The Andersons (ANDE) CEO Michael Anderson on Q1 2014 Results -Earnings Call Transcript

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 |  About: The Andersons, Inc. (ANDE)
by: SA Transcripts

Operator

Good day ladies and gentlemen and welcome to the Andersons, Inc. 2014, first quarter conference earnings call. My name is Lianne and I’ll be your operator for today.

At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) And as a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Nick Conrad, Vice President, Finance and Treasurer. Please go ahead.

Nick Conrad

Good morning everyone and thank you for joining us for the Andersons, Inc., 2014 first quarter conference call.

We have included a slide presentation that will enhance our talking points this morning. If you are listening or watching this presentation via our website, the slides and audio are in sync. For those who are listening via telephone and watching the webcast, you should follow directions sent to you in order to sync the slides and audio. This webcast is available through the investor section of our website at www.andersonsinc.com. The webcast is being recorded and will be available on our website.

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

Today’s call includes 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 these assumptions will prove to be.

On the call with me today are Mike Anderson, Chairman and Chief Executive Officer; Harold Reed, Chief Operating Officer; and John Granato, Chief Financial Officer. Mike, Hal, John and I will answer questions you have at the end of the prepared remarks.

Now, I’ll turn the floor over to Mike for an opening comment.

Mike Anderson

Thank you, Nick. Both the Ethanol and Rail Groups had record first quarter results. Margins in the Ethanol market were strong. The Ethanol Group benefited from the margins as they increased producing during the quarter versus the first quarter of 2013, at a time when some competing plants were forced to reduce production due to the issues caused by the weather or logistics.

The Rail Group continued to optimize their fleet, while simultaneously increasing both their lease and utilization rates. The company completed a three for two stock spilt during the quarter and paid its 70th consecutive dividend in April.

I will now turn this over to John, who will provide details of the total company results.

John Granato

Thanks Mike and good morning everyone. The company reported net income of $22.7 million in the first quarter or $0.80 per diluted share on revenues of $1 billion. In the same three months as 2013, net income of $12.6 million was reported or $0.45 per diluted share on revenues of $1.3 billion.

This quarters results include a $0.38 per diluted share gain related to the partial redemption of our Lansing Trade Group investment. If this gain is not considered in the first quarter results, then the earnings per share year-to-year are similar. The majority of the year-to-year decrease in revenue relates to our grain business, whose revenues decreased primarily due to lower grain prices.

Now to a non-GAAP measure; EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization. The company’s 2014 first quarter EBITDA was $56.4 million, an increase of $13.5 million from the same three-month period of 2013. Equity and earnings of affiliates, which excludes net income from non-controlling interest was up $12.7 million and totaled $20.5 million in the first quarter. The positive year-over-year change was driven by an increase in earnings from our Ethanol LLC investment.

Average short term borrowings for the first quarter were $79.2 million, a decrease of $184.3 million from the prior year, which was driving in part by cash received early in the first quarter. Other income increased $16.9 million year-over-year and totaled $19.6 million in the first quarter. This change is primarily impacted by the gain recorded on the partial redemption of the equity investment in Lansing Trade Group.

For the first quarter of 2014 the company’s effective tax rate was 34.8%, down 7.6% from the first quarter 2013 rate of 42.4%. The higher 2013 effective tax rate was mainly due to a correction made with respect to the accounting for the other comprehensive income portion of the company’s retiree, healthcare plan liability and the Medicare Part D subsidy.

The 2014 effective tax rate also reflects a benefit associated with the income attributable to non-controlling interest that does not increase tax expense. We are projecting our 2014 tax rate to be 34.4%, the company’s 2013 effective rate was 36%. The lower effective rate was 2014 is due to increase benefits related to domestic production activities and the aforementioned correction made in 2013.

The bridge in this next graph demonstrates which groups 2014 first quarter income is up or down in comparison to the prior year. The specifics behind these differences will be detailed as each group’s operating performance is discussed. Therefore to better understand the total company results, Hal will walk you through each of the six business groups.

Harold Reed

Thanks John. Lets start with the Ethanol Group, which achieved record operating income of $19.8 million this quarter. In comparison the group reported operating income of $2.5 million during the same three-month period last year.

The higher income is the result of significantly increased earnings from its investments in the ethanol limited liability companies. The increased income is the result of significantly improved Ethanol margins, increased Ethanol production rates and ongoing service fees and increased co-product income. Ethanol margins were impacted by low U.S. Ethanol stocks, which were accompanied by increased demand for Ethanol in both the domestic and export markets.

Revenue was $189 million in the first quarter in comparison to $199 million in the prior year. The slight revenue decline was actually due to lower average price per gallon of ethanol as gallons sold actually increased.

As we’ve mentioned previously the results for Denison are not included in the equity and earnings of affiliates line, as this location is consolidated due to our significant ownership percentage. Therefore the Denison income is included in the category Consolidated Operations and Service fees within the slide presentation.

This category has declined by $1.4 million this quarter in comparison to the prior year. This is in part due to the recording of a $4.2 million mark-to-market inventory adjustment at the Denison location. This income will return when the inventory is shipped, which is expected to occur during the second quarter. As Denison is consolidated, this type of accounting will be required whenever we pre-crunch sales in future quarters. This is the first time since we’ve invested in Denison that the market has provided an incentive for us to pre-crunch sales.

The group has made improvements to the plants to increase their efficiency. It can be seen from the increasing gallons produced that these capital investments have been beneficial. Some of the plant improvements have also led to increases in corn oil produced, which is one of the co-products the group sells.

The Rail Group also reported record operating income of $15 million this quarter on revenues of $52 million. Last year the group reported $14.6 million of income on revenues of $46 million. The group's revenue and income benefited from higher lease and utilization rates and increased income from car financings.

This quarter the group recognized $10.8 million in pre-tax gains on sales of railcars and related leases and non-recourse transactions, which is approximately $1 million more than the prior year. When the rail group participates in non-recourse transactions, it continues to provide car management services to the purchaser and typically holds an option to purchase rail cars at the end of the assigned lease.

The average utilization rate for the quarter was 88.4%, which was up from the 84.6% rate experienced a year ago. As of the end of the quarter, the group has 22,192 cars, including 46 locomotives, which is down from its year earlier total. The car total was down as the group has both scraps and cars and sold some cars outright as part of their ongoing fleet optimization. During the first quarter Rail Car repair facility was added in Albany, Oregon, bringing the total repair shops to 21.

The Grain Group had operating income of $11.3 million this quarter versus $8.3 million a year ago. Included in this quarter’s income is a pre-tax gain of $17.1 million from the partial sale of the groups Lansing Trade Group Holdings.

Before the sale the group owned approximately 47.5% of Lansing and as of the sale it owned approximately 39.2% on a fully diluted basis. The Grain Group's earnings from operations were a loss this quarter, whereas last year earnings were slightly positive. This was due in part to significantly lower space income, which was the result of less carry in the corn market and significantly reduced wheat inventory.

The wheat inventory this year is about half of what we held during the same period in the prior year. At one point during the quarter the corn basis income was actually negative, which is not a common occurrence. The group's earnings from its equity investments were also significantly reduced. The majority of this reduction relates to low results for

Lansing Trade Group as the Thompsons investment had not yet been made in the first quarter of last year.

Grain Group revenues for the quarter were $583 million, which is down from the $836 million reported in the prior year. This revenue decline is due primarily to lower grain prices, which decreased almost 30%.

Storage capacity of the Grain Group decreased slightly from 142 million bushels in the first quarter last year to 139 million bushels this quarter, due to the loss of some storage space due to structural issues and the closing of one small location. The rebuilding of some of this space is planned for the future.

I want to mention that corn planting progress in our region and the U.S. is behind the five-year average, but ahead of the prior year. As of last Monday, this past Monday, the USDA crop progress report indicated that the U.S. corn crop is 29% planted, which compares to 11% last year at the same time and a five-year average of 42%. There has been a considerable amount of cool wet weather this spring, but there is ample time to get the crop in.

The Plant Nutrient Group had an operating loss of $1.4 million during the first quarter on revenues of $108 million. In the same three-month period of 2013, the group reported an operating loss of $600,000 on revenues of $112 million. The first quarter results were lower than anticipated as cold wet weather was not conducive to nutrient application. At this time, it is anticipated that much of the volume will shift into the second quarter as weather improves and fieldwork is able to be completed. Margins were down slightly from the prior year due to a very slow start to the season and lower price appreciation, but margins were still solid and above historical norms.

Storage capacity at the Plant Nutrient Group increased to 899,000 tones from 867,000 tones in the same quarter of 2013. This was due to the expansion of both dry and liquid storage facilities.

The Turf & Specialty Group had operating income of $1.4 million this quarter on $44 million of revenues. Last year the group reported $4 million of operating income on $47 million of revenues. Turf products times was down this quarter due to poor weather conditions that led to both production downtime and product delivery issues. Margin per ton was down slightly due to product mix.

As is typical for the first quarter, the Retail Group incurred an operating loss, the loss of $2.3 million compares to a prior year loss of $3.2 million. The 2013 loss included $800,000 in cost associated with the closing of the Woodville, Ohio store. Revenues for the quarter were $28 million and $31 million in ’14 and ’13 respectively.

Now, I’ll turn the floor back to Nick for the treasure’s report.

Nick Conrad

Thanks Hal. Current assets totaled $1.1 billion at March 31, a decrease of $108.5 million from the same period last year. This change was driven by a $27.8 million decrease in inventories and a $38.7 million decrease in current commodity derivative assets.

Cash and cash equivalents entered the first quarter at $43.7 million, a decrease of $14.6 million year-over-year and $865.4 million decrease from the 2013-year end. As is typically the case, the company had ended 2013 with a large cash balance.

The build up of cash at the end of most years is a result of grain purchased under delayed price of full paid contracts, which results in large year-end grain payables. These payables are generally paid out in January and February the following year. As the first quarter balance sheet indicates, cash along with withdrawals on the line of credit were used in part to pay out the December 31, 2013 grain payables.

Total assets on March 31 were $2.1 billion, a decrease of $26.2 million year-over-year. Currently liabilities at the end of the first quarter were $891.9 million, a decrease of $72.1 million from the prior year. At the end of the first quarter the company had short-term borrowings of $226.1 million, a decrease of $66 million from the same period last year. The average short term borrowing rate for the first quarter was 1.9%, which is down slightly from the previous years rate.

Long-term debt ended the first quarter at $306.2 million, a decrease of $106.5 million from the prior year. The average long-term interest rate for the 2014 first quarter was 4.6%, which is comparable to the prior year rate. The long-term funded debt to equity ratio was 0.4 to 1 on March 31, compared to 0.66 to 1 for the same period last year.

Total equity was $743.3 million at the end of the first quarter, an increase of $119 million from last year’s first quarter. At the end of the first quarter net working capital was $246.6 million, a decrease of $36.4 million from the 2013 first quarter.

During the quarter the company completed the successful renewal of its $850 million syndicated revolver facility. The company again received strong support from its banks and as a result was able to obtain lower rates and fees, as well as having fewer financial covenants.

Mike will now cover a few points before we take questions.

Mike Anderson

As many of you know, we’ve been working on an SAP implementation plan for approximately two years now. We planned a phased implementation strategy. This week we rolled out the new financial system company wide and implemented the new grain system at a few locations.

We continue to roll the system out to grain locations during the remainder of 2014 and throughout most of 2015. In the future the SAP implementation would be expanded to include other groups. We want to express our thanks to the team that has been dedicated building this SAP solution. We’re excited about the clear potential to connect employees, customers and information, in order to support the company’s relationships growth and performance for years to come.

I’d also like to provide an outlook for our groups for the remainder of 2014. Even though the Grain Group did not start the year as we had initially predicted, we still believe they will improve upon the 2013 results, based on the anticipated strong corn crop in 2014. This will be highly dependant on favorable weather during the growing season and on the market allowing normal space income to be earned.

We believe that much of the volume lost by the Plant Nutrient group in the first quarter will be regained in the second quarter and that they too will improve on the prior year results. Based on the current margin environment and because we have locked in approximately 75% of the second and third quarter margins, we currently believe our Ethanol Group will have another excellent year.

We anticipate our Rail Group having another strong year in 2014, which is clearly demonstrated by their first quarter results. Lastly, we continue to expect improvements in both our Turf & Specialty and Retail Group performance this year.

That concludes our prepared remarks. Hal, John, Nick, and I will now be happy to answer any questions you may have. So Lianne, we’ll turn it back to you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question is from Farha Aslam from Stephens Investment. Please go ahead.

Farha Aslam - Stephens Inc.

Hi, good morning.

Mike Anderson

Good morning Farha.

John Granato

Good morning Farha.

Farha Aslam - Stephens Inc.

First question is a housekeeping. On other and corporate there was sort of a $3 million swing. Any particular reason for that change?

John Granato

Hey Farha, it’s John. In the first quarter it’s really primarily the timing of distribution of expenses out to our businesses. An example would be interest and comp and then if you remember last year, we weren’t anticipating such a good year in the first quarter and so we have a little bit higher cost with respect to accrued benefits and compensation.

Farha Aslam - Stephens Inc.

That’s helpful. And then on Ethanol, Mike you highlighted that you've locked in 75% of your margins. In terms of margin levels, I mean they varied a lot over this last few months. Are they similar to levels in the first quarter? Any color you can provide around that?

Harold Reed

Hi Farha, it’s Hal. The 75% was Q2 and Q3 just to be clear and the margins as you stated have been highly variable. The one thing about the current margin structure is the variability, the natural gas price has been excluded. We had huge variability in natural gas prices in the first quarter that we don’t expect in the second and third quarter, but the margins are in the reasonable range of what we’ve experienced here lately.

But spot margins as you know, spot margins were fairly extreme at times in the first quarter and so I can tell you not to look at the extreme spot margins, but kind of on a more of an average sense of the margins that we’ve experienced.

Farha Aslam - Stephens Inc.

So, we could think about the second quarter and the third quarter to be pretty similar to sort of the trends you’ve recorded in the fourth quarter and first quarter, which were pretty similar to each other. Is that how we should think about it?

Harold Reed

I guess what I would say is that the margin structure that we’ve seen forward has always been a slight discount to what the spot market has been and so even, so I would say that the margins in the second and third quarter have always been slightly less than what we saw in the fourth quarter and the first quarter if we’re booking them ahead. So the margin structure is slightly lower than what we’ve seen, but pretty reasonably good enough that we went ahead and forward crunched 75% on those two quarters.

Farha Aslam - Stephens Inc.

Okay, that’s helpful.

Harold Reed

Farha, the other piece remember is that as we mentioned there was a $4.2 million mark-to-market number in Dension at the end of the first quarter for our forward crunch for just the Denison facility, that we expect to come back in the second quarter as we ship those gallons.

Farha Aslam - Stephens Inc.

That’s helpful. And then, going into your outlook for storage income, corn and wheat, kind of when do you expect the wheat basis to return for you guys and when should we expect the corn basis just to return from…

Harold Reed

Yes, let me separate them, because the wheat basis has actually been I would say relatively decent. If you look at the difference in the wheat space numbers, its because we had about a half of the inventory, substantially less inventory; its not because the basis wasn’t reasonable.

On the corn side, actually in a lot of places across the country, corn basis on March 31 was the same or even less in some places as it was on December 31, so corn basis has really been the culprit from the largest volume and dollar perspective. So spreads have been fairly narrow in corn and basis has really done nothing. I think the whole grain industry is kind of suffering through that same situation.

Farha Aslam - Stephens Inc.

And when do you think it will correct itself. When do you think your inventory is in wheat can get back to the full levels and corn basis, when do you expect that to turnaround?

Harold Reed

Okay, yes. Well, I will tell you that the beginning of the second quarter, corn space opportunities are slightly better than they were in the first quarter. Obviously with a good crop we really would expect more improvement as we go through the balance of the year and get the crop off.

On the wheat perspective, wheat harvest begins in July, maybe late June in our Tennessee facilities, so we’ll start to accumulate a little bit more wheat inventories, but we won’t see it get back to the same levels that we saw a year or two ago. There just isn’t that much wheat out there to store.

So the quantities will go up. Basis in wheat has been good. On the corn side space opportunities are a little bit better and should improve as this coming crop gets made and the conditions put forward look good.

Farha Aslam - Stephens Inc.

That’s helpful. Thank you.

Operator

Thank you. Your next question comes from Brett Hundley from BB&T Capital Markets. Please go ahead.

Brett Hundley - BB&T Capital Markets

Hi, good morning guys.

Mike Anderson

Hi Brett.

John Granato

Hi, good morning.

Brett Hundley - BB&T Capital Markets

I wanted to stay on grain, because the segment came in well below our expectations. I think that says more about my modeling skills and your relative performance there, but I’m trying to understand kind of the near term and as we look out over the course of the year, I have gone back and relooked at basis trends during the quarter carry, made some assumptions on weather and just trying to formulate more of an opinion on Q2 and thereafter as far as – basis like you said looks like its getting slightly better. The carry still looks difficult and volumes are supposedly getting better off the farm.

Are we at any point near potential that there could be another negative number in Q2 or can you just talk to that a little bit about how things are transitioning and the expectation thereafter.

Harold Reed

Yes, I think your data is pretty accurate. Basis levels have been slightly better as we’ve gotten into Q2. You mentioned farm movement. As we get the crop planted and the condition of the crop is good in the ground, we will see a little bit more farm removement in grain as they empty out some of their bins, but on the other side we’ve had really good demand from exports and from ethanol facilities. So that won’t be a huge impact, but I do think we’ll have more space income opportunities.

The other side of it is we do a variety of other merchandizing and fee income opportunities in our grain business and with the relatively flat basis and the relatively stable markets, the opportunities for merchandizing and fees and some of those businesses that we do within our grain group are also slightly reduced, so that’s part of the first quarter numbers.

I really don’t see that changing a lot, that piece of it changing a lot for the second, so the grain industry in and of itself is kind of in a fairly stagnant place. The carry out numbers are reduced slightly from what people had thought last year when we saw this crop come off, so second quarter looks a little better. I don’t see a windfall in anyway, so.

Brett Hundley - BB&T Capital Markets

So, I mean if I can try and pin you down Hal, when you look at possible ranges for Q2, I mean is there a potential to be negative in grain again?

Harold Reed

Its pretty, I would say that – hand on one second Brett -- I think…

Brett Hundley - BB&T Capital Markets

And when I talk to grain, obviously I’m talking to core grain, the elevator business, putting Lansing out.

Harold Reed

Yes, at this point in time we would expect to be able to be on the plus side of the ledger for Q2, that’s clearly our expectation as things have started to improve.

Brett Hundley - BB&T Capital Markets

Okay, that’s fair, and Hal were there any SAT issues to speak of during the quarter or everything went relatively smoothly?

John Granato

This is John. We literally just turned the system on in May and everything seems to be going smoothly so far and that’s all I can tell you. We’re literally a week into this.

Brett Hundley - BB&T Capital Markets

Okay. Fertilizer pricing, showing a sequential improvement, but mostly still down slightly year-on-year, at least as far as some of the data that we watch. Is that consistent with what you’re seeing and can you just talk to maybe the margin side as far as our fertilizer outlook.

John Granato

Yes, your commentary is right on. Its exactly what we’re seeing and I would agree what we’re seeing is that total margin is slightly reduced. Still better than kind of the historical averages and trends, but slightly reduced from what we’ve seen in the recent years. But you’re right on target with your estimate there.

Brett Hundley - BB&T Capital Markets

Okay, and then just one more from me, kind of higher level and I want to go towards M&A and you guys continually evaluate targets. Can you just talk to some of the values that you’re seeing out there in each of the categories that you’re targeting? How you would describe the current opportunity set at present, maybe versus six or 12 months ago. Any commentary broadly that you can give on the M&A front. Thank you.

Mike Anderson

I think and maybe I’ll add more than one comment here, but I think in some regard it reflects where we are in each of the business units. Clearly ethanol plants across the country have been very successful financially lately, so there’s very few people interested in selling ethanol plants and if they would be, it would be of high price.

On the rail side, its kind of a by car segment type. We’re looking to optimize the fleet, so we would look to buy cars that we think are not as high in their range as others and we continue to look to optimize that portfolio and hopefully grow the fleet a bit.

The nutrient side of the business has just been pretty stagnant and there is not a lot of activity going around in there. A lot of the seasonal weather issues and things like that have taken place and as they said, if you look at the grain business across the country and you listen to the people who have reported on their grain businesses, its been a depressing first quarter for the grain business across the board. So I think everybody’s kind of reconstituting their thoughts about M&A work and valuations in the grain business. It’s a little bit tough right now in the grain side.

Brett Hundley - BB&T Capital Markets

Is that all for an opportunity on the grain side?

Mike Anderson

Brett, I’ll let Hal answer in a second. I was just going to add and to put some color on it. I don’t know that its found its way into reduced valuations at this point in time or the offer price anyways, so Hal can add some color to that in a second. Also wanted to add a little more color to the plant nutrient and I think Hal was right in saying it, but don’t interpret that as a role right. I call it more steady as she goes and we would hope that we’ll find some opportunities there.

Hal, do you want to…?

Harold Reed

No, your right on on the grain side Mike. Like you said, the offer side hasn’t changed. I’m sure somebody is willing to bid a little bit less because of the recent performance, but I don’t see any opportunities coming because of the recent downturn.

Dennis Addis

Yes, this is Den. The only thing I’d add on the plant nutrient side is some of the specialty providers, they are multiples, the things we’ve been seeing appear to be pretty rich these days and that’s a shift from where we’ve been.

Brett Hundley - BB&T Capital Markets

Okay, I really appreciate the comments guys.

Operator

Thank you. And your next question comes from Ken Zaslow from Bank of Montreal. Please go ahead.

Ken Zaslow - BMO Capital Markets

Good morning everyone.

Mike Anderson

Hey Ken.

John Granato

Good morning Ken.

Ken Zaslow - BMO Capital Markets

Hey, can you just give us a breakdown of the lot. What was the magnitude between the basis and the wheat side? Which one was the bigger cost?

Harold Reed

Yes, okay. Are you talking about the difference between the size of the wheat versus the corn. Actually yes…

Ken Zaslow - BMO Capital Markets

Which one was a bigger impact, because my sense is that the corn was a big impact.

Harold Reed

Actually as we go through the details here Ken, they are fairly similar. They are fairly similar in size relative to the decline in total from the numbers. So its about I will just say relatively equal parts in the decline and as I mentioned in addition to that, we had some other fee based and merchandizing services that were also part of the overall reduced numbers. So it wasn’t just entirely just those two space numbers, but those three pieces together combined, equaled the downturn.

Ken Zaslow - BMO Capital Markets

If the wheat crop doesn’t – like there’s a lot of conjecture one way or the other way on the size of the wheat crop right. Right now I mean, I'm sure it is pretty typical. My question is, what would you need, what type of wheat crop do you need to restore the back half of the year to more recent acceptable levels I guess.

Harold Reed

Yes, I think as I indicated in my earlier answer, there is no way to get back to the same kind of levels we had a year ago. The crop just isn’t big enough in our territory to fill us with that much wheat.

Now keep that in mind that whatever space we do not fill with wheat makes it available for the corn harvest and as we see 92 million acres of corn plant with 160 some bushel yield, we’ll need it for corn space since we’re not coming in completely empty with corn, so it’s a trade off. So we’ll increase or wheat storage as best we can in the harvest and whatever space we don’t fill from last year’s wheat, we will fill with this year’s corn crop, assuming that it is as we expect it to be right now.

Mike Anderson

I’m going to add to that. Hal’s right on the money, but I’m going to go back nine months or so coming out in the summer of last year. We were looking at really good corn crop. We had an expectation filling up at what we thought would be a lower basis than it actually was and that basis by the end of the year, it escalated to some extent from those levels. So we never filled up as good as we wanted and we were at a high basis come January 1 in corn and I’m talking corn only.

I think two things were really important there, that one of which for sure is existing this year. If we recall in the summer of 2013, we came our with one of the lowest carry out as a percent of use in any of our memories and the front end of the harvest, I’m going to say a billion bushels and I’m not trying to be perfectly accurate, but directionally it got consumed as part of the prior year’s demand. That fact meant that the crop relative to going into the storage, there just wasn’t as big, like roughly a billion bushels.

The other thing that I would say and we talked about this before, we have had a sizable increase over the last five years on-farm and off-farm storage, which we believe has really slowed down now, now that carriers are low. So we come into this year and assuming right where Hal is talking, we would expect to have a crop that’s bigger than consumption. We would expect that while we know we’re not going to be going into the fall with this lower carryover. So all that crop and the bigger carryover are going to impact space.

So to some extent we underestimated how quickly we could recharge the pipeline and put back what I’ll call more traditional corn space income. So what it comes down to, two things: Will in fact we have a decent fall where we’re able to refill the space we will have, part of which is we won’t have the wheat at basis levels that are below what they were this past year and in fact will a carry be put into the market as we go through from the fall to the spring. Our view is that we will, we’ll see.

Ken Zaslow - BMO Capital Markets

Okay. To carry it, you fill it with corn or wheat or you just need to fill them up.

Harold Reed

Given the conditions today, carrying corn and wheat that we would expect for the fall aren’t much different. So its always nice to have the wheat early, because it comes in first, so we’ll do our best to fill in as much wheat as we reasonably can at the right price levels, but at the end of the year, because the last few million is one versus the another, it doesn’t matter a lot.

Ken Zaslow - BMO Capital Markets

So your grain – I’m sorry I’m taking so much time. This will be the last one, but grain will reset in the fourth quarter then, just so then we get a good corn crop, is that how you think about it?

Harold Reed

Yes, that’s the expectation today, right.

Ken Zaslow - BMO Capital Markets

Right. I appreciate it.

Mike Anderson

There’s been lots of talk on wheat. Wheat’s strictly important to us. It’s a much smaller volume crop for us. We historically have earned more per bushel, because we tend to store it longer, but we mentioned multiple times and I think all of you have gotten there that, get out of your heads those just unbelievably good income years. We had a couple of years of space income from wheat. That happened; it was wonderful and we’re getting back to what I call much more normal from what I’ve experienced in my 35 years in the business, which is still good. It’s just not going to be otherworldly.

Ken Zaslow - BMO Capital Markets

Great, I appreciate it.

Operator

Thank you. Your next question comes from Christine Healy from Scotiabank. Please go ahead.

Christine Healy - Scotiabank

Hi, good morning.

Mike Anderson

Good morning.

Christine Healy - Scotiabank

Hi, you guys have talked a lot about your corn grain business so far. Maybe can you speak to Lansing? I know contribution was weaker in the quarter. I'm assuming it was impacted by some of the weather and rail delays as well. Do you see any improved results from Lansing for the remainder of the year?

Harold Reed

I will tell you that in general the conditions that we experienced were similar to what impacted their earnings. Maybe one additional thing on their side I would say is the western rail roads were even a more substantial issue for trading and merchandising grain than the eastern railroads. There was some very expensive rail played out there to get freight moved, so volumes and costs and still is today.

So that western railroad, negative impact hit Lansing more than us because their facilities are out there, but all similar factors; low basis, low space earnings, low basis depreciation and in their case you know even a little bit more of high freight cost in the western belt than what we would experience because of their volume being primarily in the west.

Christine Healy - Scotiabank

Okay, and then similar outlook as well. Things can get a little bit better in the next quarter, but no windfall.

Harold Reed

Yes, the rail situation in the western belt really hasn’t changed much yet, so I’m not so sure that I’d say much about the second quarter expectations, but clearly looking forward to that third and fourth quarter. They have a little bit more impact on the southern crop than we do, which gives them some late third quarter opportunities ahead of us generally. So yes, I wouldn’t say much about the second quarter, just because of the freight situation, but it should be slowly better, yes.

Christine Healy - Scotiabank

Okay, thanks, that's really helpful. And then just lastly, just on Thompsons acquisition there, how is that performing versus your expectations?

Harold Reed

You know actually Thompsons performed close to expectations. Maybe not quite up to what we might have hoped for the first quarter, but it was relatively close. We see the progression that they’ve made up there relative to the transition into that marketplace as being real positive.

The crops up there and the conditions up there are fairly similar to the area we see here, so we expect good crops. We actually think maybe a little bit of a better wheat crop up there with not a significant amount of demand on that wheat crop, so maybe some more opportunity for them on the wheat side than what we might see right here in the States, but I think we’re looking forward to exceed the pro forma for the year.

Christine Healy - Scotiabank

Great, thanks so much.

Operator

Thank you. Your next question comes from Eric Larson from CL King. Please go ahead.

Eric Larson - CL King

Good morning everyone.

Mike Anderson

Hey Eric.

John Granato

Hi Eric.

Eric Larson - CL King

Just a quick question on your mark-to-market charge of $4.2 million in the quarter. Obviously, that’s going to reverse off. Is that going to drift into Q3 or is that mainly a – will it be a positive Q2 impact?

Harold Reed

Yes, that specific piece that ended as of the end of March, end of Q1, that specific piece is very, very much a Q2 number. Remember that if we crunch more forward into the third quarter or fourth quarter, that we could have a mark-to-market on that forward stuff, but this $4.2 million is heavily oriented towards Q2.

Eric Larson - CL King

Okay, that helps. And then just, I did some adjusting on kind of your equity earnings in the grain division, which is primarily Lansing, and even taking out your 8.3 percentage point lower interest that you have in that business, it looked like it was probably $3.5 million to $4 million negative swing. Would that be in the ballpark?

Harold Reed

Are you comparing it to Q1 last time?

Eric Larson - CL King

Yes.

Harold Reed

It’s relatively close. There’s two other items in there that impact it slightly, but your number’s not far off.

Eric Larson - CL King

Okay, all right. And then, obviously the movement in your Plant Nutrient business, kind of going into Q2 and you think you can get most of that back. How do you think the margins look this year versus last going into the heavy Q2 planting seasons?

Mike Anderson

Yes, first of all you’re right. We do expect much of the volume to just roll into Q2 and conditions here in the last week are too in most of our territories have been pretty good. We hear people talking about over 60% on the crop report next Monday from the government, so we’ll see how that goes.

But on the margin side, what we’re seeing on the margin side is slightly lower margins than the previous year at this point in time, but they are still pretty good when compared to the historical average and as we see the planning progress occur here in May and maybe into the early parts of June in some of the northern place, it looks like we should see a fairly consistent movement and so that will help us with the product movement and really consistent margins right now from what we’ve seen.

Eric Larson - CL King

Okay, all right. And I know this is not a division we talk pretty much about or pretty often, but you had a pretty negative swing in your Turf & Specialty in the quarter. Is that weather related? Is that something that you can grab back in Q2 as well? I mean was it shipments getting your products into retailers in Q1? What happened in the Turf & Specialty side that had such a significant variance in the quarter?

Mike Anderson

Yes, it was very heavily oriented towards the transportation issues. We simply couldn’t – at some point in time we had actual operational issues to get the plants running at some points in time, given some of the numerous snow days and closures that we had in our territory, but it was pretty much around logistics. We do expect it to make up most of that in the second quarter.

We’re off to a slow start in some of the end user markets for the fertilizer products and the specialty products and that’s just to do with the cold weather as well. So we’re still at this time expecting much of it to come back in Q2 and we’re still looking for our year to be similar to our earlier expectations.

Eric Larson - CL King

Okay. Then my final question is, I don't have a cash flow statement in front of me here, so I can't go and see what proceeds you received from acquisitions, how it determined your cash flow statement. What was the growth proceeds that you received for your 8.3% position in Lansing?

Nick Conrad

Eric, this is Nick. I’m not sure that we actually gave that number in the K or that will be in the Q when we file it. But let me find what’s out there and get back to you with that answer.

Eric Larson - CL King

Okay, all right.

Nick Conrad

All right.

Eric Larson - CL King

Thank you everyone.

Mike Anderson

Thanks.

Operator

Thank you. I would now like to turn the call over to Mike Anderson for closing remarks.

Mike Anderson

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

Our next conference call is scheduled for Thursday, August 7 at 11:00 a.m. Eastern Time, to review our second quarter 2014 results. We hope you are able to join us again at that time. Until then, have a wonderful day.

Operator

Thank you and thank you for your participation in today’s conference. That does conclude the presentation. You may now disconnect and have a great day.

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