow going forward.
I want to thank you all for joining us this morning.
I also want to mentioned for those that are interested, there are appendix slides to this presentation available on the <UNK>sinc.com at the Investor's tab under the first quarter earnings call replay.
Our next conference call is scheduled for Thursday, August 6 at 11 AM Eastern Time to review our second-quarter 2015 results.
I hope you are able to join us again at that time.
Until then, have a great day.
